Julian Robertson Keeps Buying CRME, Selling AAPL

Julian Robertson, legendary investor and inventor of the hedge fund, is acquiring one stock and selling one stock with regularity. Robertson owns Tiger Management, which he closed to outside investors in 1999 and instead used primarily to invest his own wealth. He recently opened to new investors again. Prior to the closure, he delivered a compound rate of return of 32% to investors, according to reports. The stock he continues to buy today is Cardiome Pharma Corp. (CRME, Financial). He continues to sell Apple Inc. (AAPL, Financial).


As of the quarter ended Dec. 31, 2010, his portfolio includes 26 stocks valued at over $390.32 million. Mr. Robertson has stated that when he feels a strong conviction about a stock, he buys aggressively.


Buy


BuyCardiome Pharma Corp. (CRME), Weightings: 3.92% - 2,385,615 Shares


Julian Robertson owns 2,385,615 shares of Cardiome Pharma Corp., valued at $15 million as of Dec. 31, 2010, which accounts for 3.92% of his equity portfolio. Julian Robertson added his positions in the Sep. 30, 2010 quarter by 10.01% and again in the Dec. 31, 2010, quarter by 9.55%.


Cardiome Pharma Corp. is a product-focused cardiovascular drug development company with two clinical drug programs focused on atrial arrhythmia (intravenous and oral dosing), and a pre-clinical program directed at improving cardiovascular function. Cardiome Pharma Corp. has a market cap of $278.7 million; its shares were traded at around $4.56 with a P/E ratio of 7.7 and P/S ratio of 4.2.


Cardiome Pharma Corp. stock has decreased almost 65% over the last year. Its current price is only about $0.55 higher than its 52-week low of $3.92. Several factors have stymied the company’s growth. In October 2010, Cardiome Pharma had to halt its clinical trial of a new cardiac drug due to an adverse reaction in a participant. In December 2010, the company announced that it would resume the trial beginning in 2011; the stock rallied after the announcement.


The financial situation of Cardiome Pharma has wavered. It had net income of $35.5 million the year ended Dec. 31, 2010, and net income of $2.354 million the year prior. The leap in income was due primarily to a $30 million payment the company received from Merck in 2010 after the drug Brinavess, which the two companies developed in collaboration, was approved in Europe. The company also stated, “Further contributing to the increase in net income for 2010 were reductions in research and development expenditures and reductions in foreign exchange loss. This was partially offset by an increase in interest expense related to the long-term debt from Merck.”


George Soros bought 10,900 shares of the stock in the quarter ended June 30, 2010, and sold out in the quarter ended Dec. 21, 2010.


Sell


Apple Inc. (AAPL), Weightings: 10.07% - 121,830 Shares


Julian Robertson owns 121,830 shares of Apple Inc., valued at $39 million as of Dec. 31, 2010, which accounts for 10.07% of his equity portfolio. Julian Robertson reduced his positions in the Sep. 30, 2010 quarter by 16.38%, again in the Dec. 31, 2010 quarter by 4.51%.


Apple Computer Inc. designs, manufactures and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer and business customers. Apple Inc. has a market cap of $304.76 billion, second only to Exxon. Its shares were traded at around $330.8 with a P/E ratio of 18.5 and P/S ratio of 4.7.


Apple Inc. had an annual average earnings growth of 59.8% over the past five years. It had revenue growth of 32.1% in the last five years and 91.4% in the last 12 months.





In the quarter ended Sept. 25, 2010, Apple announced record revenue of $20.34 billion and net quarterly profit of $4.31 billion, or $4.64 per diluted share. In the same quarter a year prior, Apple had revenue of $12.21 billion and net quarterly profit of $2.53 billion or $2.77 per diluated share.


Again, the quarter ended Dec. 25, 2010, Apple announced that it beat its previous record in revenue and also posted record net profit. Revenue was $26.74 billion and record net quarterly profit was $6 billion, or $6.43 per diluted share. These numbers compare to revenue of $15.68 billion and net quarterly profit of $3.38 billion, or $3.67 per diluted share, in the same quarter last year.


“We couldn’t be happier with the performance of our business, generating $9.8 billion in cash flow from operations during the December quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the second fiscal quarter of 2011, we expect revenue of about $22 billion and we expect diluted earnings per share of about $4.90.”


Further, Apple’s has a 5-year net margin growth rate of 19.07%. Net profit margin has increased almost every year for the last 10 years, from -$0.50 billion in Sept. 2001 to $21.50 billion in Sept. 2010. It increased to $22.5 billion in the quarter ended Dec. 2010 from $21.50 in the same quarter the year prior.





The major question regarding investment in Apple is whether the growth rate will continue. Julian Robertson has commented that after so much robust growth, he believes Apple is still a good investment and will continue to go up. He forecasts that the company may reach a P/E ratio of 25 to 30. A research group announced on April 11 that it foresees Apple continuing to dominate the media tablet market as far as into 2015. However, Google’s Android phone platform is set to become the No. 1 platform this year.


Robertson has also commented that he believes the stock is reasonably valuated. GuruFocus’ DCF calculator and historical valuations agree that Apple is fair-valued if the growth in revenue and profit margin continue into the future.


Apple stock is owned by 20 of our gurus, including George Soros and David Einhorn.


Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Julian Robertson.