In this article, we discuss 10 supply chain stocks to buy now according to Billionaire Jim Simons. You can skip our detailed analysis of Renaissance Technologies and Jim Simons’ investment philosophy and go directly to 5 Supply Chain Stocks to Buy Now According to Billionaire Jim Simons.
Jim Simons is a billionaire quant investor who manages Renaissance Technologies which has over $120 billion in assets under management as of 2022. He’s also an acclaimed mathematician with a PhD in mathematics from University of California, Berkeley and as such, has a rigorously mathematical approach to investing.
He was described by The Wall Street Journal as the “World’s Greatest Investor” because of his purely data-driven approach that delivered annual 66% gross returns on average from 1988 to 2018 through his premier Medallion Fund, which outperformed great names in the hedge funds industry like Berkshire Hathaway by huge margins.
However, Medallion Fund was closed to new money from the outside in 1993 after too much capital inflow interfered with its ability to outperform according to Simons. Medallion Fund is currently only opened for Renaissance Technologies’ current and former employees and their families.
The other three funds under the umbrella of Renaissance Technologies remain open for outside investors. These are Renaissance Institutional Equities Fund (RIEF), Renaissance Institutional Diversified Global Equity Fund (RIDGE) and Renaissance Institutional Diversified Alpha (RIDA) which compared to the 27% return of the S & P 500 Index, returned only 20%, 10% and 15% respectively in 2021.
Although none of the three funds beat the S&P 500 index benchmark, the returns managed to outperform the HFRI Asset Weighted Composite Index by significant margins.
Despite somewhat reasonable 2021 returns, Renaissance Technologies saw $15 billion in capital outflows in the year due to its public funds’ negative returns of 19%-31% in 2020, coupled with the famously high fees that Renaissance Technologies charges its clients. Medallion Fund’s astonishingly high returns of 76% weren’t exactly helpful and may have accelerated the outflow.
Speaking to Bloomberg, Nick Patterson, a former Renaissance executive, said that investors have been long told that their public funds invest differently than Medallion and it’s only after clients’ losses in 2020 relative to Medallion’s high returns that they were convinced it was true. The positive 2021 returns of the three funds have done little so far to stop the outflow momentum.
Renaissance’s beta models, which predict stock prices based on historical price fluctuation, are a factor in deciding portfolio exposure of its public funds which didn’t do well with the unexpected and unfactored externality of the pandemic. First the funds were under-hedged and later, the algorithms overcompensated by over-hedging in the middle of 2020.
Due to these losses, the fund issued a statement that they’d be improving the beta models as well as the control systems that make their use.
Investment Strategy
“If we have enough data, I know we can make predictions.”
-Jim Simons
The investment strategy employed by Renaissance Technologies is one of quantitative analysis. The fund hires mathematicians and machine learning engineers to develop sophisticated statistical algorithms which are trained and fed with massive amounts of market data to find inefficiencies in the apparent noise.
Renaissance collects public data that has the potential of having a bearing on price movements of equity securities and uses this data to fine-tune its algorithms for prediction of future price changes. The data includes accounting reports, historical prices’ moving averages, analyst reports, weather reports and regulatory findings among others.
The fund compensates for black swan events with call options on its portfolio. The goal is to identify non-random anomalies and correlations to predict future price movements.
However, while a data-driven approach is universal in Renaissance funds, what is clear is that the management doesn’t use the same specific tricks for all of its funds. In fact, Renaissance Technologies is public with the information that the quant strategy for its Medallion Fund is different from its public funds.
Renaissance Technologies has $85 billion in managed securities as of the first quarter of 2022. Healthcare is the biggest sector the portfolio is dedicated to. It is followed by services and technology sectors.
Some of the prominent technology stocks in the fund’s portfolio include Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG).
However, there’s several supply chain stocks in Jim Simons’ portfolio that we have sought to highlight.
Supply chains were severely disrupted during the pandemic which led to losses in the logistics sector. However, as vaccine programs rolled out and lockdowns lifted, the logistics industry is making a comeback.
Jim Simons of Renaissance Technologies
Our Methodology
We’ve selected the top 10 supply chain stocks from Renaissance Technologies’ Q1 2022 portfolio.
