Israel Englander is the founder of successful Millennium Management. The fund returned 17% per year and its size had grown to $8 billion between its inception in 1989 and 2005. The fund also returned around 8% in 2011. Today, its 13F portfolio has a value of nearly $12 billion and Israel Englander is one of the top paid fund managers. According to Forbes, he has a net wealth of $2.1 billion and is the 651st richest person in the world, as of September 2011.
Millennium Management recently released its fourth quarter portfolio holdings. Here we will take a deeper look into its positions and see whether these stocks make sense to investors.
Over the fourth quarter, the total portfolio value of Millennium Management increased from $9.75 billion to $11.92 billion. The largest stock position in its portfolio at the end of the fourth quarter was Goodrich Corp (GR). The company is an aerospace components, systems and services provider. Millennium Management had nearly 346 thousand shares of GR at the end of September, after a 435% increase during the third quarter. As of December 31st, Millennium Management had about $79 million invested in GR, or roughly 638 thousand shares. Several other hedge funds were also invested in GR last year. In total, 47 hedge funds had $2.81 billion invested in GR in the third quarter, and those figures in Q2 were 32 hedge funds and $1.70 billion. Frank Brosens’ Taconic Capital, James Dinan’s York Capital Management, and Cliff Asness’ AQR Capital Management were all fans of GR.
GR’s share price jumped from less than $90 to above $120 in late September when United Technologies agreed to acquire Goodrich Corp for $127.50 per share in cash. Currently, GR trades at $125.7. The market believes that the deal will go through without any problems. GR has a forward PE of 18.12 and an expected EPS growth rate of 15.46%. Honeywell International Inc. Co (HON) and General Dynamics Corporation Co (GD) are two of GR’s peers and they have very attractive multiples. HON has a forward PE of 10.21 for 2014, and a dividend yield of 2.5%; GD has 8.16 forward PE for 2014 and a dividend yield of 2.7%. Millennium Management also has these two stocks in its portfolio. The fund reported to own $21 million worth of HON and $15 million worth of GD at the year-end. Among these three stocks, we prefer GD, which seems a bit undervalued. General Dynamics is a great alternative to 10-year Treasuries as well. The stock has been increasing its dividend since 1997. It also has low payout ratio, so the dividend payment seems safe. Warren Buffett seems to agree with us. He initiated a new position of more than 3 million shares in GD during the third quarter 2011, worth about $174 million.
Another large position in Millennium Management’s portfolio is Target Corp (TGT). The fund doubled its position in TGT over the fourth quarter, up from 501 thousand shares to more than 1 million shares. At the end of the year 2011, it had $51 million invested in TGT. TGT has a forward PE of 9.74 for 2014, an expected EPS growth rate of 11.93% and a dividend yield of 2.3%. TGT’s competitor, Wal-Mart Stores, Inc. (WMT), has very similar multiples. WMT has a 10.23 forward PE for 2014, an 11% expected EPS growth rate and a 2.3% dividend yield. We are bullish about discount store stocks because they are more defensive in a weak economy. We like TGT more because we think the company has a slightly higher expected growth rates. Although TGT has far less customer traffic than WMT, the company is continuously adding new stores and remodeling existing stores, and is providing large discounts to differentiate its products from WMT.
Millennium Management also has a few large stock positions in oil & gas industry, including HESS Corp (HES) and BP PLC (BP). The firm had $30 million invested in HES and $35 million in BP. Comparatively we like BP and we think HES is not performing as well as other companies in the sector. BP is trading with a very attractive forward PE of less than 7, while the average forward PE of oil & gas industry is above 17. The company’s payout ratio is less than 30% based on forward earnings thus it has plenty of room to boost its dividend. Conservative value investor Seth Klarman had a large stake of BP in his portfolio in Q4, worth nearly $513 million.