Billionaire Jim Simons' Buy Ups
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Billionaire Jim Simons founded Renaissance Technologies ("RenTech"), his private investment firm, in 1982. Simons is renowned for his Medallion Fund, which made Simons one of the richest people in the world. Basically, the Medallion Fund employs high-frequency trading and exploits inefficiencies in the stock market. The expenses are high for the fund; it charges a 5% fixed fee, while also charging a 44% performance fee. Currently the fund’s investors are current and past employees and their families. Let's see what RenTech was buying up during the first quarter (see Simons' small cap picks).
Simons top two stocks are in the pharma industry. His number-one stock holding, after a 30% increase in shares owned during the first quarter, is Eli Lilly (NYSE: LLY). Eli has been looking to hedge the patent expiration of Zyprexa and the impending expiration of other drugs, and in the aggregate it is expected to reduce annual sales by $7 billion for the period beginning in 2010 through 2014.
However, Eli does have a plan. The company plans to leverage Japan and emerging markets to dampen the impact of the revenue loss. Eli has some 60 compounds in its research and development pipeline, which includes 14 drugs in phase 3 trials or under regulatory review. The drug maker did manage to post 1Q EPS of $1.14 compared to $0.92 for the same quarter last year, blowing past $1.05 consensus estimates.
Going into the second quarter there were 35 hedge funds long Eli, which includes the top hedge fund owner by market value, Jim Simons' RenTech, with a near $600 million position. The second largest stake is held by Arrowstreet Capital, with a $204 million position (check out Arrowstreet's portfolio).
Simons' second-largest holding is Bristol-Myers Squibb (NYSE: BMY). Bristol is also expected to see sales down 6% in 2012 due to the fall in sales of Plavix, whose U.S. patent expired in May 2012. Yet, Bristol is ready. The company expects to hedge the Plavix loss with sales from Yervoy for metastatic melanoma, Sprycel for leukemia and Onglyza for type 2 diabetes.
The other long-term growth opportunity will come from its recent acquisition of Amylin Pharmaceuticals. Citi recently upgraded Bristol on the belief that active immunotherapy will become the backbone of at least 60% of cancer indications over the next 10 years. This could lead to peak immunotherapy revenue for Bristol's portfolio of some $10 billion by 2022. Citi's new price target is at $55, which is nearly 20% upside from current levels. Adage Capital is close behind Simons as a major hedge fund shareholder (check out Adage's portfolio).
Making up the third spot in Simons' portfolio is International Business Machines (NYSE: IBM), following a 456% increase in shares of the company owned by the fund. IBM's 1Q 2013 results showed EPS of $3.00 per share, which was below consensus and fell 44% sequentially.
One big initiative for IBM is that the company expects software alone to contribute roughly 50% to its profit by 2015. This includes making acquisitions and introducing products in the high-margin server product lines and cloud space. The move to the cloud market, including its recent acquisition of SoftLayer, is expected to help drive gross margins higher, where in fiscal 2012 the gross profit margin came in at 48.1% compared to 46.9% in 2011. IBM also offers investors a 1.8% dividend yield.
Search no more
One of Simons' biggest buy ups was Google (NASDAQ: GOOG), a 14,440% increase in shares owned, and now making up the seventh spot in RenTech's portfolio. Not only is Google the search giant, but the company has various other initiatives that could help drive future growth.
These include initiatives in the e-commerce segment, its Google Fiber and DoubleClick platform. Even still, Google is looking to keep its stronghold on the search and online advertising space with its move to the mobile market. The Motorola Mobility acquisition and its Android mobile OS should allow Google to keep its top position in mobile search over the interim.
It also appears that Google's YouTube is beginning to pay dividends, helping expand Google's reach even further. Earlier this week, Google reported that YouTube's advertising sales on mobile devices had tripled over the past six months.
Housing still in favor
Another major increase for Simons was Home Depot, which is now Simons' 14th largest holding after a 141% increase in shares owned. For the first quarter, Home Depot's results were robust. The company posted EPS of $0.83, compared to $0.68 for the same quarter last year. This comes after a 4.3% rise in same-store sales and 7.4% higher total sales. The April-ended earnings beat is related to higher spending due to Hurricane Sandy, but longer-term growth should be attributed to a rebounding housing market and lower-unemployment, which will promote higher spending on home remodeling.
Simons is the high profile hedge fund manager, with some $23 billion in assets under management, and he loves drugs. Simons is a big investor in Eli Lilly and Bristol Myers, both of which appear to be solid investments for the future, paying 3.8% and 3% dividend yields, respectively.
As well, I like Simons' tech bets on IBM and Google. IBM should perform nicely with a move toward the cloud and Google can now leverage Motorola to maintain its robust market share. Home Depot is a leading retailer with heavy ties to housing, and thus the company should perform well with the continued housing rebound.
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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and International Business Machines.. 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!