Giovine Capital Loves These Five Stocks; Should You?

Thomas Giovine founded Giovine Capital in 1988. Due to good stock picking and solid risk controls, the fund, which has a long-term horizon and low-turnover rate, has grown to have an equity equity portfolio worth around $130.4 million as of the end of September. In this article we will focus on Giovine’s top stock picks of Walgreens Boots Alliance Inc (NASDAQ:WBA), Lockheed Martin Corporation (NYSE:LMT), Home Depot Inc (NYSE:HD), Apple Inc. (NASDAQ:AAPL) and Martin Marietta Materials, Inc. (NYSE:MLM).

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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

#5 Apple Inc. (NASDAQ:AAPL)

Shares held (as of September 30): 47,250
Total Value (as of September 30): $5.21 million
Percent of Portfolio (as of September 30): 4.00%

Apple Inc. (NASDAQ: AAPL) reported blowout profits yet again for its fourth quarter, earning $1.96 per share on revenues $51.5 billion, beating estimates by $0.08 per share and $380 million, respectively. Revenue rose by 22.3% year-over-year, while gross margin was a healthy 39.9%. The stable gross margins show that Apple’s ecosystem moat is pretty wide. Although Apple’s gargantuan size limits the number of catalysts that can move the stock up higher, sentiment is trending up as Apple’s fellow tech giants have seen their shares surge in recent weeks. Apple also continues to spend tens of billions of dollars on buybacks every quarter, a move that should generate additional growth in EPS. Billionaire Ken Fisher’s Fisher Asset Management also reported ownership of 11.12 million shares of Apple heading into the fourth quarter.

#4 Home Depot Inc (NYSE:HD)

Shares held (as of September 30): 45,225
Total Value (as of September 30): $5.22 million
Percent of Portfolio (as of September 30): 4.00%

With the U.S unemployment rate recently falling to 5%, more consumers will have credit to renovate their existing homes, which will mean more demand for home improvement chains such as Home Depot Inc (NYSE:HD). Given the strong housing market, look for Home Depot’s same store sales to remain robust. Shares are up 21.89% year-to-date, but could rally further as the U.S. economy strengthens and EPS rises due to big buybacks. Shares trade at a reasonable 20.57 times forward earnings given Home Depot’s strong growth prospects.

#3 Lockheed Martin Corporation (NYSE:LMT)

Shares held (as of September 30): 25,575
Total Value (as of September 30): $5.3 million
Percent of Portfolio (as of September 30): 4.07%

Lockheed Martin Corporation (NYSE:LMT) has done well this year, rallying 15% year-to-date. The aerospace and defense company has beaten analyst EPS expectations for three quarters in a row, and trades at a market-average 17.58 times forward earnings. Given China’s rise, defense spending growth won’t flat-line and artificial intelligence and drones are big future growth markets for the company. Of the around 730 elite funds we track, 36 funds owned $1.13 billion of Lockheed Martin Corporation (NYSE:LMT)’s shares at the end of June 30, with First Eagle Investment Management among them, holding a stake of 2.69 million shares.

#2 Walgreens Boots Alliance Inc (NASDAQ:WBA)

Shares held (as of September 30): 64,071
Total Value (as of September 30): $5.32 million
Percent of Portfolio (as of September 30): 4.08%

Walgreens Boots Alliance Inc (NASDAQ:WBA) is a consolidator in the pharmacy chain industry, as the firm recently announced it will acquire Rite Aid Corporation (NYSE:RAD) for $9 in cash per share. Walgreens hopes the acquisition will give it more pricing power over drug companies and expand its national footprint. The $17.2 billion deal, which is expected to close in the second half of 2016, will be accretive in the first full year and should yield as much as $1 billion in cost savings. Bill & Melinda Gates Foundation Trust, led by Michael Larson, owned 3.48 million shares at the end of June.

#1 Martin Marietta Materials, Inc. (NYSE:MLM)

Shares held (as of September 30): 35,955
Total Value (as of September 30): $5.46 million
Percent of Portfolio (as of September 30): 4.19%

Martin Marietta Materials, Inc. (NYSE:MLM) reported a soft third quarter with EPS of $2.04 on revenues of $1.01 billion, versus estimates of $2.15 and $1.014 billion. Revenue increased 10% year-over-year, driven by strong aggregate demand. Given the company’s big buyback program, the strong U.S. economy and the highly cyclical nature of its business, Martin Marietta Materials’ stock still looks appealing, however, in the medium term. Shares have surged 41% year-to-date.

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