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Whitney Tilson: Berkshire, Coke and Other Long-Term Buys

Thursday, 16 Feb 2012 | 1:25 PM ET

Hedge fund manager Whitney Tilson is among the most followed money pros on Wall Street

Also a CNBC Contributor, Tilson is renowned for his Value Investing Congress, where he regularly brings together among the most esteemed investors in what he calls a forum in which “other serious sophisticated value investors can benefit from the sharing of investment wisdom.”

Although the next congress isn’t for months, we thought you might appreciate Tilson’s latest insights here and now. In this post you'll find some of his best long ideas. (And if you're looking for Tilson's short ideas, click here.)

Whitney Tilson 'Cautiously' Optimistic
News over the past few months has been surprisingly good, says Whitney Tilson, hedge fund manager. "We're cautiously optimistic that things are going to get better," he adds.

First and foremost, if you're a buy and hold investor with 5-10 year time horizon, Tilson suggests putting money to work in big caps.

“It’s one of the most attractive areas in the market,” he says. Tilson specifically names Berkshire, Coke, McDonald’s, Nestle , and Anheuser-Busch as some of his favorites.

“They’re incredible companies that are earning profits and trading at 10 to 12 times earnings with strong balance sheets and they’re returning cash to shareholders – they’re not exciting but if you’ve got a 5-10 year horizon and you want to earn better returns that Treasurys I think they’re the way to go.”

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Netflix

Tilson has been in and out of the headlines first for suggesting a short position in Netflix and then changing his mind and saying on Fast Money that "Netflix could go crazy to the upside."

“We were short and we were early,” he says. (Netflix declined sharply in late 2011.)

But Tilson established a long position when the stock traded down to about $77.

He tells us, “Netflix is a better company with more upside than we had given it credit for than when we shorted it. (At the time) we thought it was a commodity business and people could easily switch.”

However, after looking at the company again, “I like the company better. They’ve launched in the UK and international markets – of course, it’s hard to say I love the stock as much because it’s not as distressed.”

Is it 'Over' for Netflix?
Michael Pacter, analyst at Webush Securities, explains why he thinks it's "over" for Netflix.

“This is one where we manage the position size – as it runs up dramatically we trim – we still love the company but there isn’t as much of a margin of safety as it goes up.”

Tilson tells us he's aware of all the skepticism in Netflix, and to manage the risk he's evaluated the possible outcomes, which are wide ranging.

“On the downside there’s the potential of $0 – if subscriber growth goes off a cliff, they have $3.9 billion in content that they’re committed to paying – that’s senior to the equity. That’s the worst case scenario."

But Tilson thinks upside is more likely. “If they can grow 1.5 – 2 million subs per quarter – which is what they were doing before they mis-stepped, the stock should continue to rebound.”

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Technology

“We still like Dell and Microsoft ,” Tilson says.

Tilson concedes that Dell has made sizable gains recently but he thinks more will follow. “We still think Dell is cheap. Although it’s gone from 5.5 times earnings to 7 times earnings, it’s still pretty darn cheap.”

Looking at tech broadly, Tilson adds, “Between Cisco, Oracle , Intel , Hewlett Packard, Dell, Microsoft and Apple – every value guy I know - they own 2 or 3 of those.”

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JCPenney

Tilson is long JCP and tells us “90% of my bet is that Ron Johnson will turn the company around.

As you may know, Ron Johnson is the new CEO who formerly worked for Apple and is considered a key figure in making Apple stores very successful.

“When we looked into him and what he did with Apple we said wow,” Tilson says.

“JCP has low sales per square foot relative to its peers and quite high expenses relative to peers – this is an underperforming and undermanaged business that now has a great retail guy. I think there’s a lot of upside here.”

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Citigroup & Goldman Sachs

Tilson thinks Citi and Goldman Sachs are cheap given developments around the globe.

"The news over the past few months has been surprisingly good – I'm cautiously optimistic that things are getting better and think the likelihood that Europe is going off a cliff is far less."

As a result, he thinks Citi and Goldman, which are both trading at a discount to tangible book value are attractive.

"Citi is still trading at a 36% discount to tangible book – even after this run up. Goldman is trading at 7% discount to tangible book. We think Goldman should be worth a premium to book and Citi is worth at least book," he says.




