Apple stock keeps touching new highs and has firmly held its top position in hedge fund ownership
As Apple’s market capitalization rises, its popularity among hedge funds has also been rising recently. Goldman Sachs released its latest Hedge Fund Trend Monitor last week, and the firm reports that one out of every five of the 688 “fundamentally-drive” hedge funds they sampled holds a position in Apple.
Apple reigns supreme among hedge funds
According to Goldman, 12% of the funds they follow have Apple as one of their top ten positions. They say this is the second quarter in a row that Apple was the top stock in their Very Important Positions list of the most popular long positions among hedge funds. The company’s stock has been in the top five Very Important Positions for over six years, reports Goldman.
Currently hedge fund ownership of Apple is still below the recent peak levels, but it is on the rise, suggesting that it could reach those peaks again. (All graphs / charts in this article are courtesy Goldman Sachs).
Dan Loeb's Third Point returned 11% in its flagship Offshore Fund and 13.2% in its Ultra Fund for the first quarter. For April, the Offshore Fund was up 1.7%, while the Ultra Fund gained 2.3%. The S&P 500 was up 6.2% for the first quarter, while the MSCI World Index gained 5%. Q1 2021 hedge Read More
Apple to drive hedge fund returns
Because of Apple’s monstrous and growing bulk, the company is going to be one of the most important drivers for hedge fund returns. The company makes up 4% of the S&P 500’s market capitalization and 5% of consensus earnings per share estimates for this year.
Because Apple has returned 17% so far this year, the stock has contributed 61 basis points of the S&P 500’s 2.3% year to date return, which amounts to 27%.
Only up from here for Apple
Goldman Sachs analyst Bill Shope increased his price target for Apple recently to $145 per share, which suggests an upside of 13%. He believes the company will see a 36% growth rate in earnings per share this year and 21% compound annual growth rate through 2017. He also thinks Apple’s price to earnings multiple to increase to 16 times.
Of course there are several factors that will greatly impact Apple’s growth rate this year. iPhone volume is perhaps the biggest factor, but the impact of rapidly weakening foreign currencies, growth in iPad and Mac sales, and whether or not the Apple Watch is a success will also affect the stock. Also management is expected to announce an increased share repurchase plan in April, which is also expected to drive shares.
If Apple sees positive from all of these factors, Shope’s bull case suggests Apple stock could touch $172 per share. Of course that depends on whether share repurchases and sales numbers beat expectations. On the other hand, his bear case is $95 per share based on slower sales growth and share buybacks.
Other Very Important Positions
Apple has a commanding lead over the other stocks on Goldman’s Very Important Positions list. While 82 of the funds have Apple as a top ten holding, the next closest is Actavis with 59 funds. Allergan lags close behind Actavis with 56 funds, while American Airlines is just barely ahead of Facebook. In sixth place is Medtronic, followed by Valeant Pharmaceuticals.
Here’s a look at Goldman’s full list of the 50 stocks that appear the most frequently in the biggest ten positions of the hedge funds they looked at: