When noted billionaires like Warren Buffett, David Tepper, and Carl Icahn go big in any stock, it tends to open some eyes. And why not? Investors in the same league as those big boys made their billions by selecting solid long-term investments and going all in. So, which stocks top the list of billionaire favorites? Apple (NASDAQ:AAPL), IBM (NYSE:IBM), and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) are on the list of some of the world's most successful investors.
Sam Mattera (Apple): Plenty of billionaires love Apple. For the last several years, it has consistently been among the most commonly held stocks in hedge fund portfolios. Both David Tepper and David Einhorn have been known for their large stakes in the iPhone-maker, but neither one comes close to Carl Icahn. The activist hedge fund manager holds a stake in Apple valued at around $6.6 billion.
Icahn first announced his stake in Apple on Twitter back in August 2013. At the time Apple was trading near a multi-year low, and Icahn made it clear that he planned to push for changes. Not operationally, or to the company's management team (a typical tactic for Icahn), but rather to the way in which it used its cash. Icahn began pushing for a larger share repurchase program, even going so far as to submit a non-binding shareholder proposal to encourage the company to spend more money on its stock.
It's not clear that Apple's management listened to Icahn directly, but the company has certainly been ramping up its capital return program since he became a shareholder. Most recently, late last month, the company boosted its share repurchase program from $90 billion to $140 billion. As Apple has bought back its own stock, its shares have continued to rise, and now trade near an all-time high.
Icahn is sitting on a fairly impressive gain, but it doesn't look like he will be selling any time in the near future. Following Apple's most recent earnings report, Icahn said the company was still undervalued.
Sean Williams (IBM): When we're talking billionaire investors and technology "crushes," arguably nothing comes to my mind quicker than the Oracle of Omaha, Warren Buffett, and his conglomerate, Berkshire Hathaway's (NYSE:BRK.A)(NYSE:BRK.B), purchase of "Big Blue," IBM (NYSE:IBM).
IBM has been anything but a perfect investment since Buffett made his initial purchase in 2011. In fact, as the overall market has surged, IBM has languished, ringing in the worst performance in the Dow Jones Industrial Average for the past two years.
IBM has struggled with a rapidly evolving cloud-computing environment and has been trying to play catch-up for years. It jettisoned its lower-margin server business and its highly competitive chip-manufacturing unit over the past two years, trimmed costs in a big way by outsourcing jobs, and CEO Ginni Rometty did the unthinkable by removing IBM's long-standing EPS target of $20 by 2015.
Despite these woes, Buffett has increased his position in IBM stock from 5.5% in 2011 to 7.8%, or nearly 77 million shares as of the latest filing with the Securities and Exchange Commission. What's to like for Buffett? How about a ridiculously generous shareholder yield! Since 1994 IBM has repurchased roughly 58% of its outstanding shares, which can provide a nice EPS boost for investors.
Also, IBM has been aggressively boosting its dividend. It recently announced an 18% increase to $1.30 per quarter, a more than 800% increase to what it was paying investors per quarter in 2001. All told, its new yield of 3% trumps the S&P 500 average.
While these aspects certainly appealed to Buffett, he also has to appreciate IBM's move into the cloud. In IBM's recently reported Q1 results, cloud revenue rose 75% year over year, exclusive of currency moves, and is now pacing $3.8 billion per year.
Since Buffett often takes a very long-term time horizon, and IBM is valued at a mere 10 times forward earnings, there certainly could be a value proposition here if you're looking out to the horizon and IBM's cloud strategy does continue to take shape.
Tim Brugger (Google): David Tepper, founder of the asset management firm Appaloosa Management, isn't in the same billionaire stratosphere as Warren Buffett -- then again, outside of Bill Gates who is? -- but with an estimated net worth of nearly $10.5 billion, he's a pretty successful investor. Which makes Tepper's investment in Google -- it's now the second largest holding in his 28-stock portfolio -- worthy of note.
Like many long-term investors, Tepper likely views Google's recent blasé stock price as an opportunity -- and he's right. Google bears bemoan its declining cost-per-click, or CPC, rates, increased overhead, and dalliances in far-flung enterprises like Glass and driverless cars. But there's more to the Google story.
Though CFO Patrick Pichette wouldn't give specifics, he did say during Google's Q1 earnings call that YouTube is growing at a rapid clip, and makes up an increasingly large portion of total revenues. As the largest video site in the world, YouTube is just scratching the surface of its revenue potential.
As for its declining CPC rates, Google more than makes up for it with impressive growth in the volume of paid clicks. Last quarter, Google sites enjoyed a 25% jump in the number of paid clicks. In part, Google's dramatic increase is due to its ever-growing share of the mobile connectivity market. As of last month, more than 50% of the world's mobile Internet connections were made via an Android OS run device. That's up from about 38% just a year ago.
Finally, Google's new wireless service and Fiber initiatives are legitimate revenue opportunities. Cable and traditional wireless providers are some of the least liked industries around, and now Google is offering consumers new -- and in many ways better -- alternatives. There are several reasons Tepper is going all in on Google, and individual investors would be wise to follow suit.