Microsoft Corporation (NASDAQ:MSFT) was Renaissance’s top pick in 3Q with over 1.4% of the fund’s 13F invested in the tech giant. Revenues are expected to rise 9% in 2013 and then 7% in 2014 on the back of Windows Live revenues being up 18% in 2013. The diverse tech company has recently launched new products that include Windows 8 and the Surface tablet, which should drive interim growth. This tech company appears to be offering a very good dividend (3.4% yield) and growth on a cheap basis – Microsoft’s trailing P/E comes in at 15x, but its forward ratio of only 8x suggest investors. Microsoft is also a top tech stock owned by hedge funds in 3Q (see our full top 10 here).
Eli Lilly & Co. (NYSE:LLY) saw Renaissance dumping 18% of its shares during 3Q, but Eli remained the fund’s second largest 13F holding. Trading at 13x earnings, Eli is on the very low end of this range, compared to Pfizer and Merck, both trading at 20x earnings. On the surface, Eli looks like a cheap investment, but its five-year expected EPS, which is expected to decline 4% annually, causes some concern. Eli plans to grow sales by entering emerging markets and Japan, but we remain cautious and believe better value can be found in other pharma companies such as Bristol Myers. Eli Lilly is one of billionaire Stanley Druckenmiller’s top dividend picks (see all of his picks here).
Intel Corporation (NASDAQ:INTC) was a 10% share increase from 2Q for Renaissance. The chip maker continues to pay one of the largest dividends in the space with a 4.6% yield. Softness in PC sales has pressured the company of late, with sales expected to be down 1% by year’s end. The stock’s recent pull back has put Intel in an attractive valuation range, trading at a mere 8.5x earnings and a PEG ratio of 0.8. Intel expects to counter a slowing of PC sales with data center growth; we don’t see a value trap here, only a value play.
Bristol Myers Squibb Co. (NYSE:BMY) was Renaissance’s fourth spot in its 13F for 3Q. Another one of Renaissance’s pharma picks, we believe that Bristol has better prospects when compared to Eli. Bristol pays a dividend yielding over 4%, but does trade at 30x – the upper end of the pharma industry. On a forward earnings basis, Bristol is much more in line with its peers at 18x. Driving Bristol’s future growth and market share gains will be the recent acquisition of Amylin Pharmaceuticals. We see the pharma’s dividend and over discounted future earnings as a reason for investors to take a closer look at the stock.
Phillip Morris International Inc. (NYSE:PM) comprises nearly $320 million worth of RenTech’s capital, and pays a rather strong dividend at 3.8%. This non-US, international only, tobacco company trades in line with its major competitors at 19x trailing earnings, but its forward P/E of 15x makes it an attractive buy. Growing health concerns and higher taxes on the company’s products are headwinds for Philip Morris, but a three year cost reduction program should help mitigate revenue loss with margin expansion. Phillip also has the opportunity to grow in markets that it has little exposure to, including China and India.
We believe Microsoft may finally be breaking out of its trading shell and is poised for share appreciation given its robust product offering. The tech giant also pays a healthy dividend for those who decide to wait and see how its new OS and tablet impact earnings. We prefer the dividend that Bristol and Intel pay relative to the other dividend-payer Eli, but also like Phillip Morris’ potential.
