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Interesting Top Buys from Jim Simons

January 11, 2012 | About:
Mara Kohn

Mara Kohn

4 followers
Jim Simons is the founder of Renaissance Technologies Corporation, a New York-based private investment firm. Now, he serves as CEO and Renaissance is considered one of the most successful hedge funds.

Renaissance, which operates in several markets, always employs complex mathematical models to review and execute trade. It uses computer-based models to forecast changes in prices in financial instruments. The idea is to analyze as much data as possible and look for expected movements to make predictions.

As Jim Simons says: “The advantage scientists bring into the game is less their mathematical or computational skills than their ability to think scientifically. They are less likely to accept an apparent winning strategy that might be a mere statistical fluke."

Here are Jim Simons' top buys:

Microsoft Corporation (MSFT): MSFT develops the Windows PC operating system, the Office suite of productivity software, and enterprise server products such as Windows Server and SQL Server. While the first two account for 60% of revenue, the server and business tools represent 24%.

Other businesses include the Xbox 360 video game console, Bing Internet search, business software, and software for mobile devices.

Financially speaking, Microsoft is very solid. Its balance sheet is sound with more than $50 billion in cash and cash equivalents and $12 billion in debt. Management expects that in the future, MSFT will be able to generate $20 billion in free cash flow on an annual basis.

In terms of future expectations, Azure platform will surely develop into a larger business and the partnership with Nokia will enable MSFT to obtain a larger market share. Market share gains will turn the online services division into a profit contributor over the next five years.

Schlumberger NV (SLB): SLB is an oil services company that operates in 80 countries. Its services range from seismic surveys to artificial lifting. These services are targeted at oil exploration and production companies.

In terms of quarter results, in 2010, SLB generated $27.4 billion in revenue and $4.3 billion in net income.

The company is a leader in the Russian oil services market. This will definitely lead to important growth. In addition, Schlumberger is winning many integrated project-management efforts from Mexico to Russia.

Philip Morris International Inc. (PM): Philip Morris is the second-largest tobacco company across the globe and holds almost 16% of the non-US market. The firm brands include the most important ones at international level, such as Marlboro, L&M, Philip Morris, Bond Street, and Chesterfield, among others.

This shows that the company is very strong. Its portfolio makes the firm rank first in terms of prices in international markets.

Now, PM is trying to focus on developing markets, where its operating margins exceed those of competitors. Furthermore, it is trying to access markets such as India and Vietnam by taking share from small competitors. Last but not least, the firm has entered into joint ventures with China National Tobacco to market Marlboro in China, and with Swedish Match to market snus in the EU.

Netflix Inc. (NFLX): NFLX provides DVD rental and video streaming services in United States, Canada and Central and South America. Netflix delivers digital content to PCs, Internet connected TVs, and consumer electronic devices including but not limited to the Xbox 360, Playstation, and Wii.

The company charges $16 per month for 1 DVD plus streaming, while 1 DVD at a time or streaming costs $8 per month.

The company is financially healthy. It has more cash than debt thanks to the share repurchases and investments in a digital download initiative.

Netflix's capacity cannot be matched by competitors. Its DVD library is one of the differentiators. Now, customers are undergoing a transition from DVD to streaming.

Express Scripts (ESRX): Express Scripts is one of the three largest pharmacy benefit managers in the U.S. It works through mail-order pharmacies and retail ones.

ESRX growth trend is going upward thanks to demography and a higher spending on drugs. Express Scripts makes much higher margins on generic ones.

The acquisition of WellPoint's NextRx PBM business boosted Express Scripts' scale and its competitive advantages. The Medco deal could transform Expres Scripts into a wide-moat company.


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