Jim Simons founded Renaissance Technologies LLC in 1982 and has since become a multi-billionaire due to the fund’s success over time even as it has increased its assets under management. Due to Renaissance Technologies LLC’s strong historical performance, it is a closely watched hedge fund and one of the funds which we track in our database of 13F filings. We use this database to develop investing strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average) and also like to review significant changes in top hedge funds’ portfolios over the previous quarter in search of initial investment ideas. Read on for three things we noticed in Renaissance Technologies LLC’s most recent 13F compared to what it had owned at the beginning of 2013 or see more of the fund’s filings over time.
IBM. Renaissance Technologies LLC increased its stake in International Business Machines Corp. (NYSE:IBM) to 2.3 million shares, up from about 410,000 shares at the end of December. The company experienced a 5% decline in revenue last quarter compared to the first quarter of 2012, and even though it was able to cut costs to the point where net margins actually increased International Business Machines Corp. (NYSE:IBM)’s earnings were still down slightly. Currently the stock trades at 14 times trailing earnings, a level which suggests that the market is looking for at least small increases in earnings per share going forward (and therefore a reversal of these recent trends). Warren Buffett’s Berkshire Hathaway has been a major shareholder of International Business Machines Corp. (NYSE:IBM), and owned over 65 million shares at the beginning of the year (find Buffett’s favorite stocks). International Business Machines Corp. (NYSE:IBM)’s stock price has been up only 5% in the last year, underperforming broader market indices.
Selling Qualcomm. The fund was a seller of QUALCOMM, Inc. (NASDAQ:QCOM) between January and March, reducing its holdings from 5.3 million shares to 1.2 million over the course of this period. QUALCOMM, Inc. (NASDAQ:QCOM)’s revenue and earnings from continuing operations rose strongly in its most recent quarter compared to the same period in the previous year, and Wall Street analysts expect that trend to continue. Going by their expected earnings figures, QUALCOMM, Inc. (NASDAQ:QCOM) is valued at 14 times forward earnings estimates and at a five-year PEG ratio of 0.8. As such while QUALCOMM, Inc. (NASDAQ:QCOM) is not a pure value stock it’s possible that it offers “growth at a reasonable price.” Viking Global, managed by billionaire Andreas Halvorsen, has been a large shareholder in QUALCOMM, Inc. (NASDAQ:QCOM) (check out Halvorsen’s stock picks).
Drug manufacturers. According to the 13F, Renaissance Technologies LLC’s two largest holdings by market value were drug manufacturers: it owned about 11 million shares of Eli Lilly (NYSE:LLY) and about 14 million shares of Bristol-Myers Squibb (NYSE:BMY). Each of these positions was increased somewhat from three months earlier as well. Both of these stocks are priced a bit high for a value investor, with forward price-to-earnings multiples of about 20. However- as is common for pharmaceutical stocks- their performance is mostly independent of macro factors (Eli Lilly’s beta is 0.4, while Bristol-Myers Squibb’s is 0.1) and they pay dividend yields of about 3.5%. Given their sizable market capitalizations (over $60 billion in each case) they may be of interest for investors looking for defensive opportunities or low-risk yields. We would be careful when looking at Bristol-Myers Squibb, however, as that company’s most recent financial results showed steep declines in both sales and net income from their levels in the first quarter of 2012.
Of course, a number of other large-cap stocks in the healthcare sector offer comparable dividend yields and betas, so income or defensive investors would be advised to review other opportunities rather than blindly following Renaissance Technologies LLC. As for the other two moves we’ve covered here, we’re not sure we agree with the investment team’s line of thinking; certainly, QUALCOMM, Inc. (NASDAQ:QCOM) could easily prove undervalued if it was able to sustain double-digit growth rates on the bottom line for the next several years and given the more moderate expectations currently priced into the stock we think that it is worthy of further research.
Disclosure: I own no shares of any stocks mentioned in this article.