5 Mega-Sized Bets You Should Consider Mimicking
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Paul Tudor Jones founded Tudor Investment in 1980 and has amassed a personal net worth of over $3 billion since. Thanks to his success, Tudor has the ability to charge above-average fees - a 4% management fee on AUM and a 23% performance fee - compared to the typical 2-and-20 structure. Tudor recently filed its third quarter 13F with the SEC, which reveals the public long-only equity holdings of the firm. In reviewing Tudor’s filing, we found five big-name stocks that the fund was loading up on. These five increases were focused on the tech and pharma industries, with each stock seeing at least a 100% increase from one quarter earlier (see Tudor's newest stock picks).
Intel (NASDAQ: INTC) saw Tudor increase its stake over 500% last quarter. Intel is down over 30% year to date on continued PC sale weakness. Despite this stagnant segment, Intel does expect to grow revenue by 1% next year, with data center growth countering slowing PC sales. The chip-making giant pays quite the dividend, yielding 4.4%, which is even more impressive when you consider it is only a 35% payout of earnings. We see interim growth as being limited due to an expected decline in PC growth, but remain confident in Intel's dividend given its $10 billion in cash on hand.
Google (NASDAQ: GOOG) is now Tudor's 13th largest 13F holding following a 300% increase in the firm's shares last quarter. Despite an earnings hiccup - with Google missing estimates by 15% in 3Q - the stock managed to be up 30% during the third quarter. The search giant is expected to grow revenues by 16% in 2013, driven in part by the competed integration of Motorola Mobility. Google's core business is expected to perform well also, with revenues up 21% in 2012 and 17% in 2013. Google trades a 22x trailing earnings, but is just a mere 13.5x on a forward-looking basis. Steven Cohen was one of the many billionaires bullish on Google last quarter (see Steven Cohen and SAC Capital's top picks).
Dell (NASDAQ: DELL) was a near 1,000% increase for Tudor in 3Q - the largest of his five big bets listed. This PC company has been beaten down due to similar pressures as Intel: slowing PC sales. Dell is weathering the storm much better than rival HP, but should still manage to grow earnings over the next five years thanks to initiatives in the acquisitions market.
Dell hopes to break into the software business and its $2.4 billion purchase of Quest Software earlier this year was a big step. Assuming Dell can make a successful pivot toward software and continue innovation in its hardware segment - most notably via an ultrabook-tablet combo - we believe it is a value play. Dell trades at only 6x forward earnings, but also has a 6% expected long-term EPS growth rate, putting its PEG close to 1.0. Bridgewater Associates' Ray Dalio upped his stake in Dell by over 60% last quarter (see Ray Dalio's other key moves here).
Two of Tudor's other big increases were in the pharma industry: Pfizer (NYSE: PFE) and Eli Lilly (NYSE: LLY). Pfizer was one of Tudor's more modest increases, upping his stake 175%. Pfizer is quite the pick in the pharma space, and is one of the top loved drug stocks by hedge funds. Pfizer is raising cash with the sale of its nutrition business, and an upcoming IPO of its animal health business (partial) should be a bullish scenario going forward. This cash should go toward share buybacks and supporting its already strong 3.5% dividend yield. Solid long-run earnings growth is expected to come via Pfizer's continued entry into emerging markets as a result of rising health standards, aggregately speaking.
Eli Lilly is another one of Tudor's favorite pharma stocks; it was a near 1,000% increase for Tudor in 3Q, and pays a higher dividend yield than Pfizer at 4.1%. The big challenge for Eli Lilly has been countering the loss of revenue due to patent expiration of top drug Zyprexa. These challenges are likely to continue as Eli Lilly loses patent protection of Cymbalta (2013) and Evista (2014) over the next two years. These patent losses translate into an expected 4% annual decline in earnings over the next half-decade. Of the two pharma stocks mentioned here, we like Pfizer the best, given its growth prospects and operating margin superiority, 32% compared to Eli Lilly's 20%.
To recap: Tudor is making some big bets in tech value opportunities, Intel and Dell, that could see interim pressure but could reward investors in the longer term assuming they can capitalize on a turnaround. Google, meanwhile, is a solid growth opportunity, owning the search market with a massive potential in mobile. Pfizer and Eli Lilly are two solid dividend-paying pharma stocks, but we see Pfizer as having the best long-term prospects.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Google and Intel. Motley Fool newsletter services recommend 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!