RenTech Loaded Up On Mastercard, Nike, More in Q2

The world’s most successful quant hedge fund, Renaissance Technologies (RenTech), recently submitted its 13F filing with the SEC for the reporting period of June 30, revealing a U.S. equity portfolio worth $52.54 billion. Founded by eminent mathematician Jim Simons in 1982, the New York-based hedge fund currently manages regulatory assets worth over $70 billion, a large chunk of which belongs to the fund’s employees and Mr. Simons himself.

According to RenTech’s latest filing, its U.S. equity portfolio consisted of long positions in 3,299 securities at the end of the second quarter and its top-ten holdings accounted for just 8.03% of the value of the fund’s portfolio at that time. The filing also revealed that the fund’s portfolio had a quarterly turnover of 27.07% during the second quarter, and that at the end of the period, RenTech was most heavily invested in the information technology sector, stocks from which amassed 19% of the value of its portfolio. In this article, we will take a look at five companies whose stocks RenTech loaded up on going into the third quarter and will analyze how these companies have been performing of late.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Southern Gas Co (NYSE:GAS)

– Shares Owned by Renaissance Technologies (as of June 30): 3.28 Million

– Value of Holding (as of June 30): $216.33 Million

Let’s begin with Southern Gas Co (NYSE:GAS), in which RenTech upped its holding by 64% during the second quarter. Formerly known as AGL Resources, the company started trading as Southern Gas Co (NYSE:GAS) following its recent merger with Southern Company. Shares of Southern Gas have been on a consistent uptrend since last August, when Southern Gas announced the aforementioned merger and have appreciated by 3.37% so far in 2016. The company currently pays a quarterly dividend of $0.53 per share, which translates into a respectable annual dividend yield of 3.21%. Other hedge funds covered by us that increased their stake in Southern Gas going into the third quarter included John Orrico‘s Water Island Capital, which boosted its holding by 150% to 2.4 million shares, and Alec Litowitz and Ross Laser’s Magnetar Capital, which raised its holding by 10% to 1.76 million shares.

Home Depot Inc (NYSE:HD)

– Shares Owned by Renaissance Technologies (as of June 30): 2.05 Million

– Value of Holding (as of June 30): $261.8 Million

Home Depot Inc (NYSE:HD) was a new entrant to Renaissance Technologies’ equity portfolio during the second quarter. Shares of the home improvement retailer have managed to rise by 2% so far in 2016 as they look to post gains for the eighth-straight year. However, some analysts feel that this rally could end abruptly, as its stock seems fully valued at current levels. Home Depot Inc (NYSE:HD) has consistently hiked its quarterly dividend for the past several years and the $0.69 per share quarterly dividend it currently pays represents an annual dividend yield of 2.03%. On August 16, the company reported its second quarter earnings, declaring EPS of $1.97 on revenue of $26.47 billion, which were in-line with analysts’ expectations. Following the earnings release, several analysts increased their price target on the stock, including analysts at RBC Capital Markets, who raised their target price to $155 from $150 n August 17 while keeping their rating on the stock unchanged at ‘Outperform’. Ryan Pedlow‘s Two Creeks Capital Management upped its stake in the company by 22% to almost 2.3 million shares during the second quarter.

We’ll check out RenTech’s three biggest moves during the second quarter on the second page of this article.

Nike Inc (NYSE:NKE)

– Shares Owned by Renaissance Technologies (as of June 30): 5.06 Million

– Value of Holding (as of June 30): $279.67 Million

Like Home Depot Inc, Nike Inc (NYSE:NKE) was also a new entrant to Renaissance Technologies’ equity portfolio during the second quarter. Nike Inc (NYSE:NKE)’s stock made its lifetime high of $68.19 at the end of last year, but has been drifting lower since then, having lost over 10% of its value so far in 2016. The company announced last year that it plans to generate $50 billion in revenue by 2020 through growth in e-commerce, women’s athletic wear, and its Jordan brand. Though at the current juncture that goal seems achievable should Nike grow at a CAGR of around 10.3%, some analysts who track the company are skeptical. Earlier this month, the company announced that it will be getting out of the golf equipment basis, although it will continue to sell golf apparel and footwear. Nike’s stock currently sports an average rating of ‘Overweight’ and an average price target of $65.73 from 31 leading analysts and research firms on Wall Street who track it. David Blood and Al Gore’s Generation Investment Management upped its holding in the company by 144% to 4.33 million shares during the April-to-June period.

CVS Health Corp (NYSE:CVS)

– Shares Owned by Renaissance Technologies (as of June 30): 3.84 Million

– Value of Holding (as of June 30): $367.84 Million

Moving on, Renaissance Technologies made a nearly nineteen-fold increase to its stake in CVS Health Corp (NYSE:CVS) during the second quarter. Like Nike Inc, CVS Health Corp (NYSE:CVS)’s stock also made its lifetime high last year and has been drifting lower since and is currently trading flat in 2016. Several analysts who track the stock feel that trading at a forward P/E multiple of 14.83 and a 5-year expected PEG ratio of 1.14 makes the stock undervalued at current levels. They expect the company to perform well going forward owing to the aging of the U.S. population, the cost-cutting measures it has taken, and the debt refinancing deal that it recently executed. For its most recent quarter, CVS Health Corp (NYSE:CVS) reported EPS of $1.32, beating analysts’ consensus estimate by $0.02, on revenue of $43.70 billion, which was $528 million lower than what analysts had expected. For the same quarter of the previous year, the company had reported EPS of $1.22 on revenue of $37.20 billion. Hedge funds that sold off their entire stakes in the company during the second quarter included Clint Carlson’s Carlson Capital and James Dondero‘s Highland Capital Management.

Mastercard Inc (NYSE:MA)

– Shares Owned by Renaissance Technologies (as of June 30): 5.38 Million

– Value of Holding (as of June 30): $474.17 Million

Despite its stock declining by nearly 7% during the second quarter, Mastercard Inc (NYSE:MA) jumped five spots in RenTech’s equity portfolio during the period to become the fund’s third-most valuable equity holding, as RenTech upped its stake in the payment processing company by 54% during the second quarter. Mastercard Inc (NYSE:MA)’s stock has been oscillating between the $80 and $100 levels for almost two years and is currently trading down by 3.32% year-to-date. Though the stock of the company hasn’t appreciated in the last two years, Mastercard has upped its quarterly dividend during that time from $0.11 per share to $0.19 per share, which represents an annual dividend yield of 0.80%. On July 21, Mastercard announced that it had entered into a definitive agreement to acquire 92.4% of UK-based payments technology platform company VocaLink Holdings Limited for approximately $920 million. Analysts have appreciated the opportunistic move made, as prior to the Brexit, the same deal would’ve cost Mastercard around $1.04 billion. On July 29, analysts at BMO Capital Markets reiterated their ‘Outperform’ rating on the stock while upping their price target on it to $128 from $120, which represents potential upside of 34%. Billionaire Andreas Halvorsen‘s Viking Global also boosted its holding in Mastercard during the second quarter, by 230% to 6.43 million shares.

Disclosure: None