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D.E. Shaw & Co is widely known as a quantitative hedge fund founded in 1988 by David E. Shaw. A quantitative fund usually generates profit from small irregularities in market pricing by holding the positions for less than a few weeks at a time.

Jim Simons employs the same strategy for his Renaissance Technologies. However, both Jim Simons and D. E. Shaw also make relatively longer-term large bets in large cap stocks. For example, Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Caterpillar (NYSE:CAT), Johnson & Johnson (NYSE:JNJ), Exxon Mobil (NYSE:XOM), Procter & Gamble (NYSE:PG), JPMorgan Chase (NYSE:JPM), and Wal-Mart Stores (NYSE:WMT) are among the top 20 positions in D. E. Shaw’s 13F portfolio at the end of September. As you can see below, all of Shaw’s top 20 positions were also in his portfolio at the end of June.

Company Name

Ticker

Value

Activity

APPLE INC

AAPL

917446

25%

GOOGLE INC Put

GOOG

754287

25%

APPLE INC Put

AAPL

563422

235%

CATERPILLAR INC Put

CAT

304221

37%

MYLAN INC

MYL

289655

-5%

JOHNSON & JOHNSON Call

JNJ

260300

88%

MEDCO HEALTH SOLUTIONS

MHS

255326

785%

WARNER CHILCOTT PLC

WCRX

246580

-1%

GOOGLE INC

GOOG

223871

-28%

BAIDU INC Put

BIDU

191786

16%

EXXON MOBIL CORP

XOM

188379

3%

BERKSHIRE HATHAWAY

BRK.B

184484

1007%

PROCTER & GAMBLE CO

PG

179587

-38%

AMAZON COM INC Call

AMZN

175017

26%

EXXON MOBIL CORP Call

XOM

170535

-17%

ENDO PHARMACEUTICALS

ENDP

161359

7%

QUALCOMM INC Call

QCOM

159506

160%

COLGATE PALMOLIVE

CL

158386

24%

JPMORGAN CHASE & CO

JPM

157439

28%

WAL MART STORES INC

WMT

154952

-1%

The total value of Shaw’s 13F portfolio was reduced from $34 billion at the end of June to $32 billion at the end of September. But the fund invested in more positions. It had 3,081 positions at the end of June. Now it invested in 3,203 different positions. Shaw bought some new positions over the third quarter. For instance, he initiated a brand new $101 million position in Pfizer (NYSE:PFE) call position. Shaw also had $138 million invested in PFE stock, up 18% from the end of June. Since the end of September, PFE returned 16.51%, outperforming the 9.77% of SPY. Ken Fisher’s Fisher Asset Management also had $389 million invested in PFE shares at the end of September.

The largest position in Shaw’s portfolio at the end of September was Apple Inc (AAPL). According to the latest 13F filing of D.E. Shaw, the fund increased its stake in AAPL by 25% to $917 million in the third quarter. In the fourth quarter, AAPL underperformed the market. But its performance so far this year was quite good: it had a double-digit YTD return of 18.89%, beating the -0.81% of SPY. Shaw also hedged the downside risk by increasing his put position in AAPL by 235% to $563 million. Additionally, Apple’s earnings are expected to grow at over 20% per year in the next five years, making it relatively undervalued compared to its peers.

We like Shaw and his top stock picks. Though some of his top positions underperformed the market in the fourth quarter, it is very likely that they are trading at a discount right now. Shaw also protected himself by hedging his long positions. Our research has shown that investors will be more likely to outperform the market in the long run by imitating the top stock picks of successful investors like D.E. Shaw.

Source: Billionaire David Shaw's Favorite Stock Picks