ABT, VLO, TGT, MET, AEP: 5 Industry-Driven Bets This Billionaire is Banking On

Billionaire Israel Englander founded Millennium Management in 1989 and prior to that, obtained his undergraduate degree from NYU. Englander later dropped out of his MBA program to trade on the AMEX and now manages roughly $13 billion in assets. His strategy utilizes a variety of trading strategies, with the bulk focused on industry-specific long/short positions. Englander’s emphasis is on fleeting anomalies in the financial markets, and he usually steers clear of directional bets. We believe that Englander was not necessarily looking at these five stocks for their intriguing dividend, but he did find a few industry-driven bets that pay solid dividend yields (check out Englander’s newest picks).

Abbott Laboratories (NYSE:ABT) is Englander’s 12th largest 13F holding and pays a 3.1% dividend yield. Abbott has plans to spin off its research and development segment in 2013, with the new company expected to generate nearly half of its sales from Humira. Sales for the remaining Abbott operations are expected to rise 5% in 2013 and the two separate companies are expected to see higher share prices due to multiples expansion, due to the ability to focus on central operations.

The dividend for Abbott post-spinoff is expected to be 56 cents annually, while the new R&D company will pay $1.60 per share annually. Compared to other top pharma companies, Abbott continues to trade on the cheap side at only 16x earnings, versus Pfizer (21x) and Merck (20x). Abbott and its major peers have been performing well over the past year as an aging population continues to boost drug demand. The stock was also a big-time play of billionaire Ken Griffin – founder of Citadel Investment Group – during the third quarter (see Ken Griffin’s top picks).

Valero Energy Corporation (NYSE:VLO) is an oil and gas company that makes up Englander’s 9th largest 13F holding and pays a 2.2% dividend yield. Valero’s refining segment is performing strongly this year, with its latest output averaging 2.7 million barrels per day, up 15% from the same quarter last year. The oil/gas company’s interim strength should come from strong distillate demand and increasing returns on CapEx spending – CapEx is expected to be $3.6 billion by the end of this year, up from $3.0 billion in 2011.

Part of what should drive Valero’s strength is a rise in oil prices on the back of increased demand for fossil fuels. Valero is also quite the value play, trading below the industry on a trailing P/E basis at 16x, at an even greater discount in terms of its forward P/E (6x). T. Boone Pickens had Valero as one of his latest stock picks (check out T. Boone Pickens’ newest picks).

Target Corporation (NYSE:TGT) is the 18th largest holding in Englander’s 13F portfolio, and pays a 2.3% dividend yield. Same store sales for the retailer are expected to be strong in fiscal year 2013, as a 3-4% growth will be driven by a store-remodeling program aimed at providing customers with fresh foods. One other key initiatives for Target are its planned expansion into the Canadian market place.

Target trades in lockstep with its top competitor Wal-Mart on a P/E, P/S and a dividend yield basis. What sets Target apart is its long-term growth rate, which is 2 percentage points above Wal-Mart. Both retailers should see solid growth over the interim due to their breadth of consumer staple product offerings.