Here's How This Hedge Fund Company Invested $37 Billion

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 company, founded by David E. Shaw and with a reportable stock portfolio totaling nearly $37 billion in value as of March 31, 2012.

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.

The fund's top three holdings (out of thousands), making up 5.3% of the portfolio's value, were Apple, Berkshire Hathaway, and El Paso.

Interesting developments
So what does D.E. Shaw's latest quarterly 13F filing tell us? Here are a few interesting details:

New holdings include Exelon (NYSE: EXC  ) , America's largest nuclear-power utility. It has recently been near 52-week lows, attracting interest as a possible bargain. And it sports a dividend yield above 4%, as well. Some have soured on nuclear power following Japan's big disaster, but there isn't as much souring going on as you might expect. More reactors are being built, for example. Exelon's revenue hasn't been growing briskly, but it does sport less debt than many peers.

Among holdings in which D.E. Shaw increased its stake were Halliburton (NYSE: HAL  ) and Seagate Technology (Nasdaq: STX  ) . Oil and natural gas giant Halliburton may be down about 36% over the past year, but to some that just makes it more attractive, due to its skill in deepwater drilling and innovative expertise in methods such as fracking. It also offers diversification, as it operates around the world and won't be sunk by any one region's economic downturn. Shaw substantially cut back on its options positions in the company while nearly tripling the number of shares it owned.

Seagate, up a whopping 78% over the past year, is a major player in hard drives and got whacked by flooding in Thailand. It has turned that lemon into lemonade now, hustling to meet demand and strengthening its position by buying back shares, as well. Also promising is the company's movement into improved technology, such as solid-state drives. Still, there's always a new technology, and these companies compete in a rapidly changing environment, which presents risks for those that don't keep adapting and innovating.

D.E. Shaw reduced its stake in a lot of companies, including Cognizant Technology Solutions (Nasdaq: CTSH  ) , a specialist in IT consulting and outsourcing. The company's earnings growth has slowed a bit in recent years, but still remains strong, with revenue growing briskly, as well. The bad news, though, is that for now, Cognizant (and its peers) are expecting slowing demand, due to global economic malaise. Still, it's been retaining plenty of business, recently inking a $330 million deal (over seven years) with ING, for example.

Finally, D.E. Shaw unloaded several companies, such as U.S. tobacco giant Altria (NYSE: MO  ) , up some 31% over the past year. It has been topping its 52-week highs recently, and looking less like a bargain. It also faces some serious challenges, such as a shrinking smoking rate in America, growing interest in discount cigarette brands, increased regulations, and rising taxes on cigarettes in many states. All that combines to make its global counterpart, Philip Morris International, look more interesting to some investors. Still, Altria offers a hefty dividend yield, recently at 4.8%, and sizable and relatively stable cash flow, as well, and Shaw did increase its call-option position in the stock substantially.

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, and 13-F forms can be great places to find intriguing candidates for our portfolios.

If you'd like to invest in compelling up-and-comers, check out these companies that are just now coming to power in our special free report, "3 Stocks to Own for the Next Industrial Revolution."

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Amazon.com, Apple, and Berkshire Hathaway, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Amazon.com, Apple, and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Apple, Berkshire Hathaway, Exelon, Halliburton, and Amazon.com, as well as creating a bull call spread position on Apple. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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