10. P.A.M. Transportation Services, Inc. (NASDAQ:PTSI)
Renaissance Technologies’ Stake Value: $43 million
Percentage of Renaissance Technologies’ 13F Portfolio: 0.05%
Number of Hedge Fund Holders: 5
P.A.M. Transportation Services, Inc. (NASDAQ:PTSI) is an over-the-road trucking company. The company operates virtually all across the US and in southern parts of Ontario, Canada. P.A.M. Transportation Services, Inc. (NASDAQ:PTSI) also started operating in Mexico in the early 90s. The company’s main freight consists of commodities as well as automotive parts.
On June 15, the company announced its acquisition of Metropolitan Trucking, Inc and expects the current management to remain in place.
On April 1, Stephens analyst Jack Atkins lowered his price target on P.A.M. Transportation Services, Inc. (NASDAQ:PTSI) to $40 from $42.50 and kept an Equal Weight rating on the stock. Atkins sees increasing risks to the demand backdrop due to the macroeconomic situation where fuel prices and inflation are rising and the consumer spending patterns are shifting.
9. Golden Ocean Group Limited (NASDAQ:GOGL)
Renaissance Technologies’ Stake Value: $45 million
Percentage of Renaissance Technologies’ 13F Portfolio: 0.05%
Number of Hedge Fund Holders: 15
Golden Ocean Group Limited (NASDAQ:GOGL) is a global dry bulk shipping company based in Hamilton, Bermuda. It primarily operates Capesize, Panamax and Supramax carriers and transports bulk commodities like coal, ores and grains. Golden Ocean Group Limited (NASDAQ:GOGL) owns and operates a fleet of 87 vessels.
Renaissance Technologies is the leading stakeholder in Golden Ocean Group Limited (NASDAQ:GOGL) and holds 3.6 million shares in the company as of the first quarter of 2022.
On May 20, Golden Ocean Group Limited (NASDAQ:GOGL) was upgraded with a price target of $18, up from $13, by H.C. Wainwright analyst Magnus Fyhr, who kept a Buy rating on the shares in the wake of the company’s Q1 performance. Fyhr increased 2022 recovery estimates in capesize spot rates.
8. Star Bulk Carriers Corp. (NASDAQ:SBLK)
Renaissance Technologies’ Stake Value: $76 million
Percentage of Renaissance Technologies’ 13F Portfolio: 0.08%
Number of Hedge Fund Holders: 21
Star Bulk Carriers Corp. (NASDAQ:SBLK) is a multinational shipping company offering services in dry bulk cargo. The company operates 128 vessels and has a diverse range from Supramax to Newcastlemax vessels. Star Bulk Carriers Corp. (NASDAQ:SBLK) transports over 60 million metric tons of cargo every year. The major bulks it transports include iron ore, grains and minerals.
On April 27, Jefferies analyst Christopher Robertson resumed coverage of Star Bulk Carriers Corp. (NASDAQ:SBLK) with a Buy rating on the shares and a price target of $36. The analyst noted that Jefferies shipping index is up by 25% year-to-date, mostly due to recent equity performance in the dry bulk as well as tanker segments. Robertson is optimistic on the supply-side fundamentals and observed that rates and assets’ values are on the rise in the industry across various subsectors.
Star Bulk Carriers Corp. (NASDAQ:SBLK) is a Greek company unlike Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG) which are US based companies. It is the only Greek supply chain stock in the list of supply chain stocks to buy now according to billionaire Jim Simons.
Here’s what Massif Capital said about Star Bulk Carriers in their Q3, 2021 investor letter:
“We initiated one long position, one short position and exited one position during the third quarter. Our new long position was in Star Bulk Carriers (SBLK), a pure-play dry bulk operator with roughly 120 controlled vessels and 14 million tons of combined cargo capacity globally.
SBLK has one of the better management teams in the maritime shipping industry and the lowest cost structure among all dry bulk names. After announcing their new dividend policy in May, SBLK now has one of the best payout structures in shipping. The firm has paid out $0.3 and $0.7 per share in dividends for the first and second quarters of 2021. SBLK will most likely announce a dividend for the third quarter somewhere in the $1.15-$1.25 per share range, depending on movement in net working capital.
