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 & Co. (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 Lilly & Co. (NYSE:LLY) 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 Lilly & Co. (NYSE:LLY), 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 Co. (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. Citigroup Inc (NYSE:C) recently upgraded Bristol Myers Squibb Co. (NYSE:BMY) 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 Myers Squibb Co. (NYSE:BMY)’s portfolio of some $10 billion by 2022. Citigroup Inc (NYSE:C)’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 Corp. (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 International Business Machines Corp. (NYSE: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. International Business Machines Corp. (NYSE:IBM) also offers investors a 1.8% dividend yield.