By Brian Tracz
Steven Cohen began SAC Capital Advisors with a kitty of his own money, and he presently has an estimated net worth of $8.3 billion. Cohen is one of the legendary figures in the trading world, though his SAC hedge fund has branched out into new fundamental and quantitative evaluation methods. After the latest 13F release disclosing the fund's equity holdings as of June 30, I wanted to review some of his best performing picks from his top 20 holdings (you can view this information here). Additionally, I discuss the possibility of an entry point for each.
Apple and Amazon
It's really not worth discussing here, but I need to include Apple Inc. (AAPL) as a formality. It is an incredible company that might triple in value, says tech guru Philippe Laffont. It's also up 62 percent year-to-date-a winner. Another big winner was Amazon.com Inc. (AMZN), which is expanding its Kindle Store operations and is up 41 percent year-to-day. Got it.
The TJX Companies, Inc. (TJX) is the holding company that owns various off-price retailers such as TJ Maxx, Marshalls, Winners (in Canada), and HomeSense (in Europe and Canada). The company's shares are up about 42 percent year-to-date. Shares are trading at 20 times earnings, which is above the company's five-year average of 15.7. Though its upside is limited, TJX is in a retail segment that is at once appealing and risky in the face of an uncertain economy. On the one hand, the company's TJ Maxx and Marshalls brands are known to deliver consistent value on name brand merchandise. On the other hand, markdowns and potential price inflation resulting from subpar economic growth could erode margins. TJX's fiscal year 2012 operating margin, however, is 10.4 percent, up from 9.9 percent in fiscal year 2011. Along with Ross Stores, Inc. (ROST), TJX is a recommendable stock for those bearish on the prospects of a J.C. Penney Company, Inc. (JCP) turnaround, a company that is attempting to adopt a "fair price" strategy.
Sirius XM Radio Inc
Sirius XM Radio Inc (SIRI) resulted from the merger of XM and Sirius satellite radio. Sort of a dying breed in the electronics world, the satellite digital radio service costs $12.95 per month, with sales heavily tied to automobile sales. According to S&P estimates, the company's 23.7 million subscribers in 2012 are expected to rise to 25.3 million in 2013. Since the beginning of 2009, the company has returned 1900 percent, emerging from its penny-stock days. Cohen initiated a large position in the stock in the first quarter 2012, now part of his top 10 holdings, and shares are up 40 percent year-to-date.
That said, the company is now trading at 24.9 times forward earnings. There are a number of famous risks to an investment in Sirius XM, including the HD radio market and other terrestrial radio initiatives, a market totaling about $20 billion. In the event of a recession, I can't help but thinking that the satellite radio bill would be the first thing to go in a household budget, perhaps replaced by a $30 digital music player. Though I'm not convinced by the regular valuation story, pay attention to the possibility of special situations play: a Liberty Media Corp (LMCA) takeover may occur de jure as it increases its stake in Sirius XM to over 50 percent.
Transocean LTD (RIG) provides a number of drilling services in the oil and gas industry. The company has been struggling to succeed in the post-Deep Water Horizon market and the legal issues that have surrounded it. The company, however, has done well this year, with its shares rising 25 percent. Analysts estimate earnings of $2.98 this year and $4.77 in 2013, suggesting that the company is positioned to grow. However, the company has its share of financial challenges, with a highly levered 73 percent long term debt-to-equity in 2011. That said, the company aims to reduce total debt by $7 billion to $9 billion in the coming years.