We believe the best way to look at this business is through cash generation potential and how much is returned to investors. The current equity valuation does not reflect current rates for shipping (earnings), partly because of the velocity of the move in rates and because shipping cycles turn, and it’s not clear whether this is a local top or the early innings of a multi-year cycle. Our belief is the latter. Part of our catalyst is the market re-rating the stock higher once the length of the increased earnings power becomes understood. It is a relatively strong catalyst in the sense that with a strong dividend policy, we can be patient for the market to underwrite this story as the cash is either returned to us via a high dividend yield if the market is either slow or chooses not to join our side of the trade.
Our estimates suggest a time-charter equivalent rate (net profit or loss of operating a vessel daily) of at least $30,000 for SBLK in Q4, with the firm earning a potential annual average of $26,000. Our base case is that this is a strong floor going into next year, with little need to articulate much more upside. If rates hold, which we expect them to do, we could see a 20+% annual dividend next year for SBLK. If the market priced the equity such that the dividend yield was 8%, that implies a $62 stock. Today our base case target for the firm is $37 per share. This is likely conservative as we know that third-quarter rates are higher than the second quarter, and third-quarter dividends will most likely reflect that. We are cautious about diving too deep into the sensitivities to the upside with this position as we are arriving at some pretty remunerative torque using current contracted values and seemingly conservative forecasts…” (Click here to see the full text)
7. Old Dominion Freight Line, Inc. (NASDAQ:ODFL)
Renaissance Technologies’ Stake Value: $83 million
Percentage of Renaissance Technologies’ 13F Portfolio: 0.09%
Number of Hedge Fund Holders: 41
Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is a truckload shipping company headquartered in North Carolina. Renaissance Technologies holds over 270,000 shares in the company as of Q1 2022 but the leading stakeholder happens to be AQR Capital Management, which holds equity worth $203 million in the company.
On May 19, Citi analyst Christian Wetherbee lowered the price target on Old Dominion Freight Line, Inc. (NASDAQ:ODFL) to $265, down from $295, and kept a Neutral rating on the stock.
Wetherbee downgraded three stocks in U.S. rails and lowered estimates across the board for the trio. He senses short-term risks in a decelerating freight and economic environment and notes that rail valuations have actually improved compared to the market while earnings growth expectations are at their highest.
Wetherbee noted to investors in his research note that a more prudent approach is needed given “freight warning signs” and “persistent” service issues. The analyst is of the view that these can result in a “delayed operational reaction to a true downturn.”
Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is a dividend paying stock and has a dividend yield of 0.47%. The company has been increasing its dividend payouts consecutively for the past two years. Its shareholders of record on June 1 were paid a dividend of $0.30 per share on June 15.
ClearBridge Investments had the following to say about Old Dominion Freight Line in its Q1 2022 “Mid Cap Strategy” investor letter:
“We exited our position in Old Dominion Freight Lines (NASDAQ:ODFL), in the industrial sector. While our opinion of the freight carrier’s business quality is unchanged, we believe the stock’s current price reflects less potential than some of the new opportunities we have been evaluating.”
6. Expeditors International of Washington, Inc. (NASDAQ:EXPD)
Renaissance Technologies’ Stake Value: $102 million
Percentage of Renaissance Technologies’ 13F Portfolio: 0.1%
Number of Hedge Fund Holders: 38
Expeditors International of Washington, Inc. (NASDAQ:EXPD) is a global service-based logistics and supply chain management company headquartered in Seattle, Washington. It operates in over 100 countries across six continents.
The company saw impressive Q1 2022 earnings. It had a revenue and EPS of $4.66 billion and $2.07, respectively, beating consensus by $405 million and $0.36. According to Cowen analyst Jason Seidl, the company’s Q1 result was well ahead of expectations despite a cyberattack that derailed operations for weeks.
On May 5, he raised his price target on Expeditors International of Washington, Inc. (NASDAQ:EXPD) to $125, up from $111, and kept an Outperform rating on the shares.
Expeditors International of Washington, Inc. (NASDAQ:EXPD) has a strong reputation as a dividend stock given that it has been increasing its dividend payouts consecutively for 29 years. Its most recent quarterly dividend payout was $0.67 per share on June 15, to shareholders of record on June 1.
Renaissance Technologies’ stake in EXPD is minute compared to its stakes in Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG).
Click to continue reading and see 5 Supply Chain Stocks to Buy Now According to Billionaire Jim Simons.
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Disclosure: none. 10 Supply Chain Stocks to Buy Now According to Billionaire Jim Simons is originally published on Insider Monkey.