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Trader disclosure: On Feb 16, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova is long HPQ; Terranova is long IBM; Terranova is long OXY; Terranova is long SBUX; Terranova is long MSFT; Terranova is long YUM; Terranova is long VRTS; Terranova is long MCD; Terranova is long EMC; Terranova is long SWN; Terranova is long LQD; Terranova is long TBT; Terranova is long FXE

For Whitney Tilson
Funds managed by Whitney Tilson are long
Funds managed by Whitney Tilson are long BAC
Funds managed by Whitney Tilson are long C
Funds managed by Whitney Tilson are long GS
Funds managed by Whitney Tilson are long JPM
Funds managed by Whitney Tilson are long WFC
Funds managed by Whitney Tilson are long NFLX
Funds managed by Whitney Tilson are long JCP
Funds managed by Whitney Tilson are short
Funds managed by Whitney Tilson are short GMCR
Funds managed by Whitney Tilson are short LNKD
Funds managed by Whitney Tilson are short GRPN
Funds managed by Whitney Tilson are short IOC
Funds managed by Whitney Tilson are short CRM

For Patty Edwards
Trutina Financial is long APPLE (AAPL)
Trutina Financial is long SPDR Gold Trust (GLD)
Trutina Financial is long INTEL (INTC)
Trutina Financial is long CSTR

For Brian Kelly
Kelly is long GLD

For Jon Najarian
Pending

For Mark Mahaney
William Reinhardt, CFA, Associate, holds a long position in the securities of Google Inc.
Steven J Fullerton, Associate, holds a long position in the securities of Google Inc.
Neil A Doshi, Associate, holds a long position in the securities of Google Inc.
Rohit Thapliyal, Associate, holds a derivative position in the securities of Amazon.com Inc.
A member of the household of Wenge Yang, Associate, holds a long position in the securities of eBay Inc.
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of Amazon.com Inc, Akamai Technologies Inc, eBay Inc, Netflix Inc, Yahoo! Inc. This position reflects information available as of the prior business day
Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of Google Inc, Groupon, Inc.
Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from eBay Inc, Google Inc, Groupon, Inc..
Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from Yahoo! Inc.
Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from Amazon.com Inc, Akamai Technologies Inc, eBay Inc, Google Inc, Groupon, Inc., Priceline.Com Inc, Yahoo! Inc in the past 12 months.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): Groupon, Inc., eBay Inc, Google Inc, Yahoo! Inc.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities-related: Amazon.com Inc, Akamai Technologies Inc, eBay Inc, Google Inc, Groupon, Inc., Priceline.Com Inc, Yahoo! Inc.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non-securities-related: Amazon.com Inc, eBay Inc, Google Inc, Groupon, Inc., Priceline.Com Inc, Yahoo! Inc.
Citigroup Global Markets Inc. or an affiliate received compensation in the past 12 months from Groupon, Inc..
Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues.
The Firm is a market maker in the publicly traded equity securities of Amazon.com Inc, Akamai Technologies Inc, eBay Inc, Google Inc, Groupon, Inc., Netflix Inc, Priceline.Com Inc, Yahoo! Inc.

For Liz Dunn
No disclosure

For Michael Pachter
(NETFLIX) WS makes a market in the securities of the subject company.
(COINSTAR) WS makes a market in the securities of the subject companies

For Andy Busch
No disclosures

For Gene Munster
The following companies have been investment banking clients of Piper Jaffray during the past 12 months: ACOM, DANG, DRIV, MOBI, YNDX, YOKU

Other material conflicts of interest for Gene Munster or Piper Jaffray regarding companies in my universe for which I am aware include: ACOM, YNDX, YOKU: underwriting

Piper Jaffray received non-investment banking securities-related compensation from the following companies during the past 12 months: ACOM, DRIV

Piper Jaffray makes a market in the securities of the following companies, and will buy and sell the securities of these companies on a principal basis: AAPL, ACOM, AMZN, BIDU, DANG, DRIV, EBAY, GOOG, IACI, LOGM, MCHX, MELI, MOBI, PRTS, RLOC, SINA, SOHU, VCLK, WWWW, YHOO, YNDX, YOKU



CNBC.com with wires.

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BRK.A
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ABI
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C
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CSCO
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4331
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GS
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HPQ
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INTC
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JCP
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KO
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MSFT
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NFLX
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NESN
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ORCL
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AAPL
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MCD
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