Billionaire Steven Cohen and Insiders Like These Stocks

Billionaire investor Steven Cohen is well known in the investing community. For years he ran one of the most successful hedge funds, SAC Capital Advisors, which over 21 years delivered average annual returns of 29%, but in 2013 was brought down by an investigation from the Securities and Exchange Commission. The fund pleaded guilty to insider trading charges, paid a record $1.8 billion fine and was forced to shut down. However, Mr. Cohen emerged from one of the largest insider trading scandals relatively unscathed. In 2016, he settled with the Securities and Exchange Commission without admitting or denying wrongdoing and was barred from managing outside money for two years, a mild punishment, considering that regulators had asked for a lifetime ban.

Following the case, Mr. Cohen staged an impressive comeback. He continued to manage his own wealth, which is currently estimated at $12 billion, through a new firm, Point72 Asset Management, which operated as a family office. He also moved into venture capital by launching Point72 Ventures, which invests in fintech startups.

Ahead the expiration of his ban to manage outside money on January 1, 2018, Mr. Cohen was preparing to get back in the hedge fund business. The New York Times reported last year that Mr. Cohen set up a new fund, Stamford Harbor Capital in 2016, although Bloomberg has said earlier this year that Stamford Harbor Capital merged with Point72 Asset Management and both funds will continue operating under the Point72 name. It’s unclear whether the fund managed to attract any outside money. The New York Times mentioned that the marketers for Stamford Harbor received commitments of $2.0 billion to $4.0 billion from investors.

In its first quarter since becoming a fund open for outside money, Point72 Asset Management did not change its strategy regarding US equities. It still holds a large and very diversified equity portfolio with a value of $23.92 billion as of the end of March. Given Steven Cohen’s impressive track record, he is an interesting investor to follow, although his portfolio is difficult to emulate due to its size. To narrow things down, we took a closer look at the largest holdings from Point72 Asset Management’s last 13F filing and identified three companies among its largest picks with the largest insider ownership: Alibaba Group Holding Ltd (NYSE:BABA), Amazon.com, Inc. (NASDAQ:AMZN), International Game Technology PLC (NYSE:IGT).

Insider ownership is an important metric that is often taken into account by value investors. A company in which insiders hold a lot of shares is likely to perform better, since the management and the board is committed to creating shareholder value, because it’s in their own interest. However, there’s also the other side of the coin. The management team might act as it desires without the fear of losing their jobs.

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Let’s now take a look at Mr. Cohen’s top picks with high insider ownership. On the first spot we have Alibaba Group Holding Ltd (NYSE:BABA), which is Point72’s fifth largest holding. During the first quarter, the fund boosted its position by 230% to 1.69 million shares worth $310.60 million. Alibaba Group Holding Ltd (NYSE:BABA) is 53.14% owned by insiders, although the largest share of it goes to Softbank (29%) and Altaba Inc (NASDAQ:AABA), formerly known as Yahoo!, which holds 15%. Nevertheless, the founder and executive Chairman of Alibaba Group Holding Ltd (NYSE:BABA) also owns a 7% stake and executive vice-chairman Joseph Tsai owns 2.5%. Altaba has recently conducted a tender offer to buy back 195 million of its shares offering 0.35 shares of Alibaba and cash equal to an Alibaba volume-weighted average price multiplied by 0.05. Altaba was set up when Yahoo!’s core business was acquired by Verizon Communications Inc. (NYSE:VZ) and its main aim is to return capital to Yahoo!’s shareholders from the investments in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo Japan. The tender offer should’ve cut Altaba’s stake in Alibaba to 11% and reduce the discrepancy between the stock price and net asset value.

 

In the meantime, Alibaba Group Holding Ltd (NYSE:BABA) remains one of the best investments in the Chinese eCommerce space. The company has been seeing revenue growth between 50% and 60% in the last several quarters, as its commerce, cloud and entertainment segments are performing strongly. In its core commerce segment Alibaba Group Holding Ltd (NYSE:BABA) reported a growth of 37 million users in each annual active consumers and mobile monthly active users in the last quarter. Analysts are similarly positive that Alibaba Group Holding Ltd (NYSE:BABA) will continue to expand its market share in both Chinese eCommerce and neighboring regions.

Another eCommerce bet from Point72 Asset Management’s equity portfolio is Amazon.com, Inc. (NASDAQ:AMZN), which also has an insider ownership of 16.30%, with the company’s founder and CEO Jeff Bezos holding the largest amount (78.90 million shares or 16% of the outstanding stock). Over the years, Jeff Bezos has taken Amazon.com, Inc. (NASDAQ:AMZN) to the leadership spot in the eCommerce industry and the top spot in the public cloud space, where Amazon’s AWS has a market share of 47.1%. In addition, Amazon.com, Inc. (NASDAQ:AMZN) is quickly gaining presence in the smart home space. After the wild success of the Amazon Echo smart speaker, the company launched a number of other devices, including the Echo Look, which is fitted with a camera and can help users find outfits using machine learning and human fashion experts. After an invite-only period, Amazon.com, Inc. (NASDAQ:AMZN) has recently made the Echo Look available for everyone. In addition, Amazon.com, Inc. (NASDAQ:AMZN) has recently teamed up with Warren Buffett’s Berkshire Hathaway and JPMorgan Chase & Co. (NYSE:JPM) to create a healthcare venture. Earlier this month, CNBC has reported that Amazon.com, Inc. (NASDAQ:AMZN) also has a secretive lab called Grand Challenge that is working on cancer research and other initiatives.

 

International Game Technology PLC (NYSE:IGT) is another insider majority-owned company in Point72 Asset Management’s equity portfolio. At the end of March, the fund held 8.58 million shares worth $229.38 million. International Game Technology PLC (NYSE:IGT) is controlled by Italian group DeAgostini SpA, which owns 51% of the company and is qualified as an insider. Over the past several years, International Game Technology PLC (NYSE:IGT) has made a number of acquisitions to strengthen its position in the slot machine, lottery and sports betting industries, but it has taken on too much debt in the process. At the end of March, it had net debt of $7.53 billion versus a market cap of $5.1 billion. However, the company has recently had a major catalyst in the US when the Supreme Court ruled against the federal sports betting ban. Following the ruling, several states will push for legalizaton of sports betting, which will create more business for International Game Technology PLC (NYSE:IGT), which provides technology that enables sports betting.

 

Disclosure: none