SAC Capital’s Key Defensive Picks, Do You Own Any?
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Billionaire Steven Cohen founded SAC Capital in 1992 and now manages upwards of $14 billion in assets. After reviewing Cohen’s recent 13F filing with the SEC, we found five stocks that he is heavily invested in that provide investors with low volatility and strong performance despite an uncertain economic backdrop. Cohen's fund focuses on both fundamental and quantitative strategies (check out Steven Cohen's top moves).
Verizon (NYSE: VZ) was a huge increase for Cohen last quarter; he upped his stake over 10,000%. The increasing need for wireless data services should be a driving force behind Verizon's expected 4% revenue growth in 2013. Adding to this is the expected adoption of more smartphones across a rising population. Verizon trades in line with AT&T on various levels, but does standout on expected earnings – 5-year CAGR of 11.5% – compared to AT&T’s 6.5%. Further driving our investment thesis for Verizon is its steep valuation discount on a forward earnings basis, where the mobile provider trades at a 15x forward P/E compared to its trailing P/E of 40x. This, coupled with its 4.7% dividend yield and 0.5 beta, makes Verizon quite the defensive play. Ken Fisher, founder of Fisher Asset Management, is one of Verizon’s biggest supporters (see Ken Fisher’s newest picks).
Cohen also increased his stake in General Electric (NYSE: GE) by a whopping amount last quarter – over 30,000%. We believe it is hard to pass up GE’s diverse product base. GE derives over 80% of its revenues from for very different, very distinct segments. These include healthcare, energy, finance and aerospace. We like the prospects in all of GE’s segments and believe that the demand for innovative healthcare products will only increase with an aging population. Equally as important to the company, energy markets are already making demands for fossil fuel alternatives. GE pays a 3.5% dividend yield and presents investors with a solid value play, trading at only 13x forward earnings. Warren Buffett is just one of GE’s big-name investors (see Warren Buffett’s new picks here).
Mead Johnson Nutrition (NYSE: MJN) is Cohen’s 30th largest 13F holding and is a leader in pediatric nutrition following its 2009 spinoff from Bristol-Myers Squibb. With a rising global population and better health standards in emerging countries, Mead should continue to perform well. Mead posted 3Q results that came in at $0.71, compared to $0.78 for 3Q 2011, and revenues were down 1.3% year over year.
This decline has helped push Mead’s stock price down nearly 12% over the last three months. Mead has a relatively stable market – in part exhibited by its 0.7 beta – but also has growth opportunities outside of the U.S. China is one of Mead’s greatest opportunities despite the country's recent slowdown. The majority of the nutrition company’s international sales come from the Asia-Latin America market (70%), which comprise nearly one-fifth of total top line revenues. Mead is also a major player in China's baby formula market, with 17% of that particular market share. With that being said, emerging markets will play a key part in helping the nutrition company meet the Street's 5-year expected earnings growth rate of 11%.
ExxonMobil (NYSE: XOM), another bullish bet of Cohen's, looks to target production growth between 1-2% through 2016. The continued demand for oil and gas should drive demand, including the urbanization of emerging nations. Firm-specific operational opportunities for Exxon include better upstream exposure than its peers, and expansion into global natural gas operations. Exxon’s ability to generate large amounts of cash puts its dividend payout – which yields 2.7% – to only 20%.
Abbott Laboratories (NYSE: ABT) has the lowest beta of Cohen’s five defensive stocks at 0.3. We also believe this drug makers offers the best value of the five. Abbott is looking to spinoff its research and development business in an effort to better focus its operations. Following the spinoff, the remaining healthcare business is expected to grow sales by 5% in 2013. Shares currently trade at 16x earnings, but only 13x forward earnings. Abbot’s legacy business should see secular growth thanks to a rising population and the aging of the baby boomer generation.
We believe that Cohen’s defensive picks should help position his portfolio for downside economic pressures, and they also offer investors relative stability in an unstable market. All of Cohen’s picks have exposure to markets that will grow nicely in the coming years, and many pay a dividend that provides investors with income, should operations remain pressured for longer than expected.
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 General Electric Company and ExxonMobil. 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!