3 Stocks This $72 Billion Hedge Fund Recently Bought

Check out which stocks one of the world's most successful hedge funds recently bought and why.

May 21, 2014 at 4:47PM

Chicago-based Citadel Advisors is one of the largest and most successful hedge funds in the world. Money managers like Citadel must reveal their stock maneuvers every quarter in SEC 13F filings. Here are three of Citadel's recent stock purchases.

Bristol-Myers Squibb (NYSE:BMY) grabbed Citadel Advisors' attention this quarter, boosting its total stake to nearly $15 million. The New York-based pharmaceutical company is in the midst of a drawn-out patent cliff. Over the next several years, Bristol will lose patent protection on drugs that currently generate a significant amount of sales. Yet Bristol boasts a strong drug pipeline, particularly in cancer research. The company has invested heavily in nivolumab, a promising drug that will likely deliver an improvement in the way the disease is treated. However, with other drug companies like Merck and Roche also making strides in that area, investors may have become overly optimistic about the revenue Bristol's new compound might generate.

Enthusiasm is reflected in Bristol's valuation: The drugmaker's price-to-earnings ratio of roughly 28 times is a premium to its industry average of less than 25. But so far, that hasn't stopped Citadel from buying Bristol-Myers Squibb's stock.

Citadel owns a nearly $25 million stake in The Coca-Cola Company (NYSE:KO) with over 637,000 shares. Coke's ability to develop new products and reinvent old ones generates stable profits for the company and its shareholders. One of the world's most far-reaching distribution systems serves Coke's mammoth beverage portfolio, including its 17 billion-dollar brands. The cola giant's production techniques are well developed, resulting in high profit margins. Although U.S. soda consumption is declining and Coke has struggled with sluggish soda sales, the company is actively reinventing itself. To jolt sales of its entire product line-up, Coke is exploring alternatives. For example, Coca-Cola and Keurig Green Mountain signed an agreement to develop and roll out Coke's global portfolio of products for use in Green Mountain's upcoming Keurig Cold at-home beverage system. It's unclear whether these machines will boost at-home consumption of Coke products, but the company feels this is an opportunity to grow overall sales. Apparently, Citadel Advisors agrees.

The hedge fund also owns a $31.6 million position in Pfizer (NYSE:PFE). The drug maker has become a huge organization after acquiring many companies over the past several years. These acquisitions benefited Pfizer, but some came with divisions that were unrelated to its core pharmaceutical business. As a result, Pfizer has refocused on its core business by selling or spinning off some non-pharma divisions such as Nutrition and Animal Health. For example, last year the drug maker launched an IPO of a minority stake in Zoetis, once Pfizer's animal health business. Many investors, likely Citadel Advisors included, believe this strategy will allow Pfizer's robust drug pipeline to have a greater impact on company growth and profitability. Despite Lipitor's recent patent expiration, Pfizer boasts a healthy drug pipeline, including therapies for rheumatoid arthritis, stroke prevention, and cancer.

Bristol-Myers Squibb, Coca-Cola, and Pfizer possess forward price-to-earnings ratios of 29, 18, and 13, respectively. By comparison, the P/E ratio of the S&P 500 is currently 18, signaling Coca-Cola may be fairly valued and Pfizer may be undervalued. The Motley Fool CAPS community rates Bristol-Myers Squibb, Coca-Cola, and Pfizer all 4-star (out of 5) stocks. 

Foolish takeaway
Citadel Advisors is feeling bullish on these three companies right now. But don't blindly follow this hedge fund's moves into these stocks with positions of your own. Conduct your own research and formulate your thesis. You'll be a better investor for it.

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Nicole Seghetti owns shares of Pfizer. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends Coca-Cola and Keurig Green Mountain. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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