Billionaire Steve Cohen’s High Upside Potential Stock Picks

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Billionaire Steve Cohen and his hedge fund SAC Capital Advisors have been in the news recently as the government investigates related hedge funds for suspicious trading activity. The fund’s success, despite its large size (SAC recently had $14 billion under management), has made it followed by many in the financial community. We have gone through the fund’s most recent 13F filing (see Cohen's stock picks) and identified some stocks which have high upside potential, as measured by having a low PEG ratio (which is determined by the P/E multiple and forecasted earnings growth rates). Earnings projections aren’t always accurate, but they can at least offer a quantitative measure of a company’s potential. Here are five stocks which SAC reported owning at the end of the third quarter with low PEG ratios:

The hedge fund moved heavily into $14 billion market cap oil and gas company EnCana (NYSE: ECA), with its position of 5.3 million shares being much larger than what SAC had owned at the beginning of July. According to sell-side expectations, the PEG ratio is 0.4. Encana also pays a dividend yield of about 4%, and it might be worth taking a closer look at the company. Third Avenue Management, which is managed by Marty Whitman, owed 4.2 million shares according to that fund’s 13F.

Cohen and his team liked American International Group (NYSE: AIG), increasing SAC’s stake to a total of 8.7 million shares. AIG’s P/B ratio is 0.5, representing quite a large discount to the book value of the insurer’s equity, and according to analyst expectations it is priced cheaply at a PEG ratio of 0.4. It is a good candidate for value status. Apparently a number of investors liked the stock last quarter: according to our database of 13F filings from hedge funds and other notable investors, AIG was the third most popular stock after not being in the top ten three months earlier. See the rest of the top ten stocks.

Apple (NASDAQ: AAPL) was another popular stock among hedge funds- the most popular, in fact- that SAC owned. Apple’s trailing P/E is only 12, which seems difficult to square with its recent high growth rates; even if earnings growth becomes more modest, it could be undervalued at that multiple. Billionaire David Shaw’s D.E. Shaw had over $1 billion invested in Apple at the end of the quarter. We would expect at least low growth from the company and so we would consider Apple a buy.

SAC reported owning 2.6 million shares of oilfield services company Schlumberger (NYSE: SLB). The stock is down 3% in the last year against a rising market, and with revenue and earnings each up about 10% the trailing P/E comes in at 16. This isn’t screaming buy levels, though consensus is for earnings growth to be high enough in the next several years that that PEG ratio is 0.9. Schlumberger was one of the most popular energy stocks last quarter, and we’d be interested in comparing it to peers such as Halliburton (HAL).

The fund initiated a position of 1.4 million shares in Fossil (NASDAQ: FOSL), which provides consumer fashion items and has a market capitalization of $5.4 billion. In the third quarter of 2012, net income was 10% higher than in the same period in 2011. Given its earnings multiples in the teens and expectations of continued growth, the PEG ratio is 0.9 here as well. Renaissance Technologies, founded by billionaire Jim Simons, also bought shares of the stock last quarter (research more stocks Renaissance was buying). It’s another stock that might be worth considering if it can continue improving on the bottom line.


This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has long positions in AAPL and HAL. The Motley Fool owns shares of Apple, American International Group, and Fossil and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend Apple, American International Group, and 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure