A Real Hedge Fund Analyst’s Take On Apple ($AAPL)


My first job out of graduate school was with a $1.2 Billion Dollar Institutional Hedge Fund run by a former Goldman Sachs Partner and Harvard MBA. I was lucky enough as a 25 year old kid to learn from one one of the top investment minds on Wall Street. My boss invested only in stocks and he used an investment philosophy called GARP. This is called Growth at a Reasonable Price. What this means is that you are looking to buy stocks that are growing but are still selling at a reasonable price.

My boss learned this style of investing while working as an equity analyst at Goldman Sachs, covering the retail sector. By using GARP our fund was able to beat 99% of other investment managers and our assets grew from $100 to over $1 billion in just 3 years. My point in writing this, is that GARP is the only proven investment style that works in all market conditions, both bull and bear markets. It is used by Stephen Mandel of Lone Pine Capital, who is considered the best stock picker in the hedge fund business, Mr. Mandel manages over $17 billion dollars and has averaged close to 30% a year since 1997 versus 6% in the S&P 500.

GARP works because it forces you to only buy stocks that are rising in terms of growth and price. We have seen what happens when you bottom fish or try and buy so called value stocks that are cheap or declining in price. Some of the most famous so called value managers lost more than 50% in 2008 and in 2011 using this philosophy.

So as someone who has worked at a real hedge fund, I am telling you to stay away from Apple, and ignore David Einhorn. Mr. Einhorn as I told you before, does not own enough of Apple stock to control the company or be an activist, Mr. Einhorn is just upset because he is a classic value manager who purchased Apple too high and is now down more than 20% on his position.

Apple is not a GARP stock, Apple was a GARP stock for the last 3 years, because its earnings and price kept moving up yet the stock always sold for a reasonable valuation, a P/E of 15 or less, now Apple is just a boring value stock. How do I know this? because all of the talk is not about Apple’s new products, but its about Apple’s cash, and how they are going to use it to pay a dividend. Dividend paying stocks are not growth stocks they are value stocks and oh by the way, do you know who else hates Dividend stocks, Warren Buffett.

So the bottom line is Apple is not a growth stock anymore its a value stock, its a dividend paying cash rich stock, which will never go up 50% or 100% in a year its now a nice safe company that value based mutual fund managers will buy in their funds so they can return a pedestrian 7% a year.

If you really want to make 25% to 30% returns a year in your portfolio you need to buy GARP stocks, stocks that are moving up in price and whose earnings and revenues are growing at a faster pace every year.

You can easily find great GARP stocks through our service at www.billionairesportfolio.com as we follow and piggyback the worlds best Billionaire Hedge Fund Managers like Stephen Mandel of Lone Pine Capital, who only buys great GARP stocks.

Will Meade
Editor of The Billionaires Portfolio