Billionaire Jim Simons’s Small Cap Picks Include Domino’s Pizza, Inc. (DPZ)

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TW Telecom Inc (NASDAQ:TWTC) was another of Renaissance’s small cap picks, as the fund owned 4.7 million shares at the end of March- a 26% increase from three months earlier. The company’s $4.3 billion market cap makes it look quite expensive relative to its earnings numbers, and the valuation doesn’t get much better when we look at cash flow either. Specifically, TW Telecom Inc (NASDAQ:TWTC)’s trailing EV/EBITDA multiple is 10x. That’s a fairly high EBITDA multiple, both in absolute terms and for a telecommunications company, and we’re not sure what the fund sees in this opportunity.

According to the filing, Renaissance increased its stake in Total System Services, Inc. (NYSE:TSS), a $4.5 billion market cap payments processing company, by 5% to 4.3 million shares. Business was essentially flat in the first quarter of 2013, with both top and bottom lines essentially unchanged versus a year earlier. With the stock trading at 18 times trailing earnings, Total System Services, Inc. (NYSE:TSS) is dependent on achieving at least some growth going forward in order to justify the current valuation. As a result we’d avoid the stock at least until Total System Services, Inc. (NYSE:TSS) can show improvements in its financials.

In the case of both Western Refining, Inc. (NYSE:WNR) and Alaska Air, we don’t necessarily have any problems with the valuation in absolute terms- the question is whether these companies are better buys than their peers, as the entire industry is cheap relative to earnings. Domino’s Pizza, Inc. (NYSE:DPZ), as with many quick service restaurants, seems a bit pricy and the same is true of TW Telecom Inc (NASDAQ:TWTC). With Total not looking that attractive either, we aren’t sure any of these small cap picks are particularly exciting.

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

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