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, a hedge fund founded by James Simons in 1982 and run by him until 2010. It's known for its quantitative approach to investing, with Simons explaining 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." Interestingly, most of the company's assets belong to employees of the firm, with only some funds open to outside investors.
Why should you look at Renaissance Technologies' moves? Well, it's hard to find comprehensive performance data for it, but a 2013 Wall Street Journal article reported that, per the company, Renaissance's flagship Medallion fund has averaged annual gains of 35%, after fees, since inception, with few quarters in the red. That's so remarkable that some have remarked that it's either a Madoff-like Ponzi scheme or a simply amazing hedge fund. A big part of its performance is due to significant leverage.
The company's reportable stock portfolio totaled $47 billion in value as of March 31, 2015, with several thousand holdings. Its most well-known fund is the Medallion Fund.
So, what does Renaissance's latest quarterly 13F filing tell us? Here are a few interesting details: The company established a big new position in Amazon.com (AMZN -0.77%), with the stock quickly becoming its fourth-largest holding. It also more than quadrupled the size of its position in Gilead Sciences (GILD 0.98%), its sixth-largest holding, and catapulted Intel (INTC -1.11%) into 23rd place by increasing its position in it by 2,680%.
Amazon.com is a many-tentacled beast, offering a huge array of products and services. Its Amazon Prime service, known mainly for free shipping, also offers free movies (including original content such as the critically acclaimed Transparent series), music, and books. It has recently targeted the corporate world with Amazon Business, offering multiuser business accounts, is appealing to the masses with free shipping on many small items (with no Prime membership required), and is selling foods though its Prime Pantry service (while planning to offer its own private-label groceries). It's even working on drone delivery services! Amazon.com is a major cloud-computing specialist, too, with entities and services such as Netflix, Spotify, Healthcare.gov, Instagram, Airbnb, and even the CIA depending on Amazon Web Services (AWS). In its last quarter, AWS's revenue surged 49% year over year, topping $1.5 billion.
Still, while Amazon's growth has been impressive, with its revenues averaging annual gains of 29% over the past decade, operating income has averaged an annual loss, and several of the past few years have featured net losses. That reflects a lot of investment in growth over the years and makes the company best suited to long-term investors who can wait until Amazon is ready to turn on the profit spigot.
Gilead Sciences, with a market capitalization recently topping $167 billion, is a big biotech company, leading in the HIV and hepatitis C fields. Its hepatitis drugs Harvoni and Sovaldi, for example, together generated more than $12 billion in sales in 2014. Not all its offerings are big winners, though, with cardiovascular drugs Letairis and Ranexa and cancer drug Zydelig delivering less-than-hoped-for results so far. The company's pipeline is fat, though, with several dozen clinical trials under way, eight of which are in phase 3 trials. A phase-2 candidate, liver-disease drug simtuzumab, seems particularly promising. Also promising is Gilead's cash pile of more than $10 billion, which can help it simply acquire promising drugs.
Given the fact that Gilead Sciences is growing briskly -- last quarter, its earnings nearly doubled year over year -- and that its P/E ratio has been in the low teens, it looks quite attractive, making Renaissance's interest in it understandable. Still, interested investors should remember that competitors abound (such as AbbVie in hepatitis and a joint venture between GlaxoSmithKline and Pfizer in HIV), and that not all drugs in development eventually earn FDA approval, despite the huge costs of developing them. Patient believers can enjoy a new dividend that yields 1.5% and a whopping $15 billion share buyback program.
Intel Corporation's dominant position in the PC chip business might have you thinking that it's in trouble, as PC sales are weakening as consumers turn more to smartphones and tablets. But Intel is changing with the times, and has become a significant player in the cloud computing arena with its data centers. In its last quarter, overall revenue was flat year over year, at $12.8 billion, but data center revenue grew by double digits. More specifically, tablet platform volumes surged 45% year over year in its last quarter, while desktop platform volumes sank by 16%. Meanwhile, data center unit volumes grew by 15%, with prices rising by 5%, too.
Intel's most recent big news, though, is that it's buying Altera (NASDAQ: ALTR) for about $16.7 billion -- its biggest purchase ever. Altera specializes in field-programmable gate arrays, or FPGAs, which can help Intel's server and data center businesses (FPGAs can speed up servers) and give it inroads into networking and wireless applications. It plans to integrate FPGAs into its processor chips, for example. Intel's future is not certain, but with annual free cash flow topping $11 billion and a P/E ratio in the low teens, it's not hard to appreciate what Renaissance Technologies sees in it. Intel stock offers patient believers a 2.8% dividend yield, too.
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.