Billionaire Steve Cohen and his SAC Capital hedge fund made some serious moves during the fourth quarter, rearranging their top five holdings completely, including making some big bets on stocks you might not have expected.
Cohen was one of the top five hedge fund earners in 2012 (see all five here), pulling in a nice $1.3 billion during 2012. Cohen founded Connecticut-based hedge fund SAC Capital in 1992 and since then has run a diversified fund with a focus on fundamental analysis. Cohen's assets under management are upwards of $14 billion, with $7 billion of that being his own personal money (see all of Cohen's stock picks)
Sherwin-Williams Company (NYSE: SHW) after a 425% increase in shares owned from the third quarter, is now Cohen's number one public equity holding. Sherwin-Williams Company was the hedge fund's ninety-third largest holding in the previous quarter. Sherwin-Williams is engaged in the development, manufacture and sale of paint. Although the housing market has been weak, the company has seen a steady demand, thanks to a transition from professional contractors to do-it-yourself consumers. The company hopes to diversify its customer base and expand its operations geographically, which includes growing through acquisitions. In late 2012 the company snatched up Mexico's leading paint company, Consorcio Comex, for $2.34 billion. Meanwhile, its consumer segment is recovering with improving domestic and international sales of automotive finishes, original equipment manufacturers product finishes, and protective and marine coatings.
The company is also focused on capturing a larger share of its end-markets by increasing its store count. It added 70 new stores in 2012 and plans to add another 70 to 80 stores in 2013. Sherwin-Williams is an impressive company when it comes to returning cash to shareholders, having returned $161 million to its shareholders in 2012 through dividends, and repurchasing 4.6 million shares. This in part has helped performing nicely of late, being up 50% over the last twelve months...
A housing recovery will only further push the company higher. For the fourth quarter, Sherwin posted EPS of $1.17, versus the mere $0.14 the company posted in the same quarter last year. What's more is that the full-year 2012 EPS came out to $6.64, up 60% year over year. Read more about why Sherwin-Williams is a great stock-great company).
News Corp. (NASDAQ: NWSA) is SAC Capital's second largest holding after increasing its position 161% last quarter. The revenue streams of News Corp. are relatively diverse, with 27% from cable network programming, 22% from filmed entertainment, 14% from television and 11% from direct broadcast satellite television. The segment dragging down the company is its publishing unit, 24% of 2012 revenues. News Corp. publishes via the likes of Dow Jones and The New York Post. News Corp. will spin off its publishing business as a separate publicly traded entity later this year, where the remaining entertainment company should then enjoy higher multiples and a more advantageous cost of capital. Despite the poor earnings growth that the company has seen over the last five years, which has come in at a negative 15% annually, the future growth is positive and is suppose to be upwards of 15% for the next five years.
After the hedge fund upped its stake by 82%, eBay Inc. (NASDAQ: EBAY) now makes up its third largest holding. The eBay marketplace segment makes up some 50% of revenues and is seeing a solid turnaround, while its payments segment (PayPal) should be a fundamental driver of future growth -- thanks in part to its agreement with Discover and opportunities in the fast-growing mobile payments space. Recent quarterly results showed that EPS came in at $0.70, compared to $0.60 for the same quarter last year.
This earnings growth came on the back of double digit user growth thanks to strong mobile adoption. Going forward, management expects to generate some $0.61 in EPS for the first quarter, well above previous analysts' estimates of $0.55. EBay Inc. also has an impressive balance sheet with $9 billion in cash, generating some $1.1 billion in free cash flow last quarter (see why eBay is a screaming buy).
Facebook Inc. (NASDAQ: FB) was one of SAC Capital's largest increases, an over 1,500% increase in shares owned. The social networking company is now the hedge fund's fourth largest holding, versus being its 309th largest holding during the third quarter. Facebook has a massive user base with immense amounts of data, making it an impressive database for helping advertisers target more relevant ads going forward. Facebook Inc. has significant growth opportunities to increase online advertising; IDC expects that total spending on display ads will reach $19 billion in the U.S. by 2015.
Recent quarterly results showed that EPS came in at $0.17 for the fourth quarter, improving 13% from the same quarter last year and 41% from the previous quarter. Another key positive is that advertising revenue was up 43% year over year and average revenue per user was up 11% year over year (check out Facebook's great growth opportunity).
Schlumberger Limited (NYSE: SLB) was one of SAC Capital's modest increases, an 18% boost in shares, and now its fifth largest holding. Schlumberger Limited is a supplier of technology and information solutions to international oil and gas exploration and production companies. Schlumberger has impressive balance sheet strength, with a debt ratio of less than 20%, interest coverage ratio of 20 times and a current ratio of 2.0; meanwhile the company also increased its cash on hand by 35% last quarter on a year over year basis.
The company also has impressive exposure to growing deepwater activity thanks to its seismic capabilities. This is even more important as hydraulic fracturing and land drilling activity is being depressed due to environmental concerns. In the international arena, the company is aiming for continued margin improvement, which should be driven by growth in the Middle East, Asia, Europe and Africa. The oil and gas equipment company also pays a 1.6% dividend yield, which is only a 30% payout of earnings.
Don't Be Fooled
Steve Cohen has managed to return some 30% annually over the last twenty years, which is all the more reason to take notice of what he has been up to (see Cohen's latest stock picks). SAC Capital rearranged its entire top five stocks last quarter, making a big bet on Sherwin-Williams and an implied rebound in housing. Other big bets are on News Corp. and eBay, while also taking interest in Facebook. The social network was down 30% for 2012. Meanwhile, Cohen kept Schlumberger Limited as one of his top holdings.