Billionaire Jim Simon's Long-Term Holdings
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With over $33 billion in assets under management, Jim Simons’ Renaissance Technologies is one of the largest hedge fund management companies in the world. Within Simons’ brainchild exists three distinct funds: the Nova Fund, the Renaissance Institutional Equities Fund, and the Medallion Fund. Since 1989, the Medallion Fund, which utilizes high frequency trading tactics to exploit market inefficiencies, has generated an annual return of nearly 35% after fees.
Considering the fact that the fund charges hefty fixed (5%) and performance (44%) fees, it’s easy to see why Simons is so revered in investing circles. While many reports on Simons’ holdings take a short-term outlook, it’s also worth determining which stocks have been long-term darlings of the iconic money manager. Without further ado, here are Jim Simons’ top three stock picks for the long haul; each position has maintained a value of at least $100 million in Renaissance Technologies since the end of 2010.
Apple (NASDAQ: AAPL)
According to his 13F filings with the SEC, Simons’ top stock pick in five of the past seven quarters has been Apple. Since December 31st, 2010, the manager’s average position in the tech giant has been $429.3 million, good for 1.6% of Renaissance’s total holdings over this time period. Remarkably, Simons’ shares of AAPL have generated a return of 101.9% over the past 425 trading days, which is far more impressive than tech industry peers like Google (NASDAQ: GOOG) at 15.7%, and Microsoft (MSFT) at 12.0%.
Apple has seen its revenues (128.2%), earnings (179.4%), and free cash flow (152.9%) grow by triple-digits over this time period, again outpacing its closest competitors. With a bargain basement Price-to-Earnings multiple (15.9X) below GOOG (20.1X) and its own 5-year historical average (21.9X), it’s easy to see that there’s still some value here. Throw in the fact that forward-looking estimates are forecasting EPS to hit $52.77 by the end of 2013, and fairly valued shares can eclipse $1,000 over the next 12 to 16 months.
Lorillard (NYSE: LO)
Lorillard is the third largest cigarette manufacturer in the United States, and its Newport brand of menthols are smoked by an estimated 14% of the country’s overall smoking population. Beginning at the end of 2010, Jim Simons has held an average of $277.3 million worth of LO in each quarter since, amounting to 1.1% of his total portfolio holdings over this time. In the seven quarters since the start of this period, Lorillard has fallen out of Simons’ top ten just one, in the first quarter of 2012. In a little more than twenty months, shares of LO have generated Renaissance a total return of 51.5%, good for an annualized return of 30.9%.
Despite these gains, Lorillard still trades at a P/E ratio (15.2X) that is below the tobacco industry’s norm (17.1X), even though it has exhibited above-average EPS expansion post-recession. Now, when this growth is factored into the equation, we can see that LO sports a PEG ratio of 1.1, below competitors like Imperial Tobacco (OTC:ITYBY) at 2.6, Altria (NYSE: MO) at 4.4, and Reynolds American (RAI) at 4.9. With double-digit EPS growth forecasted over the next two years, it appears that the markets are under-appreciating Lorillard’s earnings potential.
Intel (NASDAQ: INTC)
Comprising an average value of $248.5 million in Renaissance’s past seven quarters of 13F filings, Intel has been a splendid investment for the fund, returning 20.3% since the end of 2010. On an annual basis, this return amounts to little over 12.0% with a beta of around 1.0. From a valuation standpoint, INTC is currently trading at a 26.3% discount in relation to its own 5-year historical price multiples, and annual earnings growth is expected to average 10.7% over the next half-decade. If the company can hit the Street’s year-ahead EPS forecast of $2.52, fairly valued shares of INTC can eclipse $40 by next Christmas; they currently trade in the $25 range.
To recap: each of these three stocks exhibits the attractive combination of cheap valuation metrics and above-average earnings growth. If one had invested $10,000 between each of these stocks equally, they would have made a profit of a little under $5,800 in 20 month’s time. For a longer look at Jim Simons’ favorite stock holdings, check out his fund’s profile on Insider Monkey by clicking here.
This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has long positions in Apple, Google, and Microsoft. The Motley Fool owns shares of Apple, Google, and Intel. Motley Fool newsletter services recommend Apple, Google, and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.