Steve Cohen is a legend. His SAC Capital has routinely matched or beat the market. In fact, Cohen has been so successful that when the federal government started its industry-wide insider trading witch hunt, his fund was one of the first to be investigated. ”Every day our firm transacts in thousands of securities,” said Jonathan Gasthalter, a spokesman for SAC Capital. “Given this level of activity, it is not surprising that we would be included in a small percentage of Finra referrals.” He said, “No one at Finra has ever contacted the firm, spoken with our investment professionals or reviewed our research in connection with these matters. We have experienced inquiries by the SEC over the years and cooperated fully, without any negative finding or charge.”
Given that Steve Cohen is so successful that even the federal government can’t figure out how he is so successful, taking a closer look at his portfolio is a good idea for any investor. This is my analysis of Cohen’s top-yielding stocks:
Chimera Investment (CIM) is a real estate investment trust (REIT) that invests in residential mortgage-backed securities (RMBS), residential mortgage loans, commercial mortgage loans, real estate-related securities, and others. Cohen had $38,000 invested in CIM at the end of September, a position of 13,604 shares, after he increased his stake by 12.18% during the third quarter. CIM was trading at $2.6 recently, with a one-year estimate of $2.86 and a 52 cents dividend (19.80% dividend yield). With a profile like that, this company is an easy hold. The dividends are so high that the stock practically pays for itself in less than six years. It’s not necessarily a good buy though, unless you are focused only on dividends. Its quarterly revenue growth is -37.90% compared with rival Capstead Mortgage's (CMO) +66.20%. CIM also has a low earnings growth estimate. Analysts forecast the company’s earnings to grow by just 2.85% per annum over the next five years, compared with 9.05% per annum for the industry.
Penn West Petroleum (PWE) is involved in the exploring and development of petroleum and natural gas properties. Cohen had 36,580 shares invested in PWE at the end of September, in a position worth $540,000, after he reduced his holding in the company by 64.12% in the third quarter. Recently, PWE was going for $19 a share, with a one-year estimate of $28.83 and a $1.06 dividend (5.80% dividend yield). I like this company. It has a good dividend and strong expectations for upside. It also has strong growth, reporting 19.70% quarterly revenue growth, compared with -3% for competitor Encana (ECA), and 27.30% earnings growth per annum over the next five years, versus 16.04% for the industry.
Two Harbors Investment (TWO) is a real estate investment trust that is focused on residential mortgage-backed securities – specifically in their investing, financing and management. After upping his stake in TWO by 9.06%, Cohen owned 14,564 shares in the company at the end of the third quarter in a $129,000 position. Recently, TWO was trading around $9.3 a share, with a $1.60 dividend (17.20% dividend yield). I was recommending TWO as a buy. The company has shown a marked increase in insider purchases in August and the again in November, which is generally a good sign of big things happening. Right now, TWO share prices are a little depressed (the company is trading at just 7.07 times its earnings), but that just leaves more room for upside. Until the stock starts to deliver, the dividend can offset most losses.
Apollo Investment (AINV) is a business development company. It invests in middle market companies, providing direct equity capital and secured loans. After cutting his position in AINV by 7.85%, Cohen had a $280,000 stake in the company at the end of the third quarter, or 37,273 shares. Recently, AINV was trading around $7.2 a share, with a one-year target estimate of $9.19 and a $1.12 dividend (15.60%). In spite of the upside, people like Jim Cramer are calling AINV a sell. He called the high dividend yield a “huge red flag” and said he thinks the dividend will be cut soon. I think Cramer may be right. In looking at analyst estimates, AINV’s earnings growth estimate for the next five years is 4.00% per annum, compared with industry expectations of 12.40% per annum, and the company has just 2.70% quarterly revenue growth.
MFA Financial (MFA) is a real estate investment trust that primarily invests in mortgage-backed securities. Cohen had 33,775 shares or roughly $237,000 in MFA at the end of September after reducing his position in the company by 48.12% in the third quarter. Analysts estimate MFA’s earnings will grow by 3.00% per annum compared with industry estimates of 9.05% per annum. I like MFA and recommend it as a buy at $6.50 or so. Recently, MFA was trading around $7 a share with a one-year target estimate of $7.73 and a $1.00 dividend (14.70% dividend yield). The company has also had a fair amount of insider interest recently and some of the top hedge fund managers have taken a recent interest in the company. For example, George Soros initiated a new position in the company during the third quarter, of 10,800 shares.
Annaly Capital Management (NLY) is a real estate investment trust that owns, manages and finances a range of investment securities. Cohen owned 31,353 shares of NLY at the end of September, in a $521,000 position after slashing his holding in the company by 45.41%. NLY was trading around $16.3 a share, 11.93 times its current earnings or 7.03 times its forward earnings. It has a one-year target estimate of $17.56 and a $2.40 dividend (14.80% dividend yield). NLY is a wildly popular stock. Jim Cramer has recommended it more than once. The Motley Fool owns a position in the REIT, so does Ken Fisher, John Paulson, Bill Gates, Warren Buffett and others. I recommend this stock as a strong buy. It is priced low relative to its earnings, has a strong dividend and decent upside.