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 Renaissance Technologies hedge fund company, founded by James Simons, and known for its quantitative approach to investing. Indeed, Simons explained in 2007 that: "We hire physicists, mathematicians, astronomers and computer scientists and they typically know nothing about finance. ... We haven't hired out of Wall Street at all." The company's most well-known fund is the Medallion Fund. Interestingly, most of the company's assets belong to employees of the firm, and outside investors are generally turned away.
Why should you look at Renaissance Technologies' moves? Well, it's hard to find performance data for it, but in his 2009 book Blunder: Why Smart People Make Bad Decisions, Zachary Shore noted that Renaissance's flagship Medallion fund "has yielded an average 38% annual return since its inception in 1988. The fund has lost money only in a single year, 1989, when it dropped 4.1%." That's so remarkable that some have mused that it's either a Madoff-like Ponzi scheme or a simply amazing hedge fund.
Renaissance's stock portfolio totaled a whopping $33.2 billion in value as of June 30, 2012, with several thousand holdings. (Concentration, thy name is not Renaissance Technologies!)
So what does Renaissance's latest quarterly 13F filing tell us? Here are a few interesting details:
New holdings include Arch Coal (NYSE: ACI ) , which produces coal used in the utilities and steel industries. The stock is down about 63% over the past year, whacked by a slowdown in China's economy coupled with low prices for natural gas. Some wonder whether Arch Coal might get acquired by a healthier rival. In the meantime, news of production reductions in China, Russia, and elsewhere bodes well for future coal prices.
Among holdings in which Renaissance increased its stake was Peabody Energy (NYSE: BTU ) . Speaking of healthier coal rivals, Peabody Energy is one company named as a potential suitor for Arch Coal. Profitable and with rising revenue and earnings, it has been called "the most powerful name in energy." It took on a lot of debt to buy operations in Australia, but that positions it well to supply growing Asian demand. Still, some think that coal's glory days are numbered, given the rise of alternative energies and the growing profile of natural gas.
Renaissance reduced its stake in lots of companies, including Corning (NYSE: GLW ) . The company has suffered from weakness in the LCD panel market, as new TVs haven't been flying off shelves too quickly. Demand is likely to perk up eventually, though, boosting Corning's business. On the plus side, Corning's Gorilla Glass has found a profitable home in millions of smartphones and tablets, which are proliferating. The company has also developed Willow Glass, which is thin and flexible.
Finally, Renaissance unloaded gobs of companies, such as Alcatel-Lucent (NYSE: ALU ) and Linn Energy (Nasdaq: LINE ) . Alcatel-Lucent, with its shares down some 66%, seems to be either a dog... or a screaming bargain. The telecom concern is burning through cash, is challenged by competition and price wars, and is seeing business drop off in its biggest networking segment, wireless. Interested investors might want to take a wait-and-see approach with the company.
Oil and gas concern Linn Energy, meanwhile, looks tempting with its dividend yield recently at 7.4% and its P/E ratio below 10. The company is planning to ramp up production substantially in the coming year, and bulls like the degree to which it has hedged oil and natural gas prices. The fact that natural gas prices seem to be inching up bodes well for the company, as well as other energy players.
Keep in mind that none of these positions is too critical for the Renaissance portfolio, since it owns hundreds of stocks. Its top three holdings, after all, together make up less than 5% of the portfolio.
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. 13F forms can be great places to find intriguing candidates for our portfolios.
There are plenty of reasons to consider Corning for your portfolio. To learn more about its risks and great potential, check out our premium research report on the company.