We track quarterly 13F filings from hundreds of hedge funds including Renaissance Technologies, the large and highly successful hedge fund which has made its founder Jim Simons a multi-billionaire (see Renaissance’s filings over time). One use of these filings is in developing investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about imitating small cap picks). We can also screen a fund’s picks according to various criteria; for example, we can look for stocks bought by insiders, on the theory that insider purchases should reflect particular confidence in the company (otherwise the insider would prefer to diversify their wealth). Here are Renaissance’s five largest holdings from the 13F which at least one company insider has purchased in the last three months:
A Board member at Philip Morris International Inc. (NYSE:PM) bought 1,000 shares of the stock in late April, while Renaissance had 4.1 million shares of the cigarette company in its portfolio according to the filing. As with many cigarette companies, Philip Morris pays a fairly high dividend yield at 3.6%. However, business was about flat last quarter, with essentially no change on either top or bottom line compared to the first quarter of 2012, and at 18 times trailing earnings we’d be a bit concerned about the fundamental valuation of the stock- investors should at least compare it to its peers.
At the very end of February, we recorded an insider buying stock in PepsiCo, Inc. (NYSE:PEP) at an average price of $75.33 per share. Both Pepsico and its peer Coca-Cola are trading at just above 20 times trailing earnings, which we’d say it a pretty rich valuation for such a stable company. We suppose that Pepsi is something of a defensive play, with a beta of 0.4 and a 2.7% dividend yield, but there are probably cheaper options with similar characteristics. Renaissance owned 4.3 million shares at the end of March, up 67% from three months earlier. Billionaire Nelson Peltz’s Trian Partners initiated a large position in Pepsico last quarter (check out Peltz’s stock picks).
The fund had also been buying Whole Foods Market, Inc. (NASDAQ:WFM) during the first quarter of 2013, and reported a position of 2.4 million shares. The premium grocery store- which has been bucking a slow industry with double-digit growth rates in revenue and net income in its most recent quarter compared to the same period in its previous fiscal year- has also seen insider buying in the last few months. Still, an excited market has already priced high growth over the next several years into the stock; analyst consensus for the forward fiscal year implies a P/E multiple of 30.
An insider at $10 billion market cap oil and gas refining and marketing company HollyFrontier Corp (NYSE:HFC) was buying in late March at prices a bit over $51 per share; Renaissance increased its stake by 69% during Q1 to a total of just under 3 million shares. Refining and marketing companies generally look cheap in quantitative terms, and Hollyfrontier is no exception at 9 times forward earnings estimates. Analysts do look to be expecting a decline in the company’s earnings, however, so we’d need to do more research before considering it as a value stock.
Mead Johnson Nutrition CO (NYSE:MJN), a provider of infant formula and children’s nutrition products, rounds out our list of stocks seeing insider buying which Renaissance owned at the beginning of April- specifically, the fund disclosed ownership of 1.9 million shares. Mead Johnson is another growth play, with trailing and forward P/Es of 28 and 23 respectively; while recent results have actually been fairly mediocre, there have been some rumors that China- a critical market for the company- will relax its one-child policy, therefore increasing long-term demand.
Disclosure: I own no shares of any stocks mentioned in this article.