Billionaire Jim Simons' Q1 Stock Picks

by: Insider Monkey

By Guan Wang

Jim Simons is one of the best hedge fund managers in the world. Under his management, Renaissance Technologies (RenTech) has delivered stunning returns since inception. Simons' strong performance has also made him one of the richest persons on the planet. With an estimated net worth of $10.7 billion, he is ranked the 31st richest person in America, according to Forbes - and no wonder. In 2011, a year during which the whole hedge fund industry struggled, Simons' RenTech still generated a net return of 33%. Recently, the fund revealed its most recent 13F holdings. In this article, we are going to discuss in detail about some of RenTech's most bullish bets.

Google Inc (NASDAQ:GOOG) is the newest inclusion in the top 10 positions in Simons' portfolio. During the first quarter this year, Simons significantly increased his stakes in Google by over 300%. As of March 31, 2012, RenTech had nearly $300 million invested in this position. Hedge funds across the board have shown lots of interest in Google. There were 108 hedge funds with Google in their 13F portfolios at the end of last year. Stephen Mandel was the most bullish money manager about Google. His Lone Pine Capital had $870 million invested in this stock at the end of 2011. Tiger Cubs Chase Coleman and John Griffin are also bullish about Google.

Google is expected to earn $37.25 per share in 2012 and $44.24 per share in 2013. It is currently trading at 16.21X its 2012 earnings and 13.65X its 2013 earnings. We think the valuation is attractive as the company's earnings are expected to grow at an average of 18% per year over the next couple years, versus 25% for the past five-year average. In addition to earnings growth, Google has also demonstrated robust free cash flow growth over the past few years. Last year, it generated $2.97 billion FCF, up from $654 million in 2007. This strong cash flow generation ability has enabled the company to support its R&D division as well as capture acquisition opportunities (check out our previous article about Google).

Another tech giant, Apple Inc (NASDAQ:AAPL), also features as one of the largest positions in Simons' portfolio (check out our recent article about Apple). RenTech reported owing $442 million worth of Apple shares at the end of March. Apple has delivered spectacular returns recently - it is up 64% over the past 52 weeks. We believe the company will continue to be a winner in the future. Its valuation level is even more attractive compared with Google. It is trading at 11.92X its 2012 earnings and 10.34X its 2013 earnings, and has an expected earnings growth of 21.5% per year. Hedge funds also identified great opportunities in Apple. Over one-third of the hedge funds we track are bullish about Apple, including Rob Citrone's Discovery Capital Management, Stephen Mandel's Lone Pine Capital, Chase Coleman's Tiger Global Management, David Einhorn's Greenlight Capital, and Andreas Halvorsen's Viking Global.

Over the first quarter, Simons also boosted his stake in Bristol Myers Squibb Co (NYSE:BMY) by 130%. RenTech had $438 million invested in the company at the end of March - but we think there are better drug stocks than Bristol Myers. One example is Eli Lilly & Co (NYSE:LLY), in which Simons has $364 million invested. Bristol Myers is currently priced at 17X its 2013 earnings, versus 11X for Eli Lilly. Some other drug stocks, such as Pfizer Inc (NYSE:PFE) and Merck & Co Inc (NYSE:MRK), are even more attractive. Pfizer has a 2013 P/E ratio of 9.6 and Merck's 2013 P/E ratio is 10.3 (check out our previous article about Bristol Myers and its competitors).

A few other large positions in Simons' portfolio are McDonalds Corp (NYSE:MCD), Inc (PCLN), Intel Corp (NASDAQ:INTC), Microsoft Corp (NASDAQ:MSFT), and Chipotle Mexican Grill Inc (NYSE:CMG). We prefer McDonalds to Chipotle Mexican Grill. McDonalds is trading at lower multiples and has a broader geographic reach. Tech giants Intel and Microsoft are both trading at appealing multiples and have decent growth prospects. Priceline is trading at 17.7X its 2013 earnings and we still see some upside potential in this stock. Specifically, we think the company is well positioned to benefit from the rapid growth in the Asian-Pacific and Latin America online travel booking market.

Disclosure: I am long (MSFT).