Stamford, Conn.-based leading multistrategy hedge fund SAC Capital, founded and led by legendary manager Steven Cohen, filed its latest 13-F for Q1 2012 indicating that it ended the quarter with $22.24 billion in 13-F assets, up from the $15.8 billion in 13-F assets in its prior Q4 filing. Cohen is among the most high-profile hedge fund managers, and has been dubbed "The Hedge Fund King" in a 2006 Wall Street Journal article and was ranked 94th on Time Magazine's annual list of the most influential people. His net worth is estimated by Forbes at $8.3 billion, ranking him as the 35th richest person in the U.S. He is also among the highest compensated hedge fund managers, with a $1 billion paycheck in 2005 and again in 2010.
His Hedge Fund, SAC Capital, is among the giants on Wall Street both in terms of assets under management as well as consistent long-term performance at about 30% annual returns over the last two decades. The hedge fund is incorporated offshore in Anguilla, British West Indies, and maintains trading offices in Stamford, Conn., and New York City, with satellite offices in San Francisco, Hong Kong, Boston, and London. While the 2/20 compensation structure is fairly standard in the hedge fund industry, meaning 2% of AUM and 20%-30% of annual returns, SAC Capital is able to charge a premium of 3/50 to investors in its fund, the highest in the industry. The fund is well-diversified with over 2,000 positions, and about 40% of its holdings are in large-caps, another 40% is in mid-caps and the remaining 15% is in small-cap equities.
On any given day, SAC Capital is estimated to account for between 1% and 3% of the trading volume on the major exchanges, and thus has significant clout in terms of money flow and at least short- to intermediate-term equity pricing. Also, its capital is well-diversified across industries. Thus, in analyzing its 13-F, we determined its highest conviction bets by sector, selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company.
Based on that analysis, the following are three of its bullish positions in Q1 2012, that trade undervalued compared to the peers in their respective groups, and also have analysts projecting strong earnings growth going forward (see table below):
Molycorp (MCP): MCP is engaged in the mining and processing of rare earth ores at the mountain pass facility near the CA/NV border. The rare earths are critical inputs in existing and emerging applications, including: clean energy technologies, such as hybrid and electric vehicles and wind power turbines; multiple high-tech uses, including fiber optics, lasers and hard disk drives; numerous defense applications, such as guidance and control systems and global positioning systems; and advanced water treatment technology for use in industrial, military and outdoor recreation applications.
SAC added $34 million to its $1 million prior quarter position. Other major institutional investors with large bullish bets on MCP in Q1 include mega fund Wellington Management adding 0.6 million shares to its 2.0 million share prior quarter position, and diversified financial services provider Ameriprise Financial adding 0.5 million shares to its 0.5 million share prior quarter position.
MCP shares have been falling recently, down by over 40% since the recent highs six weeks ago, and down about 10% YTD. The company recently priced $650 million in Senior Secured Notes to fund a portion of its proposed acquisition of Neo Materials for approximately C$1.3 billion, leading to the creation of the most technologically advanced, vertically integrated rare earth companies in the world. MCP shares currently trade at 7-8 forward P/E and 1.7 P/B, while earnings are projected to rocket up from $1.27 in 2011 to $2.95 in 2013, at an average annual growth rate of 52.4%.
Transocean (NYSE:RIG): RIG provides offshore contract drilling for oil and gas wells worldwide. SAC Capital added $124 million in Q1 to its $6 million prior quarter position in the company. Other leading institutions with large bullish bets on RIG in Q1 included legendary billionaire investor Ken Griffin's Chicago-based hedge fund Citadel Advisers adding 1.3 million shares to its 0.4 million share prior quarter position, and Chicago-based hedge fund company Balyasny Asset Management (NYSE:BAM), headed by Guru Dmitri Balyasny, adding a new 0.8 million share position.
