Steven Cohen house: Steven Cohen’s SAC Capital is one of the biggest hedge fund companies in the world. Although redemptions stemming from the firm’s federal indictment for criminal securities fraud have lowered AUM figures a bit, SAC still manages about $9 billion in internal assets, and is a major force on Wall Street.
In its latest 13F filing with the SEC, Cohen and SAC reported several large positions in its equity portfolio (see them here),but we’re going to focus on the firm’s small-cap picks. As you’ll see, he’s sheltering his shorter-term bets with these long-term plays, many of which happen to be in the small-cap space. You could say he’s building a metaphorical “house” in case any of his higher-turnover positions have a rainy day.
Here at Insider Monkey, we’ve found that the small-cap space typically represents hedge funds’ best investments, and our empirical research supports this phenomenon. Our small-cap strategy beat the market by more than 29 percentage points in its first year, and long-range studies are equally as promising.
With that being said, Steven Cohen and his investment team have been favoring a few small-cap names as of late, so let’s take a look at their top three.
RenaissanceRe
Cohen’s position in RenaissanceRe Holdings Ltd. (NYSE:RNR), the reinsurance and insurance provider, is the 11th largest in his equity portfolio, sitting ahead of large-cap names like Facebook Inc (NASDAQ:FB) and Chipotle Mexican Grill, Inc. (NYSE:CMG). The hedge fund manager’s conviction in RenaissanceRe was strong earlier this year, when he boosted his stake by 1000% in the first quarter.
Compared to many of his stock picks, Cohen’s RNR position is built for the long-term; he held shares as far back as our records go, in Q4 2010. Since this time, the stock has risen by nearly 40%, and more recently, it’s issued two earnings beats in the last three quarters. It’d be wise tomonitor Cohen’s future moves here, as shares still trade at depressed multiples despite the gains.
Goodyear
Tire manufacturer The Goodyear Tire & Rubber Company (NASDAQ:GT) is another long-term small-cap holding on Cohen’s books. Like RenaissanceRe, his position in Goodyear stretches back as far as our records go. We can’t stress enough that this is a very important fact to understand. On average, Cohen’s portfolio turnover is about one-fourth to one-third of his total holdings depending on the quarter, as his reliance (at least partially) on quantitative methods ensures a moderate level of short-term transactions. The fact that Cohen has held a stake in RenaissanceRe and Goodyear for nearly three years cannot be overlooked.
With regard to the latter, David Tepper and Joel Greenblatt are also bullish on Goodyear, and there are plenty of reasons to share this sentiment. For starters, the company’s footprint outside of the U.S. is steadily improving, particularly on the margin side. Goodyear also said last week that it expects 10%-15% operating income growth through at least 2016, while reinstating a quarterly dividend and a $100 million share buyback.
At a forward P/E below 9x, a PEG near 0.5 and a ridiculously low sales multiple almost 80% below parity, Goodyear is even cheaper than RenaissanceRe. With the recent capital allocation boost, we expect Cohen to continue his bullish ways into the foreseeable future.
Visteon
Staying in the auto sector, Visteon Corp (NYSE:VC) is another favorite small-cap of Cohen’s. Like Goodyear, this OEM supplier is in the midst of an event-driven appreciation, with shares up over 60% in the past twelve months. After selling its auto lighting business to Varroc last year, a $100 million repurchase plan was announced. With new CEO Timothy Leuliette on board soon after, $200 million more in buybacks were announced this past January.
Last month,Visteon upped this repurchase plan a third time to $1 billion (through 2015), a direct result of the company’s sale of its joint venture stake in its car interiors business to China’s Huayu Automotive Systems. This updated buyback plan represents almost a third of Visteon’s total market cap.
Final thoughts
Steven Cohen’s bigger name investments typically get the most attention from investors, but it’s the small-cap companies that provide some surprising value opportunities. When sprinkled with a dash of event-driven appreciation, it’s easy to see why the hedge fund manager is long, particularly on Visteon and Goodyear. We’ll continue to watch these two small-cap auto players very closely.
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