Jim Simons founded Renaissance Technologies (RenTech), an investment firm, in 1982. The firm, considered one of the most successful hedge funds, relies on quantitative models (high frequency trading), analyzing as much data as possible, to identify non-random movements in the stocks so as to exploit stock market inefficiencies and make predictions. The firm's funds returned as much as 33% in 2011 and 30% in 2010.
Simons, who has a Ph.D. in mathematics, also known as the "Quant King," retired from RenTech in 2010. He continues to play a role of non-executive chairman at the company. Simons is estimated to own $10.7 billion and is ranked by Forbes magazine as the 82nd richest person in the world.
Here are Rentech's 5 largest positions that yield more than 10-year Treasuries:
McDonald's Corporation (MCD) has a 1.63% share in Simon's RenTech portfolio, valued at $465 million. The stake was boosted by 112% in the first quarter of 2012. McDonalds is a $90 billion company and the world's largest chain of hamburger fast food restaurants. The company pays a dividend yield of 3.2% on a payout ratio of 52%. Its peers Yum! Brands (YUM) and Darden Restaurants (DRI) pay yields of 1.8% and 3.4%, respectively. The stock has seen robust dividend growth over the past five years. Over the past five years, the company's EPS grew robustly at an average rate of 18% per year. Analysts forecast that EPS will expand at a more moderate rate of 9.8% a year over the next five years. In terms of the forward-earnings valuation, McDonald's is valued well below its industry and its own historical metrics. The stock is changing hands at $88.35 a share, down nearly 11% year-to-date. Hedge fund manager David Winters also has a stake in the company (check out Wintergreen Advisors portfolio).
Apple (AAPL) represents the second largest stake in Simon's portfolio, with a 1.55% share or about $441.6 million in investment. The stake was reduced by 42% in the previous quarter. The company is the largest publicly-traded business entity in the world, with a market capitalization of $544 billion. The company sells a variety of consumer electronics, including computers and software. Its famous trademarks include iPhone, iPad, iPod, and Mac. Apple has seen tremendous growth in revenues, which has driven a surge in the company's earnings per share (EPS). EPS grew, on average, 65% per year over the past five years. Analysts forecast vibrant double-digit EPS growth in the next half decade.
Apple will initiate a quarterly dividend of $2.65 a share starting in its fiscal fourth quarter which begins on July 1, 2012. At current prices, the annualized dividend will yield 1.9% on a payout ratio of 26%. Its competitors Microsoft (MSFT) and Hewlett-Packard (HPQ) pay dividends yielding 2.7% and 2.6%, respectively. Competitor Google (GOOG) does not pay any dividends, while Dell (DELL) will soon initiate a dividend yielding 2.7%. On a forward-earnings basis, Apple trades at a premium to its peers. The stock is changing hands at $582 a share, up 41.5% year-to-date. Famous investors David Einhorn, David Tepper, John Griffin, and Dan Loeb are also bullish about the company.
Bristol-Myers Squibb Company (BMY) represents RenTech's third largest holding, with a 1.53% share in the total, valued at $438.4 million. The company is a global developer, manufacturer, and distributor of biopharmaceutical products, with market capitalization of $60 billion. It pays a dividend yielding 3.8% on a payout ratio of 61%. The company's competitors Astra Zeneca (AZN), Eli Lilly (LLY), and Merck (MRK) pay dividend yields of 9.1%, 4.7%, and 4.3%, respectively. The company's EPS expanded at an average annual rate of 28.4% over the past five years. While its EPS beat the Street in the first quarter of 2012, they are still forecast to drop 14% this calendar year and to remain mostly flat over the next five years. Bristol-Myers Squibb boasts a high forward P/E, trading at a premium to its peers but slightly below the company's own historical metrics. The stock is currently trading at $35.36 a share, up 1% year-to-date and close to its 52-week high. Fund manager Irving Kahn (Kahn Brothers - see top picks) is also a major investor in the company.
Eli Lilly is RenTech's fourth single largest holdings, equal to a 1.27% share valued at $363.5 million. The stake was upped by a 25% in the previous quarter. The multinational pharmaceutical company pays a dividend yield of 4.7% on a payout ratio of 51%. The company's competitors Merck & Co., Pfizer (PFE), and GlaxoSmithKline PLC (GSK) pay yields of 4.3%, 3.9%, and 4.8%, respectively. The company has seen its EPS grow, on average, almost 10% per year over the past five years. Analysts forecast that the company's EPS will shrink at an average rate of close to 8% per year for the next five years, due to patent expirations. Eli Lilly's stock is currently trading at $42 a share, flat year-to-date and close to its 52-week high. The stock boasts a forward P/E that is mostly lower than the company's historical ratios. Joel Greenblatt is also bullish about the stock (check out Gotham Asset Management's portfolio).
Intel Corporation (INTC) is the seventh largest position in Simon's portfolio, with a 0.95% share valued at close to $272 million. The stake was increased by 17% in the quarter ended March 31. Intel is the world's largest semiconductor maker. It pays a dividend yield of 3.1% on a low payout ratio of 36%. Its rival Viacom (VIA) pays a dividend yield of 2.1%. Advanced Micro Devices, Inc. (AMD) and NVIDIA Corporation (NVDA) do not pay any dividends. The company has boosted dividends at a high rate of 14.6% a year over the past half decade. Over the same period, Intel has seen its EPS grow at an average annual rate of 23% a year. Analysts forecast that Intel's EPS will expand at a still-robust 10.7% annual rate for the next five years. According to IHS iSuppli Research, global chip revenues will grow moderately by 4.5% to $325 billion this year, driven by rising demand for media tablets, smart phones, and PCs. Total revenues should rise another 27% by 2016. In terms of its valuation, Intel is trading at a deep discount to its peers. The stock is changing hands at $26.94 a share, up almost 10% from the beginning of the year. Among fund managers, Intel is also popular with billionaires Ken Fisher and Warren Buffett.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.