Renaissance Technologies is one of the most successful hedge funds, and founder Jim Simons has become a multi-billionaire. The flagship Medallion Fund is closed to outside investors and primarily manages the wealth of Simons and other Renaissance personnel. Renaissance disclosed many of its long equity positions as of the end of December in its recent 13F filing (see the full list of stocks it reported owning). 13F filings can also be a rich source of information for investment strategies; we’ve found that the most popular small cap stocks among hedge funds outperform the market by an average of 18 percentage points per year (learn more about our small cap strategy) and other techniques are probably possible as well. Here we go through Renaissance’s most recent 13F and provide a brief discussion of its five largest holdings in stocks which currently have trailing and forward P/E multiples of 13 or lower:
One of Renaissance’s top picks was Intel Corporation (NASDAQ:INTC), whose business has been struggling as consumer shift away from PCs. The stock price has fallen 20% in the last year, and last quarter earnings were down 27% from where they were in the fourth quarter of 2011. Intel currently trades at 10 times trailing earnings, so the market is expecting the company to somewhat stabilize its bottom line; analysts generally agree as the forward P/E is also 10. Billionaire Ken Fisher’s Fisher Asset Management owned just over 18 million shares of Intel at the end of December (find Fisher’s favorite stocks), slightly less than Renaissance did.
The fund actually increased its stake in Apple Inc. (NASDAQ:AAPL) between October and December to a total of almost 400,000 shares. Apple Inc. (NASDAQ:AAPL) is another stock that has been plunging recently- it’s actually down about 20% year to date, and is now valued at only 10 times trailing earnings. Wall Street analysts are very bullish and actually are predicting continued high earnings growth, resulting in a five-year PEG ratio of 0.5. Even if growth is much lower we see a significant margin of safety at Apple Inc. (NASDAQ:AAPL), which slipped to #2 in our ranking of the most popular stocks among hedge funds (AIG is the new #1).
Find three more cheap stocks Simons’ money was invested in:
DirecTV (NASDAQ:DTV) was another of Renaissance’s favorite cheap stock picks; the fund owned 4.2 million shares of DirecTV at the beginning of January. Warren Buffett also likes the stock, with Berkshire Hathaway reporting a position of 34 million shares in its own 13F filing (check out Buffett’s stock picks). DirecTV qualifies as cheap with trailing and forward P/Es of 11 and 9, respectively, and in the fourth quarter revenue was up 8% versus a year earlier. With higher margins as well, the company was able to clear 30% earnings growth.
Renaissance increased its stake in CF Industries Holdings, Inc. (NYSE:CF), a $13 billion market cap manufacturer of nitrogen and phosphate fertilizers, by 57%. Agriculture is theorized by some to be a growth industry as the world population increases and as a richer population in the developing world demands more meat (which would in turn increase demand for crops). CF also looks like a value prospect as its trailing and forward earnings multiples are both below 10. Tiger Cub Rob Citrone’s Discovery Capital Management is another major shareholder in CF Industries (research more stocks Citrone likes).
According to the filing Renaissance owned 4.2 million shares of Alaska Air Group, Inc. (NYSE:ALK), up 12% from three months earlier. Airlines are stereotypically terrible investments, but several have done well over the last year and Alaska Air itself is up 60%. The trailing earnings multiple is 13, with the sell-side projecting strong growth: the $4 billion valuation represents 9 times forward earnings estimates and a five-year PEG ratio of 0.4. Par Capital Management had 4.1 million shares in its own portfolio at the end of the fourth quarter of 2012.
Disclosure: I own no shares of any stocks mentioned in this article.