Stamford, CT-based leading multi-strategy 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. Mr. Cohen is among the most high-profile hedge fund managers, and has been dubbed as '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, CT 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%-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, their 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 its top high conviction buys in the healthcare sector in Q1 2012 (priors article on their high conviction bets in the basic materials and energy, and the technology sector can be accessed by clicking on the above hyperlinks):
Ariad Pharmaceuticals Inc. (ARIA): ARIA is engaged in the development of drugs that treat aggressive and advanced-stage cancer by regulating cell signaling with small molecules. It is also developing small-molecule drugs that block signal transduction pathways in cells responsible for osteoporosis and immune and inflammatory diseases. SAC Capital added $47 million in Q1 to its $43 million prior quarter position. Other leading institutions with large bullish bets on ARIA in Q1 include mega fund T Rowe Price Associates adding a (almost) new 3.5 million share position, and New York-based biotech-focused hedge fund, Baker Bros. Advisors adding 1.6 million shares to its 5.4 million share prior quarter position.
ARIA shares have been surging this year, up about 40% YTD, and they are also up about 20-fold from the lows in 2008-09 to twelve-year highs. In the most recent Q1 (March), the company posted a higher loss than analyst estimates (35c v/s 23c). While much of the recent surge in ARIA shares is on account of investor enthusiasm about the potential of its ponatinib treatment for chronic myeloid leukemia and Philadelphia chromosome positive (Ph+) acute myeloid leukemia, with the company planning for a marketing approval submission in the U.S. and Europe for Q3 of 2012, investors are also enthusiastic about some of the earlier stage candidates in its pipeline, most notably AP26113 for lung cancer and other tumors.
Abbott Laboratories (ABT): ABT is a developer of pharmaceuticals, diagnostic systems, nutritional supplements and vascular, ophthalmic and eye care products. SAC Capital added $18 million in Q1 to its $1 million prior quarter position. Other leading institutions with large bullish bets on ABT in Q1 include Lazard Asset Management adding 4.6 million shares to its 0.1 million share prior quarter position, and mega fund Vanguard Group, with $1.6 trillion in assets under management, adding 3.8 million shares to its 61.7 million share prior quarter position.
ABT have fared well this year, up about 10% YTD, and near all-time highs, trading at 11-12 forward P/E and 3.8 P/B compared to averages of 12.1 and 4.4 for its peers in the big pharmaceutical companies group. The company is a consistent grower, with annual earnings up every year recently, including even through the 2008/09 recession, and it sports a healthy dividend yield of 3.3%.
Wellpoint Inc. (WLP): WLP is a provider of managed healthcare services through PPO, HMO and POS, indemnity and other hybrid plans to 33.3 million members. SAC Capital added $38 million in Q1 to its $5 million prior quarter position. Other leading institutions with large bullish bets on WLP in Q1 include Marathon Asset Management adding a new 2.5 million share position, and New York-based fund management company Arnhold & S Bleichroeder, with $22.8 billion in 13-F assets, adding 2.1 million shares to its 3.5 million share prior quarter position. WLP shares are flat YTD, and they currently trade at 7-8 forward P/E and 0.9 P/B compared to averages of 9.7 and 1.7 for its peers in the HMO group.
The following are healthcare sector stocks that SAC is bearish about, selling shares in them in Q1 2012 (see Table):
- Gilead Sciences Inc. (GILD), a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases, in which it cut $192 million in Q1 from its $199 million prior quarter position;
- Amylin Pharmaceuticals (AMLN), that develops drugs for the treatment of diabetes, obesity and other diseases, in which it cut $56 million in Q1 from its $57 million prior quarter position;
- Mylan Inc. (MYL), which is one of the world's leading developers of generic and branded drugs, providing products that cover a vast array of therapeutic categories to customers in over 150 countries and territories, in which it cut $42 million in Q1 from its $57 million prior quarter position;
- Illumina Inc. (ILMN), a developer of integrated systems for the large-scale analysis of genetic variation and biological function, in which it cut $41 million in Q1 from its $45 million prior quarter position;
- Biogen Idec Inc. (BIIB), that is engaged in the research, development and commercialization of therapies for the treatment of multiple sclerosis, cancer and auto-inflammatory diseases, in which it cut $35 million in Q1 from its $142 million prior quarter position;
- Medivation Inc. (MDVN), that develops novel small molecule drugs for the treatment of prostate cancer, Alzheimer's disease and Huntington's disease, in which it cut $34 million in Q1 from its $39 million prior quarter position;
- Jazz Pharmaceuticals (JAZZ), that develops specialty drugs to treat unmet medical needs in neurology and psychiatry, in which it cut $28 million in Q1 from its $29 million prior quarter position; and
- Intuitive Surgical Inc. (ISRG), that is a pioneer in the field of surgical robotics, is the developer of the da Vinci Surgical System designed to aid surgeons in conducting minimally-invasive surgery by offering surgeons superior 3D HD visualization, enhanced dexterity, and greater precision and ergonomic comfort, in which it cut $12 million in Q1 from its $13 million prior quarter position.
Credit: 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.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.