When looking over billionaire Steven Cohen’s recent 13F filing with the SEC, we found five stocks that he and SAC Capital sold out of during 3Q. These include companies that have a cloudy future due to economic uncertainty or a potentially dying business model. Cohen founded SAC Capital in 1992 and now manages around $14 billion in assets. He has returned close to 30% over the past twenty years. Cohen's firm focuses on both fundamental and quantitative strategies, and we believe the five selloffs are either fundamentally too expensive on a valuation basis, or have long-term demand issues. Steven Cohen was also shaking up his portfolio in other areas last quarter (check out Steven Cohen's top moves).
Ensco PLC (NYSE:ESV) was Cohen’s largest stock position in his 13F portfolio at the end of the second quarter. Ensco is up over 20% year to date after a rich acquisition of Pride International for $7.2 billion. Cohen might believe that this drilling service company has seen its near term top, and might see interim pressures related to integration and transition to more offshore projects. Even still, with a positive outlook for the oil and gas industry, the selloff was likely not an easy choice for Cohen. In general, companies with a focus on offshore drilling may see increased competition from onshore operators, given the generally low prices we're seeing in the natural gas market. Another notable billionaire, Ken Fisher – founder of Fisher Asset Management – was also dumping all of his shares of Ensco during 3Q (see Ken Fisher's newest picks).
Lockheed Martin Corporation (NYSE:LMT) is a notable selloff for Cohen in 3Q following a huge increase – of almost 4,000% – during 2Q. Sales expectations put growth flat in 2012 and 2013 based on decreased government spending. Lockheed does pay a robust dividend that yields 5%, but the defense company is strapped with nearly $2.5 billion in free cash flow from 2012, and now has over $4.6 billion in cash. The defense company only spent $2.4 billion to purchase shares and $1.1 billion to pay cash dividends in 2011. The downside to Lockheed and the weakness in its shares over the interim will be due to lower U.S. defense spending. As a result, Lockheed’s expected long-term EPS growth rate is now below 7% a year.
Archer Daniels Midland Company (NYSE:ADM) predicts only moderate growth for FY2013 (to end in June) due to weakness in U.S. harvesting as a result of the 2012 drought. We believe that the economic slowdown has caused Cohen to reconsider the long-term prospects of this agriculture company. Revenues for FY2013 are expected to come in relatively flat with harvest shortfalls to blame. Archer is also well above other agriculture and food related peers at a 19x P/E, compared to Bunge (12x) and Ingredion (12x). Fellow billionaire Ray Dalio - who founded Bridgewater Associates - also dumped all of his Archer Daniels shares in 3Q (see Ray Dalio's top bets).