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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 the D. E. Shaw & Co., founded by David E. Shaw, and with a reportable stock portfolio totaling $62.7 billion in value as of September 30, 2013.
Shaw is known as a math wizard, and a quantitative investing pioneer. His firm is reportedly extremely selective, hiring less than 1% of applicants -- and Amazon.com CEO Jeff Bezos once made the cut.
What does D. E. Shaw's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings include Twentieth-First Century Fox and NV Energy. Other new holdings of interest include Veeco Instruments (NASDAQ: VECO ) and Tower Group International (UNKNOWN: TWGP.DL ) . Veeco Instruments makes the equipment that's used in manufacturing LED lights. It's had some troubles in recent years, recently restating results for 2012 and 2013. Analysts at Canaccord Genuity recently slapped Veeco stock with a "sell" rating, expecting weakening profit margins. Veeco's last earnings report featured revenue down over year-ago levels, and net income turning into a net loss, due, in part, to overcapacity and a weak business environment.
Tower Group International is a small insurance company -- but it hasn't always been so small, though, as its stock is down some 74% over the past year, and has averaged 26% annual losses over the past five years. It is in penny-stock territory, recently at risk of being delisted from the Nasdaq market. It also has had to restate several years' worth of earnings, which has some unsettled, and a restructuring has lowered its ultimate profit potential. Still, its last quarter topped expectations, and with Tower Group lowering its costs via a major 10% downsizing, some are hopeful. It remains risky, though. It has been downgraded by some rating agencies and, after posting disappointing second-quarter results, management noted, "To address current liquidity needs at the holding company, we are exploring the sale of some of our holding company and operating assets as well as exploring the possibility of raising additional capital."
Among holdings in which D. E. Shaw & Co. increased its stake was Cree (NASDAQ: CREE ) . LED lighting specialist Cree saw its stock slump following a quarterly earnings report that featured big, double-digit revenue and earnings growth along with reduced near-term projections from management. Some expect the LED market to grow by about 34% annually over the next few years, eventually totaling nearly $100 billion, and Cree is investing heavily in it. Meanwhile, Cree's bulbs have received an Energy Star rating that will give them access to rebates from utility companies. At a recent conference, management spoke of focusing on making their bulbs competitive, cost wise, and growing commercial sales, as well. A possible ban of some traditional light bulbs could also boost the market for LED lighting. With a P/E ratio near 66, the stock isn't cheap, but it seems promising over the long run.
D. E. Shaw & Co. reduced its stake in lots of companies, including Broadcom (UNKNOWN: BRCM.DL ) , which yields 1.7%. Communications chipmaker Broadcom has bulls optimistic about its presence in the new iPhones and in Nexus 5 devices. That bodes well for Broadcom's bottom line, and a recent acquisition might prove to be a game changer for it, too. Broadcom has been investing heavily in LTE technology, and some expect big LTE deals in the near future. Its management recently upped projections for its fourth quarter, too. Still, bears worry that Broadcom is having trouble growing its business.
Finally, D. E. Shaw's biggest closed positions included BMC Software and Smithfield Foods. Other closed positions of interest include biotech concern MannKind (NASDAQ: MNKD ) , which has seen its shares more than double over the past year – after plunging, earlier. Bulls are very excited about its diabetes-fighting inhaled insulin product Afrezza, which the company hopes will receive FDA approval in the Spring. The stock has enormous potential, and recently reported positive Phase 3 results for Afrezza, but there is also significant risk and controversy surrounding it. Still, if approved, it could transform diabetes treatment, permitting patients to lose their needles.
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. Therefore, 13F forms can be great places to find intriguing candidates for our portfolios.
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