Steve Cohen and SAC Capital’s Favorite Stock Picks

Steven Cohen founded SAC Capital in 1992. Its current hedge fund portfolio is valued at over $14 billion. Cohen himself is estimated to have a net worth approximately half that ($8 billion), making him one of the world’s richest men.  Cohen’s success managing SAC Capital’s hedge fund has earned him an impressive reputation and a paycheck estimated at $1 billion annually plus more in bonuses. Cohen’s performance has also prompted investigations of insider trading (See the details). Over the last 18 years, SAC Capital’s hedge fund has produced an astounding 30% average annual return, thanks largely to Cohen and his unique brand of fundamental reasoning and quantitative analysis. In 2010, the fund performed almost a full percentage point higher than the S&P 500 did in the same period (16% vs. 15.1%).

Since March 31, 2011, SAC Capital’s performance has been even better compared to the S&P 500, boasting a 3.4% return vs. the S&P 500’s 2%. This means that investors who replicated SAC Capital’s stock picks were able to beat the market by 1.5% in less than 4 months. During this time, Cohen enjoyed the greatest return (a whopping 43%) from Green Mountain Coffee Roasters (GMCR). Green Mountain Coffee is responsible for 80% of the market share in single serve beverages like Keurig. Stellar returns on the stock have prompted SAC Capital and other hedge funds, like Philippe Laffont’s Coatue Management (See more on Laffont’s stock picks here), to increase holdings in the coffee giant (Check out more on investments in GMCR).

Fossil Inc. (FOSL), the watch and leather goods manufacturer, also produced strong returns for the SAC Capital hedge fund, 42% during the past 4 months. However, in this case, Cohen earned such a high return after he cut SAC Capital’s position in the company by 52%. This seems to be a trend with hedge funds regarding Fossil stock (Read more about FOSL’s hedge fund involvement). David Keidan (Buckingham Capital Management) and Chuck Royce (Royce and Associates) also opted to reduce their hedge funds’ positions in Fossil.

SAC Capital lost 24% on N X P Semiconductors (NXPI) in spite of the fact that Cohen dramatically increased the hedge fund’s position in the semiconductor company founded by Phillips. SAC Capital’s other losses were more modest; XL Group Plc (XL) produced a negative 12% return, followed closely by Valero Energy Corp (VLO), Textron Inc (TXT) and Alcoa Inc (AA), which each produced a negative 10% return for the SAC Capital hedge fund.

Some skeptics are saying that Cohen has lost his mojo, but we don’t think so. Cohen has helped SAC Capital produce legendary returns over the years. The margin by which his picks are beating the S&P 500 may have declined somewhat, but the SAC Capital hedge fund is still producing higher returns than most other hedge funds (Read about recent hedge fund performance).