Here's What This $20 Billion Hedge Fund Has Been Buying

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Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.

Today, let's look at SAC Capital Advisors, which is run by Steven Cohen. SAC is one of the biggest hedge funds around, with a reportable stock portfolio totaling $20.3 billion in value as of Dec. 31, 2012. A fund doesn't easily grow that large without performing well and, indeed, Cohen has reportedly averaged returns of roughly 30% annually over two decades.

The company has been in the news more than usual lately, though, due to an insider trading scandal. Prosecutors are investigating, with the Securities and Exchange Commission (SEC) waiting before taking actions of its own.

Interesting developments
So what does SAC Capital's latest quarterly 13F filing tell us? Here are a few interesting details:

The biggest new holdings are Alcatel-Lucent (UNKNOWN: ALU.DL  ) and O'Reilly Automotive. It also added lots of other companies, such as Infinera (NASDAQ: INFN  ) . Alcatel-Lucent has long been struggling, saddled with debt, heavily shorted, and aiming to cut costs. It may be turning itself around successfully, though, as it's among the most upgraded tech stocks over the past three months. The France-based company has been building a valuable wireless network in the U.S. and has a new CEO. It has been collecting new contracts for work around the globe, such as in India and Iraq, and is establishing itself in China, too.

Fans of optical-networking specialist Infinera have great expectations for the company's DTN-X platform and like its disruptive technology. It's not perfect, though, with a string of years in the red and substantial cash burn.

Among holdings in which SAC Capital increased its stake was Cliffs Natural Resources (NYSE: CLF  ) , which has seen its stock figuratively fall off a cliff, down 60% over the past year. Investors were further dismayed recently, when the company announced a 76% dividend cut and plans to raise money by boosting its share count by 6%. At this point, with a forward P/E of about 9, some wonder whether it's a bargain.

SAC Capital reduced its stake in lots of companies, including American Capital Agency (NASDAQ: AGNC  ) , which offers investors a huge dividend yield topping 15%. There are concerns that the dividend may get reduced, but even if it's cut in half, it will remain substantial. In the meantime, the company recently benefited from an increased interest rate spread higher than some high-profile peers. It has also boosted the proportion of its portfolio that isn't likely to suffer from borrowers refinancing and prepaying mortgages. In 2012, the company delivered a total economic return of 32% to shareholders. You might still want to be wary, though, as there are some aspects of the company that aren't too appealing, and it's quite sensitive to changes in interest rates and inflation.

Finally, SAC Capital's biggest closed positions included TD Ameritrade and puts on ExxonMobil. Other closed positions of interest include oil and gas company Halcon Resources (NYSE: HK  ) , which has been acquiring assets such as shale-field properties and is expected to grow by 30% annually over the coming years. It operates in the promising Bakken region, and recently reported 2012 net daily production up 128% over year-ago levels and proven reserves up by 417%. The stock is down 30% over the past year, though, and has averaged annual losses of more than 13% over the past five years.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.

Cliffs Natural Resources has grown from a domestic iron ore producer into an international player in both the iron ore and metallurgical coal markets. It has also underwhelmed investors lately, especially after its dramatic 76% dividend cut in February. However, it could now be looked at as a possible value play due to several factors that are likely to remain advantageous for Cliffs' management. For details on these advantages and more, click here now to check out The Motley Fool's premium research report on the company.

Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 11, 2013, at 7:50 PM, Ostrowsr wrote:

    HK just bought a huge stake in the Bakken Shale by acquiring a fast growing company. So the 13% past 5 years average loss is a moot point.

  • Report this Comment On March 11, 2013, at 8:30 PM, winnerli wrote:

    SAC capital buy/sell so frequently. Those buy/sell may be for a few days only. Check how many companies SAC held, huge, a few hundreds, here is it:

  • Report this Comment On March 12, 2013, at 4:22 AM, TomFoolery wrote:

    AGNC: "You might still want to be wary, though, as there are some aspects of the company that aren't too appealing,"

    Are you confusing ACAS with AGNC? The link references an article about the (related) ACAS business model.

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