RIG reported its Q1 (March) earlier this month, on May 2, missing on revenues but beating analyst earnings estimates by a wide margin (64 cents vs. 34 cents), after excluding impairment charges, lifted by an improvement in utilization levels and rising rig rates. Its shares have been weak recently, sliding about 13% in the two-and-a-half weeks since the report, mostly due to the weakness in the energy sector in general. RIG shares currently trade at 8-9 forward P/E and 0.9 P/B compared to averages of 14.3 and 1.4, respectively, for the oil & gas drilling group, while earnings are projected to stage a strong rebound going forward, rising from $1.32 in 2011 to $5.07 in 2013 at an annual growth rate of 96.0%.
Andarko Petroleum (NYSE:APC): APC is one of the world's largest independent oil and gas exploration and production companies, with a majority of its reserves located in the U.S., in the mid-continent in Kentucky, Oklahoma and Texas, offshore in the Gulf of Mexico, and in Arkansas. SAC Capital added $52 million in Q1 to its $64 million prior quarter position in the company. Other leading institutions with large bullish bets on APC in Q1 included billionaire and investment legend Ken Fisher's Fisher Asset Management adding 3.7 million shares to its 4.8 million share prior quarter position, and mutual fund powerhouse Fidelity Investments adding 1.6 million shares to its 28.0 million share prior-quarter position.
APC reported its Q1 (March) at the end of last month, with revenues coming in line and beating earnings by a wide margin (92 cents versus 83 cents). Also, earlier in March, the company received favorable news last month on a resolution of its long-standing dispute with Algeria and its state oil company Sonatrach, under which APC will receive $1.8 billion worth of crude over 12 months once the deal is finalized. However, its shares have continue to trade lower, now off over 25% from the highs in February and down 18% YTD and within striking range of its 52-week lows. The shares currently trade at 12-13 forward P/E and 1.6 P/B compared to averages of 15.3 and 5.2 for its peers in the U.S. oil and gas exploration and production group, while earnings are projected to strongly rebound going forward, up from $3.38 in 2011 to $5.31 in 2013, at an annual growth rate of 25.3%.
The following are additional basic materials and energy stocks that SAC is bullish about, accumulating shares in them in Q1 2012 (see table below):
- Walter Energy (NYSE:WLT), that is a producer of hard coking coal from underground mines for by the steel industry, in which it added $106 million in Q1 to its $38 million prior quarter position;
- Sandridge Energy (NYSE:SD), an Oklahoma-based independent oil and natural gas company, in which it added $54 million in Q1 to its $7 million prior quarter position; and
- Teck Resources (TCK), a Canadian miner of coal, copper, zinc, molybdenum, gold and lead, mainly in Canada, the U.S., Chile and Peru, in which it added $46 million in Q1 to its $8 million prior quarter position.
The following are SAC's bearish picks in the basic materials and energy sectors, based on its Q1 selling activity (see table below):
- Oil field equipment and services provider Weatherford International (NYSE:WFT), in which it cut $140 million in Q1 from its $155 million prior quarter position;
- Occidental Petroleum (NYSE:OXY), that is engaged in the exploration and production of crude oil and gas worldwide, in which it cut $85 million in Q1 from its $110 million prior quarter position;
- Freeport McMoran Copper & Gold (NYSE:FCX), that is engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, North and South America, in which it cut $78 million in Q1 from its $91 million prior quarter position;
- Cheniere Energy (NYSEMKT:LNG), an operator of LNG receiving terminals and natural gas pipelines in the Gulf Coast of the U.S., in which it cut $71 million in Q1 from its $84 million prior quarter position;
- Encana (NYSE:ECA), that is engaged in oil and gas exploration and production in British Columbia, Alberta, Offshore Nova Scotia, Wyoming, Colorado, Louisiana and Texas, in which it cut $30 million in Q1 from its $102 million prior quarter position; and
- Barrick Gold (NYSE:ABX), a Canadian company engaged in production of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries, in which it cut $29 million in Q1 from its $34 million prior quarter position.
Source: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long MCP.
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