Renaissance Technologies’ Stock Picks for 2013 Include Qualcomm

We have found that 13F filings from hedge funds and other notable investors- even though they are filed six to seven weeks after the end of the quarter for which the filing discloses many long equity position- can still be useful for the financial community. Pooling these filings into a database has enabled us to develop investing strategies including following the most popular small cap stocks among hedge funds; this strategy has, on average, outperformed the S&P 500 by 18 percentage points per year (learn more about hedge fund investing strategies). Of course, investors can also use 13Fs as an opportunity to see what top managers think about the markets.

Renaissance Technologies has been a very successful hedge fund over the course of its history, and founder Jim Simons is now a multi-billionaire. We have gone through the fund’s 13F for the fourth quarter of 2012, compared it to previous filings, and picked out what we thought were some interesting themes in Renaissance’s trading activity over the course of Q4. Read on for our discussion of these stocks the fund was buying or selling:

RENAISSANCE TECHNOLOGIESQualcomm. The fund increased its holdings of Qualcomm, Inc. (NASDAQ:QCOM) to a total of 5.3 million shares. The communications equipment and services company has a market capitalization of over $110 billion, though its stock price has lagged the market over the last year. Last quarter revenue and earnings were up strongly from their levels in the fourth quarter of 2011, and while we don’t expect growth to continue at quite that rate it is good to see that the company is healthy. Qualcomm trades at 17 times trailing earnings; smaller peer Broadcom Corporation (NASDAQ:BRCM) has been struggling recently and while the forward P/Es are the same this is due to considerably higher expected earnings growth at Broadcom. Billionaire Ken Fisher’s Fisher Asset Management has been another major shareholder of Qualcomm (find Fisher’s favorite stocks).

Selling Microsoft. Renaissance cut its stake in Microsoft Corporation (NASDAQ:MSFT) roughly in half between October and December, from about 16 million shares to just above 8 million at the beginning of 2013. As a result the technology company dropped out of its ten largest holdings by market value after having been the largest position in the portfolio three months earlier. Microsoft had been one of the most popular stocks among hedge funds in the third quarter of 2012 (see the top ten list) but concerns about Windows 8 remain high and the Surface tablet- despite a heavy marketing campaign- appears to be short of early expectations. Microsoft’s stock is down 10% in the last year. The forward P/E is 9, but earnings in the fiscal year ending June 2014 are likely to still be on a bump from Windows and Office sales as new versions are released. We think that Renaissance simply became less confident in the company.

Find out what cigarette company Renaissance liked in the fourth quarter:

Philip Morris. Renaissance was buying shares of cigarette company Philip Morris International Inc. (NYSE:PM) during the quarter and entered 2013 with 4.7 million shares in its portfolio. The company sells the Philip Morris brands in international markets while Altria Group, Inc. (NYSE:MO) focuses on the United States; the two separated in 2008. Philip Morris pays a dividend yield of almost 4% at current prices, which is lower than some other cigarette companies (including Altria). In theory this is because there are more growth opportunities in developing markets, and earnings growth has in fact been moderate recently. The stock trades at trailing and forward P/Es of 17 and 14, respectively.

Philip Morris and Qualcomm are both priced for at least some growth going forward; between the two, we’d be more interested in doing further research on Qualcomm. While cigarette companies are generally good income investments, we think that Philip Morris’s peers may be better buys in that department. In the case of Microsoft we’re still not ready to make a call based on value and think it’s better to wait for results that reflect the release of Windows 8 and Office 2013.

Disclosure: I own no shares of any stocks mentioned in this article.

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