In this installment of my analysis of recent purchases made by renowned investors, I will present 5 stocks bought by Jim Simons' Renaissance Technologies in the not so distant past using the latest available SEC filings of the firm. I have also calculated my preliminary price targets for several of his stock picks using relative valuation to judge the attractiveness of these companies at current prices. Based on my preliminary analysis, I have short listed 5 stocks that offer decent returns from current levels and can possibly make good additions to one's portfolio.
Sectors represented on the list include energy, capital goods, consumer/non-cyclical, and services.
1) National-Oilwell Varco, Inc. (NOV)
NOV is a $35 billion company by market capitalization and is a provider of equipment and components used in oil and gas drilling and production operations. The stock has performed exceedingly well during the last 5 years and has gained a total of 171% compared to a decline of 7% in the broader markets. During this time period, earnings increased at an annual rate of 8%. Going forward, analysts expect the company to grow at an annual rate of 18% slightly above the projected 16% growth rate of the industry.
Renaissance initiated a position in NOV by acquiring 1.96 million shares during Q3 of last year. The stock traded between $51 and $78 during this time period and currently trades as $82.11 a share. Applying my estimated P/E of 17 to 2012 EPS of $5.93, my initial 12-month price target for NOV is $101 a share. A return of 23% is possible from current levels.
2) 3M Company (MMM)
3M is one of the bigger companies on this list with a market capitalization of over $61 billion. It is a diversified company with operations in industrial, transportation, healthcare, and consumer sectors. The stock has been flat for the last 1 year having lost 1% during the time period. After growing at an annual rate of 5% during the last 5 years, analysts now project a growth rate of 10% in the medium to long term.
Renaissance Technologies bought 936,500 shares of MMM stock during Q3 2011. It was a new purchase. Applying a P/E of 15.7 to the 2012 average analyst EPS estimate of $6.3, my 12-month price target of $99 a share is obtained. From current levels, a return of 13% is possible.
3) The Estee Lauder Companies Inc. (EL)
EL manufactures and markets skin care, makeup, fragrance and hair care products. This New York-based company is a global player with its products sold in over 150 countries. The company increased its earnings at an annual rate of 12% during the last 5 years and is expected to increase its earnings at an annual rate of 15% over the next 5 years compared to the 9.2% growth rate of the industry. Applying a multiple of 26 to my 2012 calendar year EPS estimate of $2.49, my 12-month price target of $65 a share is obtained. It would imply a return of 13% from current levels.
Renaissance Technologies increased its position in EL by 638% by purchasing approximately 1.35 million shares. The stock currently trades at approximately $57.44 a share after trading in the range of $44 to $52 during Q3 of last year.
4) The Walt Disney Company (DIS)
DIS is up 9.27% year to date outperforming the broader S&P500 by 2%. The Burbank, CA based company has a market cap of $73.34 billion and is projected to increase its earnings at an annual rate of 13% which is lower than the projected 18% growth rate of the industry. Renaissance Technologies increased its position in DIS by 386% by buying 2.7 million shares during Q3 of last year. My target of $48 implies a return of 18% from current levels. It is obtained by applying a multiple of 16 to my 2012 calendar year EPS estimate of $3.01.
5) Tenaris S.A (TS)
TS is a manufacturer of steel pipes. Additionally, it is engaged in distribution operations. Renaissance Technologies initiated a new position in TS during the third quarter by acquiring approximately 1.61 million shares. The company's earnings declined at an annual rate of 14% during the last 5 years, but the company is now expected to grow its earnings at an annual rate of 19.5% during the next 5 years, faster than the 15.5% projected growth of the industry. Applying my P/E estimate of 16.8 to 2012 EPS estimate of $2.95 a share, my 12-month price target of $50 is obtained. A return of 29% is possible from current levels.
As always, please do not consider this list as a "buy" list, rather use this list as a starting point for your research. Of the companies listed above, I find TS and NOV particularly attractive based on fundamentals and long-term growth prospects.