Top Buys in the Last Quarter from Steven Cohen
The company, which was founded in 1992, started with $25 million and today manages $14 billion. Steven Cohen focuses on fundamentals of companies and technical analysis when investing. As he put it, “SAC's initial investment style was ‘trading’-oriented. However, we have evolved into a multi-strategy, multi-disciplinary, investment management firm emphasizing rigorous research and risk management practices. SAC's investment strategies include, but are not limited to: Fundamental and Technical Long/Short Equity Portfolios, Global Quantitative Strategies, Fixed Income and Credit, Global Macro Strategies, Convertible Bonds and Emerging Markets.”
SAC has posted average annual returns of about 30% in the last 20 years.
Here are some of Steven Cohen's top buys:
Praxair Inc. (PX): Industrial gas is the main product of Praxair. It is present in North America and South America. It is also extending its operations to Asia and Europe. Its three main distribution businesses--on-site, merchant liquid, and packaged or cylinder gases--represent 25%, 30%, and 29% of total sales, respectively.
About $10 billion in annual sales are generated by other types of operations which include the industry of health care, petroleum refining, aerospace, and chemicals.
Praxair is constantly aiming at expanding its operating regions and acquiring new customers, which would be translated into an important profit growth. By fiscal year 2015, Praxair expects to achieve between 8%-12% in growth with an anticipation of emerging markets (South America, Asia, and Mexico) to account for roughly 45% of total sales. Operating profit is expected to stand between 10% and 15% thanks to higher productivity and effective pricing actions. Earnings are forecasted to grow between 12% to 18% and EBITDA to be 30% of total sales. After-tax return on capital is expected to be over 15% and the company is also expecting to have sufficient cash flow to pay dividends and repurchase shares.
I think Steven Cohen decided to invest in Praxair because it still holds many growth opportunities in diverse markets such as hydrogen for refining and oxygen for health care. As regards hydrogen, the demand is expected to grow between 2010 and 2015 by 2% in the US and Europe, 15% in India, 20% in China, 24% in the Middle East and 25% in Brazil.
The company is permanently developing new products and applications as well as innovative techniques. At the end of Q3, the project backlog reached about $2.7 billion. Last but not least, the company has entered new contracts to provide cash flow stability. Some of the new contracts include agreements with Valero and with Motiva.
Dollar General Corporation (DG): Dollar General is a discount retailer operating mainly in the Unites States. Its main customers are lower- and middle- income Americans who are attracted by the company’s ability to sell merchandise at rock-bottom prices. Dollar General now has the ability to process electronic benefit transfer cards, debit cards, and Discover Network credit cards, which adds convenience and attracts new customers. Dollar General has a multi-price-point model in which its products vary in pricing, but are generally $10 or less.
Dollar General's 2011 4Q EPS are up 28% year over year, with a healthy 6.4% earnings surprise. This puts the average EPS growth of the last 3 quarters at a solid 22%. For the current quarter, estimates are up and the EPS is estimated to increase by 30% year over year. Its 3 Year EPS Growth Rate is 77%, with the current 2011 EPS estimated to post an increase of 24.73%. Dollar General also has had 3 consecutive years of EPS Growth. 2011 4Q sales were up 12% while the 3-Year Sales Growth Rate is a sound 11%. Dollar General's Annual Pre-Tax Margin is somewhat small at 7.8%, but it has a healthy Annual ROE of 17.3%. Dollar General has a Debt/Equity Ratio of 81%.
Steven Cohen must have invested in Dollar General because it is extremely healthy and has ample room for growth and holds a wide reach. Most importantly, Dollar General will continue to attract consumers given its restructuring efforts. The company has the ability to process electronic benefit transfer cards, debit cards and Discover Network credit cards that add convenience.
United Technologies Corp (UTX): United Technologies’ key product lines are Otis elevators, Carrier air conditioners, Pratt & Whitney engines, and Sikorsky helicopters which make the firm a $54 billion diversified conglomerate with business operations serving primarily construction and aerospace markets.
Given its growth tailwinds, the company can seek growth even if the developed economies are not growing at a good pace despite some of its businesses which are below peak revenues of 2008.
What allows the company to be profitable and an attractive investment target even tough economic times is its mixture and diversification of products and services and its ability to deliver consistent earnings and dividend growth. Besides, it offers aftermarket services which help boost revenue and offset the negative impact of downturns in the new products market. This additional service accounts for 35% of its total revenues. Undoubtedly, Steven Cohen considered these elements at the time of investing in United Technologies.
In 2011, the company acquired Goodrich Corp, a global supplier of systems and services including brakes, landing gear, nacelles and sensors, among others. The deal is expected to increase revenues.
Financially speaking, United Technologies generates strong free cash flow. During the latest reported quarter, cash and cash equivalents were $6.0 billion, up 46.1%. The cash flow enables management to invest in product innovations, acquisitions and business development.
Cameron International Corporation (CAM): Supply of oil and natural gas separation equipment, pressure control equipment, compressors, and valves used in oil and gas production represent Cameron International’s main operations. The firm has strong international presence in over 100 countries all around the globe. The Company operates in three segments: Drilling & Production Systems (DPS), Process & Compression Systems (PCS) and Valves & Measurement (V&M), and it has a strong presence in more than 100 countries.
The firm counts on its own all-electric subsea system which would increase reliability, boost sales and foster profits. Recently, there has been a surge in order in new rigs which would favor CAM substantially. We think aging global rig fleets will prompt further new rig orders for the next few years.
The company also offers aftermarket parts and services consisting of spare parts, technical services, repairs, overhauls, and upgrades.
Newfield Exploration Company (NFX): Newfield Exploration Company’s main activities are exploring, developing and acquiring oil and natural gas properties primarily in the Gulf of Mexico. By exploring and developing existing properties and also by acquiring proved properties with drilling upside, the firm aims at expanding its reserve base and also making its cash flow grow. The company’s main focus is on reserve growth through exploratory drilling, balance between exploration and the acquisition and exploitation of proved properties, strong geographic focus, and the use of 3-D seismic, among other actions.
Production guidance has remained unchanged at 312 323 billion cubic feet with an estimated increase of 8-12% over 2010 volumes.
Steven Cohen invested in NFX because of the company´s move from high cost and traditional asset base to high quality plays and growing oil volumes in Monument Butte. All this will bring production visibility and will make the stock more attractive.
Most importantly, Newfield holds a diversified portfolio characterized by flexibility and significant growth potential. The company´s reserve potential of the Southern Alberta Bakken, Wasatch oil, Uinta Basin and new resource play are expected to be a liquid-rich catalyst for the stock.
Last but not least, Newfield remains better position than its peers given its production at attractive prices and its access to resource-rich assets.