Billionaire Steve Cohen's Biggest Buys

Marshall 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, founder of SAC Capital, has been a hot topic in the news lately surrounding insider trading allegations. His hedge fund has seen redemptions that are expected to take his outside-managed capital down to $1.7 billion by year end from the $6.7 billion at the beginning of the year.

Even though the future of Cohen and SAC remains uncertain, it doesn't mean that Cohen's biggest stock purchases during the first quarter should be shunned. Cohen has a number of interesting stocks that he is bullish on--let's see why (check out Cohen's favorite small caps). 

Going shopping

Steve Cohen upped his stake in Amazon (NASDAQ: AMZN) by 233% to make the online retailer as SAC Capital's second-largest holding. As we all know, Amazon is one of the largest online retailers in the world. Amazon has made quite the transformation, going from a books company to one of the largest e-commerce companies in the world, and now moving into the hardware business with its Kindle and the grocery-delivery business. 
 
Also, to help meet increasing demand, Amazon has upped its number of fulfillment centers. These investments are easily being supported by Amazon's impressive balance sheet, including cash of approximately $7.9 billion. Yet I remain concerned about the e-commerce company's poor margins and high valuation. 

Amazon trades at a P/E that's well above its peers and above the S&P 500. Even with a five-year annualized expected EPS growth rate of 37%, Amazon's PEG ratio is upwards of 5.6. Amazon also has a P/B multiple of nearly 15 times, a 135% premium to the peer group. The valuation does appear to be rich, but Amazon still has sizable interest from hedge funds, with 58 hedge funds owning the stock going into 2013. Billionaire Ken Fisher of Fisher Asset Management had the most valuable position in Amazon, worth some $613 million, accounting for 1.7% of its total 13F portfolio (check out Fisher's top picks).

Going energetic
 
SAC Capital's third-largest holding is in the energy space, Suncor Energy (NYSE: SU), after an impressive 19,200% increase in shares owned. Chances are you've never heard of Suncor. Although it has a $45 billion market cap, it's an underrated energy company.
 
Part of this is that it's Canada's largest energy firm and the largest oil sands company. Suncor's merger with Petro-Canada has also provided the company with a better balance between upstream and downstream operations. With Petro-Canada's assets, Suncor is one of the largest owners of oil sands in the world with 23.5 billion barrels. 

Part of Suncor's advantage is its significant oil-sands platform, with long-lived oil-sands reserves. The oil company also has an asset base that includes conventional reserves at offshore Eastern Canada and the North Sea. The company plans on increasing production to more than 1 million barrels of oil-equivalent per day by 2020, where oil sands production will grow by 10% and company-wide production will grow by 8% over the next 10 years. 

Suncor trades at a 19.2 times trailing P/E, which is above some of its major peers. However, on a forward P/E basis, Suncor trades at only 9.3 times, suggesting the market is underestimating the company's interim growth capabilities.   

Going electronic

Visa (NYSE: V) is SAC Capital's fourth-largest stock holding after a 330% increase in shares owned. Visa is the world's largest retail electronics payment network and a leading payments brand. The company's March-ended quarterly results showed EPS of $1.92, up from $1.60 in the previous year's quarter and beating consensus by $0.10. This comes after global credit and debit purchase volumes grew some 4% year-over-year during the first quarter. 

Visa's business model makes it a solid cash-flow-generating company. The pick up in the U.S. economy should lead to an increase in consumer spending and payment volume, as well as payment volume increases in overseas markets. The EPS growth over the next five years is expected to come in at 18.6% annually over the next five years.

A few of the initiatives driving this growth will be the company's move into mobile payments and money-transfer services. Going into the second quarter, Visa had some of the most robust hedge fund interest among all companies, with 88 hedge funds long the stock, a 9% increase from one quarter earlier. John Scully's SPO Advisory Crop has the most valuable position, worth close to $842 million and accounting for 11.4% of its total 13F portfolio (check out SPO's top stocks). 

Going nutritional 
 
The 10th-largest SAC Capital holding is GNC (NYSE: GNC), following a 2,400% increase in shares owned during the first quarter. I covered Cohen's big bet on nutrition earlier this year, and since then GNC has posted 1Q EPS of $0.73 compared to $0.60 for the same quarter last year on the back of 6.5% higher sales.
 
GNC is a retailer of vitamins, supplements and nutrition products--chances are there's one in your local mall. GNC's products are considered somewhat discretionary, which is not a bad thing considering the bustling economy. The rise in consumer confidence across the U.S. should lead to increased sales for the company. The May report on consumer sentiment, from the University of Michigan and Thomson Reuters, showed that sentiment rose to 84.5, up 10.6% from April and 6.6% over May 2012. 

As far as valuation goes, GNC currently trades at a P/E that is around 105% relative to the S&P 500, whereas its five-year average relative to the S&P P/E is 130%. Analysts expect EPS to grow at an impressive 18.9% annually over the next five years, putting its PEG ratio at a low 0.8

Bottom line
 
Billionaire Stevie Cohen is taking a lot of heat surrounding insider trader allegations, nonetheless, it doesn't make the four stock picks above any less appealing. Amazon continues to innovate; however, despite all the "irons in the fire" that Amazon has, with hardware, streaming video and now delivery, I remain concerned about the company's margins and would look for a pullback before jumping in.
 
Suncor appears to be a unique energy play given its exposure to oil sands, which is differentiation beyond the typical oil super-majors, making it a nice addition to any portfolio. As for Visa, I think the company will perform nicely given its plans to enter the mobile payments market. GNC is an interesting pick that should see top- line growth from an economic rebound, as well as the rise of the health-conscious consumer. 
 

Everyone knows Amazon is the king of the retail world right now, but at its sky-high valuation, most investors are worried it's the company's share price that will get knocked down instead of competitors'. The Motley Fool's premium report will tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.


Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Visa. The Motley Fool owns shares of Amazon.com. 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!

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