When Wedgewood Partners’ Chief Investment Officer David Rolfe selectively picks the 20 companies to go into the firm’s large-cap growth mutual fund (RWGIX), he makes sure he chooses stocks with growth characteristics but that also offer good value and are not hit as hard in down markets. He also doesn’t want to follow the herd.
One of his top contrarian moves is Berkshire Hathaway (NYSE: BRK-B), which he says is undervalued at around $70 a share. The fair value is $120 a year, he says. Rolfe believes the company has earning power. “It’s rare to buy this high quality franchise at such a discounted price.”
Many fund managers are betting on high quality securities at cheap prices these days.
Another contrarian move of Rolfe’s, although it might not seem like an obvious contrarian trade, is Apple (Nasdaq: AAPL). “Here’s a company that everyone has an opinion on.” Apple has exceeded earnings expectations quarter in and quarter out, Rolfe says, yet people don’t believe the sustainability of that earnings power. But Rolfe does, and he’s got about 10 percent of his entire portfolio at stake. He says the company’s stock price has not kept up with earnings growth. Earnings estimates are at $42 a share for fiscal 2012, so if the company can just reach $40, that’s a price to earnings ratio of 10.
These companies are two very large, well-known conglomerates, but sometimes contrarian moves may not be the most obvious to the average investor.