Billionaire Steve Cohen’s Favorite Retail Stocks
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SAC Capital Advisors, managed by billionaire Steve Cohen, filed its 13F for the third quarter of 2012 last month. This filing reported many of its long equity positions as of the end of September. When we went through the 13F filing we noticed that a number of Cohen’s top stock picks were tied to retail. This is an interesting enough trend from a macro perspective, but it’s also worth it to consider which specific picks he and the investment team liked. Read on for our thoughts on SAC’s five largest retail holdings for the third quarter or see all of Cohen's 13F stock picks.
Tiffany & Co. (NYSE: TIF) was one of Cohen’s top five stock picks for the quarter with a position of 3.2 million shares, a large increase from the fund’s holdings three months earlier. In its most recent fiscal quarter, ending in October, Tiffany’s earnings were down 30% from a year ago despite rising revenue. With the stock price also down over the last year, though slightly, the trailing P/E is 18. Trian Partners cut its stake last quarter but still had 1 million shares in its portfolio; Trian is managed by activist investor (and billionaire) Nelson Peltz. We think that we would avoid it.
Growth play Michael Kors Holdings (NYSE: KORS) was another of SAC’s retail picks, with the fund adding shares during the quarter. Kors trades at 40 times trailing earnings, but we’d hesitate to call it overvalued as net income more than doubled last quarter versus a year earlier off of a 74% increase in sales. The five-year PEG ratio is 1.1, indicating that analyst estimates have its growth rate high enough over the next several years to come very close to its valuation. We would need to see continued growth from the company, pulling its multiples into more reasonable territory. Otherwise we think that an investment would still be too speculative.
Cohen and his team reported a position of 2.6 million shares in Nordstrom (NYSE: JWN). The retailer reported double-digit percentage increases in revenue and earnings in its most recent fiscal quarter compared to the same period in the previous year. It trades at 16 times trailing earnings, so while Nordstrom is not a pure value stock it would be a good buy if it can continue those growth rates. Wall Street analyst estimates imply a forward P/E of 13. Vinik Asset Management, managed by former Fidelity Magellan manager Jeffrey Vinik, roughly doubled its holdings in Nordstrom.
The fund initiated a position of 1.4 million shares in Fossil (NASDAQ: FOSL), which also looks like a “growth at reasonable price” prospect. The stock carries trailing and forward P/E multiples of 18 and 15, respectively, but Fossil has been recording good numbers on the bottom line. Renaissance Technologies, founded by billionaire Jim Simons, also bought stock in the company during the third quarter after not having owned any shares at the end of June (check out Renaissance's favorite stocks). Our impression is that it would be worth it to take a closer look at the company.
SAC moved heavily into Simon Property Group (NYSE: SPG), which owns malls and other retail centers and is organized as a real estate investment trust. Billionaire Ken Griffin’s Citadel Investment Group also liked Simon during the third quarter; initiating a position of 1.4 million shares (find more stock picks from Ken Griffin). The stock is up 25% in the last year, which has brought it to a market cap of $48 billion. At current prices, the dividend yield is about 3%. We don’t think that we would buy the stock.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Fossil and Tiffany & Co. Motley Fool newsletter services recommend Fossil. 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!