Louis Bacon is the founder of Moore Investment Management. Bacon has an MBA degree from Columbia Business School. After graduating from the MBA program, he joined the sales and trading program at Bankers Trust. He also worked at Walter N. Frank & Co, New York Cotton Exchange, and Shearson Lehman Brothers before establishing Moore Investment Management. As of September 2011, his fund had approximately $14 billion worth of assets under management. Bacon is also ranked the 312nd richest Americans by Forbes, with a net worth of $1.4 billion.
Recently Moore released its latest 13F holdings. Let’s take a closer look at the most bullish bets of the fund and decide whether it makes sense for investors to imitate these stock picks.
Pharmasset Inc (VRUS): VRUS is the largest non-ETF position in Moore’s latest portfolio. At the end of last year, Moore had nearly $80 million invested in VRUS. VRUS is a new position of the fund. Moore did not report owning any shares of VRUS at the end of the third quarter. A few other hedge funds were also bullish about VRUS. There were 21 hedge funds with VRUS positions at the end of the third quarter. For example, billionaire Jim Simons’ Renaissance Technologies had $23 million invested in this stock at the end of last year. VRUS has already been acquired by Gilead Sciences Inc (GILD) earlier in January for a total of $11 billion. VRUS was closed at $136.97 per share on January 17. Since the beginning of this year, the stock returned 5.13%, versus 1.44% for SPY. During that period, Moore made more than $4 million from the bet on VRUS. The calculation assumes that Moore did not increase or decrease its position in VRUS since the end of 2011.
Gilead Sciences Inc (GILD): Moore also invested over $30 million in VRUS’ acquirer GILD at the end of last year. GILD was a popular stock among hedge funds too. At the end of the third quarter, there were 35 hedge funds with GILD positions. Dan Loeb’s Third Point had nearly $50 million invested in GILD at the end of September. Jacob Gottlieb and Bill Miller were also bullish about this stock. We like GILD too. The stock seems to be undervalued by the market compared with its peers. GILD has a forward P/E ratio of 10.61. It is also expected to grow at an average of 14.28% per year in the next five years. As a result, GILD’s P/E ratio for 2014 is 8.12, versus 17 for Bristol-Myers Squibb Company (BMY) and 12 for GlaxoSmithKline Plc (GSK).
First Niagara Financial Group (FNFG): Another large position in Moore’s portfolio is FNFG. Similar to VRUS, FNFG is also a new position of the fund. During the fourth quarter, Moore initiated a brand new $53 million position in FNFG. A few other hedge fund managers also like FNFG. Jim Simons’ Renaissance Technologies had $35 million invested in this position at the end of last year. Ric Dillon, Israel Englander, Martin Whitman, and Steven Cohen were also in favor of this stock. We like FNFG too. The company has solid revenue growth and expanding profit margins. It also has attractive valuation levels. FNFG has a low forward P/E ratio of only 8.95 and it is expected to grow at an average of 12.90% annually for the next five years. So its P/E ratio for 2014 is about 7, versus 9 for M&T Bank Corporation (MTB).
A few other large positions in Moore’s portfolio include Goodrich Corp (GR), Apple Inc (AAPL), and Motorola Mobility Holdings Inc (MMI). GR and MMI are takeover candidates. United Technologies Corp (UTX) announced to acquire GR for $127.50 per share, while Google Inc (GOOG) offered to buy MMI for $40 per share. Both stocks are currently trading at a small discount to their merger prices. GR is currently trading at $125.87 and MMI is now priced at $39.73 per share. Investors may not be able to make big profits by purchasing MMI right now, but it is still not too late to buy GR.
Overall we like Bacon’s stock picks. His bet on VRUS has already paid off, and his investments in a few other takeover candidates also look promising. We also like his bets on those stocks with low valuations, such as GILD, FNFG, and AAPL. We are optimistic about these stocks. We think they will beat the market over the next 12 months.