Billionaire Israel Englander’s Millennium Management Is Betting on These Stocks to Change Its Fortune in 2017

The glorious performance that Millennium Management, a hedge fund founded by billionaire Israel ‘Izzy’ Englander, has exhibited over the past more than two decades is something that rivals in the industry envy. Since its inception in 1989, the fund has generated an average annual return of 14% and has had only one down year in 2008, when it lost 3%.

However, this performance took a hit last year, when the fund returned only 3.3%, which was significantly lower than the return of the S&P 500 and also much lower than what Millennium Management had delivered in the preceding three years. If that performance hit wasn’t enough, at the beginning of 2017 the fund got another shock when its fixed income head, Michael Gelband, who was touted to be the successor of Mr. Englander, resigned abruptly. Though the fund doesn’t face any leadership crisis at present as Mr. Englander has already stated that he wants to stay in the business at least till he is 80 years old, Millennium will sooner have to start working on building a core team that can manage its operations, considering that its one of the largest hedge funds in the world today.

As of February 1, 2017, Millennium Management employs more than 2,100 and manages assets worth nearly $34.77 billion. The latest 13F filing submitted by the fund shows that its U.S. long equity portfolio was worth $47.55 billion at the end of December, which means that it was using considerable leverage in its long positions at the end of 2016. The filing also revealed that during the fourth quarter the fund’s equity portfolio registered a quarterly turnover of 51% and that its top 10 holdings at the end of that period amassed 6.40% of its portfolio value. In the rest of this post, we will take a look at the five major moves in the last three months of 2016.

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Procter & Gamble Co (NYSE:PG)

– Shares Held By Millennium Management (as of December 31): 0

– Value of The Holding (as of December 31): 0

During the fourth quarter, Millennium Management sold its entire stake in Procter & Gamble Co (NYSE:PG), which at the end of September 2016 was its largest equity holding and contained 72.58 million shares. Apart from selling all the common stock it owned, the fund also liquidated all the Put options underlying 27.80 million shares shares. However, it continued to own Call options underlying 50,000 shares  valued at $4.20 million at the end of December. Shares of the branded consumer goods giant have rallied by 9.3% so far in 2017 and are currently trading close to their 52-week high. Some of those gains have come in the last few days after activist Nelson Peltz’ Trian Partners revealed a $3 billion stake in the company. Despite this recent rally, the stock still sports a forward yield of almost 3% at current price.

On the next two pages, we will take a look at four stocks in which Millennium Management boosted its stake significantly during the fourth quarter

Costco Wholesale Corporation (NASDAQ:COST)

– Shares Held By Millennium Management (as of December 31): 1.24 Million

– Value of The Holding (as of December 31): $199.94 million

Millennium Management more than doubled its stake in Costco Wholesale Corporation (NASDAQ:COST) during the fourth quarter. Shares of the membership warehouse operator have more than doubled in the last five years and are up over 350% since July 2009. This long-term rally notwithstanding, most analysts who cover the retail sector continue to remain bullish on Costco Wholesale Corporation (NASDAQ:COST) despite being neutral or negative on the sector overall. Earlier this month, analysts at Susquehanna Bancshares Inc initiated coverage on the stock with a ‘Positive’ rating and a $195 price target, which suggests a further upside of 11% from its current trading price.

Lowe’s Companies, Inc. (NYSE:LOW)

– Shares Held By Millennium Management (as of December 31): 2.85 Million

– Value of The Holding (as of December 31): $203.21 million

In Lowe’s Companies, Inc. (NYSE:LOW), Millennium Management boosted its holding by 940% during the fourth quarter. Unlike Costco, Lowe’s Companies, Inc. (NYSE:LOW)’s stock has been in a correction mode after hitting its lifetime high in July last year. However, it is currently trading up by 7.9% year-to-date. Last month the company announced that it had promoted Marshall Croom, who will be replacing Robert Hull Jr. as the new CFO effective March 3. On January 27, Lowe’s announced a new $5 billion share repurchase program without an expiration date. As of October 28, 2016, the company still had $627 million authorization left in its ongoing share repurchase program.

Walt Disney Co (NYSE:DIS)

– Shares Held By Millennium Management (as of December 31): 2.26 Million

– Value of The Holding (as of December 31): $235.79 million

In the fourth quarter of 2016, Walt Disney Co (NYSE:DIS) completed a decade of being a part of Millennium Management’s equity portfolio. During that quarter, the fund boosted its stake in the entertainment company by 154%, which helped in making Walt Disney Co (NYSE:DIS) the fund’s tenth largest equity holding at the end of December. Amid a Trump rally in the broader market, Disney’s stock has appreciated by almost 18% since November last year. For its most recent quarter, the company reported EPS of $1.55 on revenue of $14.78 billion, which was lower than the EPS of $.163 on revenue of $15.24 billion it had reported for the same quarter last year. A large part of the year-over-year decline in the quarterly numbers was due to the poor performance of the ESPN business, which faced a double whammy of higher production costs and lower ad revenue during the quarter.

American Electric Power Company Inc (NYSE:AEP)

– Shares Held By Millennium Management (as of December 31): 6.3 Million

– Value of The Holding (as of December 31): $396.66 million

After having reduced its stake in American Electric Power Company Inc (NYSE:AEP) by 35% during the third quarter, Millennium Management boosted its holding in the utility company by 84%in the following three months. For long American Electric Power Company Inc (NYSE:AEP) has been considered one of the best performing utility companies with a track record of consistently hiking its dividends. Although AEP’s stock has been in correction mode since the second-half of 2016, most analysts continue to remain bullish on it. They argue that being a low volatility stock, AEP can deliver 5-7% annual returns (including dividends) for the next few years, making it an ideal bet for conservative investors.

Disclosure: None