Renaissance Technologies Bullish on PepsiCo (PEP) and Gold Heading Into Q2

Founded in 1982 by James ‘Jim’ Simons, Renaissance Technologies employs quantitative models based on mathematical and statistical analysis to make its stock selections and portfolio distributions. The firm’s flagship fund, the Medallion Fund, managed to generate annualized returns of more than 35% over a span of 20 years. Medallion uses complex algorithms to identify inefficiencies in the execution of large trades. To profit from these inefficiencies, the fund depends on high frequency trading algorithms that also lead to high costs. Still, the method is so profitable that Renaissance Technologies is able to command a 5% fixed fee and 44% performance fee. Mr. Simons retired in 2009 at which point the management of Renaissance Technologies was taken over by Peter Brown and Robert Mercer, two computer scientists. At the end of the first quarter, RenTech reported holding $71.8 billion in assets under management, a large portion of which belongs to the firm’s employees. Meanwhile, its equity portfolio carried a market value of $52.6 billion, with 16% of that sum invested in technology stocks. In this article, we’ll take a look at how the fund’s management team has its top-5 positions configured heading into the second quarter.

At Insider Monkey, we track around 785 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Golden Bet

Renaissance Technologies is betting on a continued rebound in gold stocks, having increased its holding in Barrick Gold Corporation (USA) (NYSE:ABX) by 3% during the first quarter, to 26.5 million shares of the Canadian mining company worth approximately $360 million. The stock started 2016 with a bang, entering a strong uptrend that continues to this day. Barrick Gold Corporation ended yesterday’s trading session at $19.37 per share, up by 151% year-to-date on the back of gold prices that have also been advancing since the start of the year, being up by roughly 20%. Although Barrick Gold Corporation (USA) (NYSE:ABX) reported a loss for the first quarter, its management is confidence that it’s on track to reduce its debt by $2 billion this year. Revenues came in at $1.93 billion for the quarter, down by 14% year-over-year, while earnings stood at $0.11 per share when adjusted for non-recurring costs. George Soros’ family office has returned to gold investments as well, having previously shunned the sector for two quarters. Soros Fund Management dissolved its stake in Barrick Gold Corporation (USA) (NYSE:ABX) during the third quarter of 2015 but came back to it in the first quarter, buying 19.4 million shares of the stock worth $263 million, which immediately elevated the holding to the top of the fund’s equity portfolio.

Reduced Exposure to Internet Domain Manager

Verisign, Inc. (NASDAQ:VRSN), a provider of internet services, is one of RenTech’s few top holdings that was notably reduced during the first quarter, by 15% to 4.16 million shares valued at $368 million at the end of March. The company’s first quarter results beat Wall Street’s forecasts, with revenue having risen by 9% year-over-year to $282 million and adjusted earnings coming in at $0.85 per share. Verisign, Inc. (NASDAQ:VRSN) currently trades at a P/E multiple of 28, which is significantly lower than the industry average of 49 as per statistics gathered by Yahoo! Finance, and its shares are down by 4% year-to-date. Warren Buffett is also keeping tabs on Verisign, Inc. (NASDAQ:VRSN), as Berkshire Hathaway held 12.9 million shares of the company at the end of March.

Head to the next page to find details about the fund’s top three positions.

RenTech Sees More Fizz Left in Pepsi

Like many other elite hedge funds, Renaissance Technologies boosted its investment in PepsiCo, Inc. (NYSE:PEP) during the first quarter and had amassed 3.73 million shares by the end of March, more than double what it owned at the end of 2015. The stock hit its all-time high of $106.94 on May 11 and has entered a slight correction since. PepsiCo, Inc. (NYSE:PEP) shares are currently trading at a trailing P/E ratio of 29 and at a forward P/E ratio of 20, based on analysts’ projected earnings, which shows that analysts expect the company to flex its financial muscle within the next 18 months. Analysts at Jefferies Group and Deutsche Bank have recently reiterated their ‘Buy’ ratings on Pepsi, and have price targets of $119 and $115 per share on the stock, respectively. Billionaire Ken Fisher increased his fund’s investment in PepsiCo, Inc. (NYSE:PEP) by 1% to 5.36 million shares worth $556 million at the end of the first quarter.

Still Betting on Novo Nordisk

RenTech decided to trim its holding of Novo Nordisk A/S (ADR) (NYSE:NVO), a Danish pharmaceutical giant. At the end of the first quarter, the fund held 12.8 million shares, down by less than 1% from the end of the fourth quarter and valued at $692 million on March 31. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, joined the party as well, having initiated a new Novo Nordisk position in the first quarter that amounted to 2.86 million shares. For the first quarter, Novo Nordisk A/S (ADR) (NYSE:NVO) posted better-than-expected financial results and reiterated its forward guidance. The company reported registering a profit of $0.55 per American Depository Receipt (ADR), while revenue rose by 5.5% year-over-year to $4 billion. Analysts in turn were expecting $0.53 per ADR on the back of $4.1 billion in revenue. Since the start of the year, Novo Nordisk A/S (ADR) (NYSE:NVO) shares had fallen by as much as 20% before regaining some of the lost ground and settling into a trading range around the $55 level.

New Top Dog

Novo Nordisk’s poor performance means Renaissance Technologies has a new top dog in its portfolio in Colgate-Palmolive Company (NYSE:CL). Worth $698 million, the fund’s stake in the company amounts to 9.88 million shares as of March 31, which was down by 2% over the first quarter. Goldman Sachs recently upgraded Colgate-Palmolive Company (NYSE:CL) to a ‘Neutral’ rating from its previous ‘Sell’ rating and raised its price target on the stock to $75.00, suggesting modest upside potential of about 7%. Apart from a couple of blips, the stock has been on a strong uptrend since January and currently boasts an 8.3% advance for the year. John Overdeck and David Siegel’s Two Sigma Advisors holds 2.15 million shares of Colgate-Palmolive Company (NYSE:CL) valued at $152 million on March 31.

Disclosure: None