By Eric Winter
Perhaps one of the most well-known traders in the world, Steven Cohen, has been running his hedge fund SAC Capital Advisors for over twenty years now. The fund recently released its 13F filing for the last quarter of 2012, and we have searched the nearly 500 new purchases made to find the largest of the bunch. One of the main reasons we have such a keen interest of these SEC documents is because we have found that a basket of the most popular small-caps amongst hedge fund managers can significantly outperform the market (see what we mean here). Let's take a look at Cohen's biggest new portfolio additions below.
O'Reilly Automotive, Inc. (ORLY) stands as his largest new position, earning a $77mm allocation from the manager. The automotive parts retailer, which competes in the same space as AutoZone (AZO) and Advanced Auto Parts (AAP), gave consistently good earnings performances throughout last year, beating each quarter. The most recent beat occurred early last month; during its earnings call, ORLY guided higher EPS and higher revenues for 2013, leading to a forward P/E ratio of 16. Consolidated comparable store sales are also expected to increase by 3-5%. Billionaire Ken Griffin of Citadel Investment Group recently propped up his call option position in ORLY.
French networking and technology company Alcatel-Lucent SA (ALU) has seen increased attention from funds like SAC; its popularity grew amongst the hedge funds we track going into the end of 2012. The past twelve months have not been kind to ALU, as the stock has decreased in value by 38%. However, ALU continues to expand its ventures in countries like India, Iraq, Sri Lanka, developing and managing wireless broadband infrastructure and services. The stock has received a number of upgrades this year, garnering positive attention from the likes of Morgan Stanley, Citi, and Goldman Sachs. Israel Englander of Millennium Management bought 500,000 shares in Q4 2012.
AbbVie Inc. (ABBV) now holds a 0.26% place in Cohen's portfolio; although that may seem small, it amounts to over $50mm. The pharmaceuticals company is best known for its immunology drug Humira; it also has a catalogue of other drugs that are difficult to produce, edging out its competition in that regard. ABBV is hoping to increase shareholder value with a recently-announced $1.5bn stock buyback. The repurchase will be completed over the span of several years but has the potential to be discontinued anytime at the company's discretion. Billionaire Dan Loeb joined Cohen by initiating a position at the end of last year as well.
With an allotment of slightly over $46mm, Analog Devices, Inc. (ADI) was SAC's fourth largest new addition. Going back twelve months, ADI beat the market by five percentage points, pushing it near the top of its 52-week range. Both Credit Suisse and ISI Group are bullish as of the start of this year, raising their ratings to Outperform and Strong Buy, respectively. During its most recent earnings announcement on February 19th, ADI upped its quarterly dividend by 13% compared to last quarter's dividend, giving the stock a forward yield of 2.89%. Billionaire David Harding of Winton Capital Management reduced his position by about 15% going from Q3 2012 to Q4 2012.
Two Harbors Investment Corp. (TWO) is the last new purchase on our list; the company falls into the small cap range with its size of $3.9bn. The REIT maintains a focus in residential mortgage-backed securities, loans, and residential property. The company has delivered earnings miss after earnings miss, including a negative surprise of five cents in its most recent announcement for the period ending December 2012. TWO saw its popularity amongst the 400+ hedge funds we track decline slightly going into the end of last year. David Tepper of Appaloosa Management shaved 15% from his 2.7mm share position according to his latest 13F (read about his favorite stocks here).