Analyzing Top Buys of SAC Capital

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 |  Includes: ACE, APC, BJ, BMY, CB, CTL, ESRX, ESV, FAST, HCN, NEM, NWSA, NXPI, SHW, WTW, XL
by: Rash Menaria
SAC Capital Advisors is a $14 billion group of hedge funds founded by Steven A. Cohen in 1992. The firm employs approximately 150 investment personnel and is regarded as one of the most successful hedge fund firm. The following is a list of SAC Capital’s top 15 buys in the last quarter, as released in its most recent 13F filing with the SEC:
Stock
Symbol
Shares Held - 12/31/2010
Shares Held - 03/31/2011
Newmont Mining Corp.
85,820
4,604,460
Centurylink, Inc.
9,585
5,108,220
Weight Watchers International, Inc.
7,951
2,127,001
The Chubb Corporation
24,198
2,308,301
ACE Limited
0
1,919,438
Express Scripts Inc.
987,130
3,186,872
XL Group Plc
239,564
4,469,258
Bristol-Myers Squibb Company
96,179
3,681,609
NXP Semiconductors NV
590
2,939,697
Fastenal Co.
9,229
1,298,872
BJ's Wholesale Club Inc.
1,138,620
2,838,600
Anadarko Petroleum Corporation
46,699
1,052,845
Sherwin-Williams Co.
56,143
998,546
Health Care REIT
12,687
1,469,992
News Corp.
37,197
4,370,489
Ensco Plc
127,884
1,433,188
Click to enlarge

Here is my take on SAC Capital’s top five buys by market value:

Newmont Mining Corporation (NYSE:NEM) is a gold producer. The company expects to produce 5.1-5.3 mn ozs of gold for 2011 and increase production by 35% to 7 mn ozs by 2017. Most of this production growth is likely to come through expansions at existing assets as these consume less capital. The company has a solid balance sheet with $3.5 bn in cash, $1.8 bn in marketable securities and $1.8 bn in revolver capacity which is likely to help its growth plans and dividends. Further, Newmont has a unique gold price linked dividend policy. It has a base level of $0.40/sh at a $1,100-$1,199/oz gold price and increases by $0.20/sh for every $100/oz increase in the average gold price for the quarterly period. Although I won’t like to speculate on where the gold prices are headed, Newmont definitely appears a good buy for those investors who have a bullish view on gold.
Century link (NYSE:CTL) is third largest telephone company in US. The company is a compelling value story with over 7% dividend yield and is trading between 6-7x 2012E EV/EBITDA. There is a near term catalyst as well. The company is likely to show better integration synergy from Qwest acquisition as compared to its original conservative guidance of $625 mn. I recommend a buy on this stock and expect it to be a beat and raise story going forward in addition to being a compelling value play.
Weightwatchers International (NYSE:WTW) is the world’s largest provider of commercial weight loss services. Its stock price has gained over 181% in last one year and it is now trading at 16.35x forward (2012E) EPS. Although I do understand and appreciate the compelling multi-year growth opportunity, I remain neutral on the stock and would wait for a better entry point to buy the stock.
The Chubb Corporation (NYSE:CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. I have a neutral rating on the stock. On June 20th, CB announced that it estimated aggregate losses from catastrophes for the months of April and May 2011 were approximately $250 million to $310 million before tax (approximately $0.55 to $0.68 per share after tax). Losses during the two month period were primarily related to tornadoes and severe storms in the United States. Chubb had previously disclosed in its Form 10-Q for the quarter ended March 31, 2011, that its estimated catastrophe losses for the month of April 2011, were between $175 million to $225 million before tax. Chubb’s geographic concentration exposes it to catastrophe losses. Experts predict that the April-May catastrophe losses would cost about $7.7–$12.5 billion to the industry. According to them, the insurers overall have already incurred heavy catastrophe loss, which is almost twice the figure earlier predicted for full-year 2011. On the other hand a weak housing market and "jobless" economic recovery have kept material growth from returning to homeowners thus affecting CBs’ personal insurance products. Also, price competition in commercial insurance and reinsurance could affect profitability.
ACE Limited (NYSE:ACE) appears a good buy for a long term horizon. I do understand that the company has an exposure to the commercial insurance sector whose fundamentals are weak, but so are the valuations of whole sector. Companies with good fundamental in the sector may offer attractive long term risk-reward. I believe ACE offer investors stronger top and bottom line prospects than the broader non life sector given its international exposure. Further, the company is trading at a slight discount to peer group at less than 0.9x book value which makes a good value buy if one can hold it for long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.