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This Massive Hedge Fund Company Has Been Buying Citigroup, Merck, and Hertz

By Selena Maranjian - Mar 10, 2014 at 5:00PM

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Might they interest you, too?

The latest 13F season is here, when many money managers issue required reports on their holdings. It can be worthwhile to pay attention, as you might get an investment idea or two by seeing what some major investors have been buying and selling.

For example, consider D. E. Shaw & Co. Founded by David E. Shaw, the firm has a reportable stock portfolio totaling $73.3 billion in value as of Dec. 31, 2013. Shaw is known as a math wizard and a quantitative investing pioneer. His firm is extremely selective when hiring, reportedly accepting about one in 500 applicants -- Amazon.com CEO Jeff Bezos once made the cut.

D. E. Shaw's latest 13F report shows that it has boosted its positions in Citigroup, ( C -0.70% ), Merck & Company, ( MRK 1.29% ), and Hertz Global Holdings ( HTZG.Q ).

After some tough years, banking giant Citigroup has been turning itself around, and with a forward price-to-earnings ratio near nine, its stock seems to have more room to run. Its retail banking and credit card businesses have been particularly strong lately, and fully 56% of its global consumer banking revenue is from credit cards. Its fourth quarter featured revenue slightly down from year-ago levels and earnings up 19%. Bulls like its prospects, given its strengthening financials, a rebounding housing market, and its stock valuation. Bears worry about global vulnerabilities and whether our government will address the issue of banks being too big to fail.

Pharmaceutical giant Merck has been challenged by competition from generics and slowing growth, and its fourth-quarter report was mixed, with revenue and earnings slipping from year-ago levels. Still, some $11 billion was returned to shareholders in the form of dividends and stock buybacks, and bulls are hopeful about Merck's turnaround plan, which includes downsizing, focusing on more focused drug development, and possibly selling its consumer products business. That division features names such as Coppertone, Claritin, and Dr. Scholl's, and could fetch $11 billion. The company's pipeline is promising, too. Merck's stock yields 3.1%.

Hertz Global Holdings is not just a car rental company. It also rents items such as tools and heavy construction equipment. Hertz's brands include names such as Dollar, Thrifty, and Firefly. (Hertz bought Dollar Thrifty in 2013 for $2.3 billion.) The company's forward P/E of 11 is appealing, but it carries more than $10 billion in debt, too. Hertz's stock took a hit last week when it said it would be late filing its 10-K report and that it expects to revise some numbers. The company posted strong revenue growth in its third quarter, but earnings dropped.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
C
$62.46 (-0.70%) $0.44
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
MRK
$73.21 (1.29%) $0.93
Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.
HTZG.Q

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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