We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including Renaissance Technologies, the large and highly successful hedge fund which has made founder Jim Simons a multi-billionaire. Our research shows that the most popular small cap stocks among hedge funds, as determined by analyzing 13Fs, earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). A small cap portfolio putting this strategy into practice beat the market by 33 percentage points since inception last summer. We also like to go through 13Fs from individual managers, treating them as stock screens which can potentially identify interesting picks in a number of areas. Read on for our quick take on the five largest positions in Renaissance’s portfolio as of the end of June with both trailing and forward P/Es of 13 or lower:
The fund reported a position of almost 14 million shares in Intel Corporation (NASDAQ:INTC) in the filing. With the company struggling in the current environment due to shifting consumer preferences, sales were down moderately last quarter compared to the second quarter of 2012 and contributed to a more than 20% decrease in earnings. Markets have reacted by driving the price down to 12 times trailing earnings and the dividend yield up above 4%, potentially making the stock an income pick. Billionaire Kerr Neilson’s Platinum Asset Management initiated a large position in Intel between April and June (check out more stocks Platinum was buying).
Another large tech company experiencing falling profits in Renaissance’s portfolio was Apple Inc. (NASDAQ:AAPL). Apple Inc. (NASDAQ:AAPL) has fallen to third on our list of the most popular stocks among hedge funds (see the full top ten list) as fund managers continue to be concerned about the company’s falling margins. The 27% drop in the company’s stock price over the last year has brought the trailing P/E down to 12, and that is with a large share of Apple Inc. (NASDAQ:AAPL)’s market capitalization in the form of cash and marketable securities. CEO Tim Cook has shown some signs of moving towards returning more cash to shareholders, primarily through large buyback programs.
According to the filing, the investment team also had a large stake in International Business Machines Corp. (NYSE:IBM) at the beginning of July. IBM has been one of Warren Buffett’s largest positions for some time, with his Berkshire Hathaway having it as its 3rd largest publicly traded pick at the end of Q2 (find Buffett’s favorite stocks). The company has seen declines in both sales and net income from their levels a year ago, but Wall Street analysts believe that business will recover next year and so the forward earnings multiple is only 10. We’d prefer to see more stable financials, but at that price IBM might still be worth looking into.
Renaissance owned 5.8 million shares of Microsoft Corporation (NASDAQ:MSFT), which has seesawed recently on the good news that CEO Steve Ballmer is planning to leave the company in the near term (Ballmer is rather unpopular among investors) and the less good news that Microsoft will acquire a portion of Nokia Corporation (ADR) (NYSE:NOK)’s assets. The trailing P/E here is 12; Microsoft, like Apple Inc. (NASDAQ:AAPL), does feature a large cash hoard and it’s possible that the company’s new CEO will be more aggressive in returning more cash to shareholders than Ballmer has been. Billionaire Ken Fisher’s Fisher Asset Management is another major shareholder in Microsoft (research Fisher’s stock picks).
Disclosure: I own no shares of any stocks mentioned in this article.
