The latest 13F season is here, when large money managers are required to publish reports on their holdings. It can be worthwhile to pay attention to these documents, as you might get an investment idea or two by seeing what these investors have been buying and selling.
For example, consider Point72 Asset Management, formerly known as SAC Capital Advisors. SAC Capital, headed by Steven Cohen, was one of the biggest hedge fund companies around -- until allegations of securities fraud and insider trading led to a fine of more than $1 billion. Now the company, which will no longer manage anyone's money other than that of Cohen, his family, and some employees, has a new name.
As of March 31, 2015, Point72 Asset Management's reportable stock portfolio was valued at $14.7 billion.
So what does Point72 Asset Management's latest quarterly 13F filing tell us? For one, the company added new positions in The Coca-Cola Co. (NYSE: KO), Advanced Auto Parts(NYSE: AAP), and CarMax (NYSE: KMX).
Coca-Cola is an interesting choice as a new position, as it faces slowing growth and tough challenges to its soda business. Still, it's a behemoth in the beverage realm, and is poised to benefit from emerging markets where growing middle classes will be able to afford to quench their thirsts with its offerings. More than 20 of its hundreds of drinks generate annual revenue of over $1 billion. The company has been diversifying away from sodas, too, adding teas, juices, water, and energy drinks to its mix. It is also cutting costs, aiming for $3 billion in annual savings by 2019.
Coca-Cola's dividend recently yielded a solid 3.2%; it boosted that payout by 8% in February, its 53rd consecutive annual increase. That bodes well, but its dividend growth rate might have to slow soon, as its payout ratio has more than doubled in the past year, to more than 80%. Meanwhile, the stock's current and forward-looking P/E ratios are above its five-year average of 18.6, suggesting it's not a huge bargain right now.
Advanced Auto Parts
Advanced Auto Parts offers little in the way of a dividend (0.20% yield), but the $11 billion company has been rewarding shareholders via stock growth, which has averaged 14.8% over the past decade. It's North America's largest automotive aftermarket parts provider, with revenue and net income increasing by an annual average of about 10% over the past decade and earnings per share growing even more briskly, in part due to reductions in share count.
The company bought General Parts International for about $2 billion in early 2014, and management blamed the two companies' ongoing integration for weaker than hoped for results in the last quarter; it added though, that net benefits are anticipated down the road. A headwind for the entire industry has been that consumers have been keeping their cars longer, resulting in greater need for parts.
CarMax is a used-car lot on steroids. It boasts roughly 150 used-car stores across America, making it our nation's largest used-car seller. Its special angle is no-haggle pricing, putting customers at ease. This formula has been working, with revenue averaging annual growth of 10.5% over the past decade while net income has averaged 18.1%. In its last quarter, CarMax did even better, with revenue jumping 14.2% year over year and earnings per share surging 52.3% -- in part due to a robust $913 million in stock repurchases over the year. (CarMax has another $2.4 billion remaining in its authorized stock buyback plan.) While sales of extended warranties made up only about 2% of company revenue in the fourth quarter, they doubled on a year-over-year basis, suggesting a potentially powerful revenue stream.
Still, there are red flags that might make an investor reconsider. Stock buybacks can be great, reducing share count and making shareholders' ownership stakes stronger, but they destroy value if executed when the stock is overvalued. With current and forward-looking P/E ratios above CarMax's five-year average P/E of 19.5, shares seem more overvalued than undervalued. Additionally, it has been free-cash-flow negative for several years, and with little cash on hand has upped its long-term debt load from close to $4 billion in 2011 to more than $8.5 billion recently.
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.