David Rolfe, the portfolio manager of Wedgewood Partners, has been generating a decent annualized return of 11.5% for his investors for the past twenty years, beating the S&P 500’s annualized return of 8.2% during the same period. With around $2.2 billion in total assets under management, he holds quite a concentrated portfolio. His three biggest positions are Apple Inc. (NASDAQ:AAPL), Berkshire Hathaway Inc. (NYSE:BRK.B) and QUALCOMM, Inc. (NASDAQ:QCOM).
Apple Inc. (NASDAQ:AAPL) was the biggest position in his portfolio. As of December 2012, he owned 401,515 shares of Apple Inc. (NASDAQ:AAPL), accounting for 9.9% of his total portfolio. In the second quarter earnings results announcement, Apple Inc. (NASDAQ:AAPL) said that it would return as much as $100 billion to its shareholders in both share buybacks and dividends. The dividend increased to $3.05 per share, whereas the authorized buyback amount rose by $50 billion to $60 billion. Moreover, Apple Inc. (NASDAQ:AAPL) has issued $17 billion in bonds with a very low cost to finance its capital allocation plan. After that, Apple Inc. (NASDAQ:AAPL)’s share price shot up by 16%, from $390.50 per share to as high as $453 per share.
Goldman Sachs Group, Inc. (NYSE:GS) has rated Apple as a buy, and said that the recent significant rise in Apple’s stock price has been just a delayed reaction to its $100 billion capital allocation plan. Goldman Sachs Group, Inc. (NYSE:GS) also thought that a $17 billion bond issuance might make the market reaction more intense. Goldman Sachs’ Bill Shope has recently also rated Apple as a buy with a price target of $660.
Famous hedge fund manager David Einhorn also stated that he added more Apple positions in the first quarter 2013. He felt bullish on Apple’s new capital allocation policy and its innovative capabilities:
“This vastly more shareholder-friendly capital allocation policy is a dramatic shift from where AAPL stood just a few months ago. We have added to our AAPL position. We now await the release of Apple’s next blockbuster product.”
Apple is trading around $440 per share, with a total market cap of $412 billion. The market values Apple quite cheap at 6.7 times EV/EBITDA and only 0.55 times PEG.
Berkshire Hathaway’s 50% surge in earnings
Berkshire Hathaway Inc. (NYSE:BRK.B), led by legendary investor Warren Buffett, was the second largest holding in David Rolfe’s portfolio. With more than 1.89 million Class B shares, Berkshire Hathaway Inc. (NYSE:BRK.B) accounted for 7.9% of his total portfolio at the end of 2012.
Recently, Berkshire Hathaway Inc. (NYSE:BRK.B) reported impressive first quarter earnings results. It experienced quite nice growth in revenue at all three big business segments including Insurance and Other, Railroad, Utilities and Energy, and Finance and Financial Products. Berkshire Hathaway Inc. (NYSE:BRK.B) earned nearly $4.9 billion, or $2,977 per “A” share, a year-over-year growth of more than 50% compared to $3.25 billion, or $1,966 per “A” share in the first quarter last year. Its book value reached $120,525 per “A” share.
Berkshire Hathaway Inc. (NYSE:BRK.B)’s class A share is trading near $169.000 while the class B share is trading near $112. With a total market capitalization of $276.3 billion, Berkshire Hathaway is valued at 1.39 times its book value. Previously, Warren Buffett has put the threshold for stock buyback at 1.2 times its book value, giving us a good idea of when it’s a great buy.
A good tech play on increasing demand for tablets & smartphones
QUALCOMM, Inc. (NASDAQ:QCOM) ranked third in David Rolfe’s portfolio. He owned nearly 2.17 million shares, accounting for 6.2% of his total portfolio as of December 2012. QUALCOMM, Inc. (NASDAQ:QCOM) is the developer and provider of integrated circuits and system software for the use in wireless devices including mobile phones, tablets, laptops, etc. The company derived most of its revenue from Samsung Electronics, accounting for more than 10% of its total revenue. Hon Hai Precision Industry/Foxconn, and other suppliers to Apple, also represented more than 10% of its total revenue.
In the second quarter, QUALCOMM, Inc. (NASDAQ:QCOM)’s revenue has experienced a high growth of 24% compared to the same period last year. However, its net income dropped by 16% to nearly $1.87 billion. Actually the higher net income in the second quarter last year was due to a $761 million income from discontinued operations, which was the sale of its 700 MHz spectrum. QUALCOMM, Inc. (NASDAQ:QCOM) is trading at $65 per share, with the total market cap of nearly $112 billion. The market seems to value QUALCOMM, Inc. (NASDAQ:QCOM) quite expensive, at 12.9 times EV/EBITDA. However, the company pays shareholders a nice dividend yield at 2.2%.
My Foolish take
Among the three, I like Apple the most because it seems to be priced as if it had no growth at all. Investors could also get nearly 2.7% yield from the dividend payment. Furthermore, when Apple completed its $100 billion capital return to shareholders, the total yield could reach as high as more than 23%. Qualcomm could also be a good stock to surf the increasing demand in tablets and smartphones while Berkshire Hathaway, under Warren Buffett’s leadership, is definitely a stock that investors might never want to sell.
The article David Rolfe’s Three Biggest Positions originally appeared on Fool.com and is written by Anh HOANG.
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