One of the fund’s top picks according to the 13F was Alliance Data Systems Corporation (NYSE:ADS). Alliance’s stock is up 52% over the last year, about doubling the performance of the S&P 500 over the same period. This rise in the share price has come alongside good performance for the company, as in the second quarter of the year it reported revenue that came in 17% higher and earnings that were up 50$ compared to the second quarter of 2011. Alliance provides marketing and customer loyalty programs to retailers and trades at 23 times trailing earnings; however, growth is expected to continue with a forward P/E of 14 and a five-year PEG ratio of 1.1.
Apple Inc. (NASDAQ:AAPL) led our list of the ten most popular stocks among hedge funds for the second quarter (see the full list) and given its current valuation we wouldn’t be surprised to see it there as well when hedge funds report their positions as of the end of September. Highland was one of the funds at the party, with a position of about 60,000 shares at the end of June. Apple continues to grow its business; it now pays a modest dividend yield of 1.5%; and its valuation is not too shabby at 16 times trailing earnings and 12 times forward earnings estimates. With its dominant brand still intact, we think it’s at least worth a look from anyone open to investing in technology.
IT services company Citrix Systems, Inc. (NASDAQ:CTXS) was another of Highland’s favorite stocks; it more than doubled its position in the company to about 290,000 shares. Citrix is priced for strong growth going forward, at a trailing P/E multiple of 39. The business is growing- double-digit growth rates in revenue and earnings in its most recent quarter over a year ago- but that figure could still be a bit high. Analyst estimates imply a forward earnings multiple of 23, and this seems high as well. We aren’t convinced that the company has good enough growth prospects to justify this valuation.
SBA Communications Corporation (NASDAQ:SBAC), a $7.5 billion market cap company, operates wireless communications towers and leases access to wireless service providers. Its stock is up 73% over the last year even though it is expected to be unprofitable both this year and next year, as analysts predict that revenue growth will eventually pull it into the black. Billionaire Ken Griffin’s Citadel Investment Group increased its own position in SBA during the second quarter to 1.3 million shares, while Highland closed June owning about 370,000 shares.
Highland initiated a position of about 3,000 shares in $21 billion market cap medical technology company Stryker Corporation (NYSE:SYK). Stryker’s product offerings include surgical equipment and orthopedic systems. This company is fairly cheap compared to some of the fund’s other favorite stocks, at 15 times trailing earnings, but it has the low growth that an investor generally expects to correspond with this type of multiple. Its forward P/E is 13. It might still be a good value, particularly as the company has been growing, but we would need to get more confident in the sustainability of this growth.
