Billionaire investor and founder of Citadel Advisors, Ken Griffin, shook up his top five holdings during the fourth quarter. With some $115 billion of assets under management, it's worth paying attention when Griffin is rearranging his portfolio to the extent he's done for fourth quarter. This includes upping his stake in five large-cap stocks, including a couple of cable picks and a real estate stock. Griffin founded Citadel in 1990, shortly after launching a convertible-bond arbitrage fund his sophomore year at Harvard. Before that, Griffin was trading options out of his dorm room as early as 1986 (check out Griffin's cheap stock picks).
Citadel Advisor Picks
Apple Inc. (NASDAQ: AAPL) was a 91% increase for Griffin last quarter and is now his largest stock holding. The tech giant has been in tumble mode since September last year, having fallen close to 40%. However, with the selloff, the stock now carries a 2.5% dividend yield and Apple still remains the top tech stock loved by hedge funds (see all 10). For its last quarter earnings, Apple Inc. showed revenue and earnings up nicely, while iPhone unit sales were up over 29% year over year and 84% sequentially. As well, iPad unit growth was up 48% year over year and 63% sequentially. One overlooked positive is that the company continues to open stores, having opened 11 new retail stores last quarter, including four in the fast growing China market. Revenues for its China segment reported a total revenue growth of 67% year over year.
The numbers don't appear all that bad, right? The selloff by investors comes as the rate of growth appears to be slowing. Year over year 2011 sales growth was 66% and earnings growth was 83%, while 2012 growth was only 45% (revenue) and 59% (earnings). Other big news includes management's lowered guidance for the current quarter, now expecting revenues in the range of $41 billion and $43 billion, whereas consensus had been $45 billion before the announcement (see why Warren Buffett would buy Apple).
McDonald's Corporation (NYSE: MCD) saw Griffin up his shares owned by over 37,000% last quarter and put the fast food stock as his second largest holding. Being the world's largest fast food chain, the company has a vast presence, which helps insulate it from slowdowns related to certain countries. What's more is that McDonald's still has room to grow, where it currently owns less than 9% of the $1 trillion global fast food market. McDonald's also has a long-term target of 3% to 5% sales growth and 6% to 7% operating income growth irrespective of what macroeconomic conditions arise.
McDonald's is also very good at returning capital to shareholders, including share repurchases and dividend payments. The company returned $5.5 billion to shareholders in the form of share repurchases and dividend payments in 2012. The fast food chain has a history of increasing dividends every year since the inception of its dividend payment in 1976, including its recent 10% hike in September 2012. The retail giant now has a 3.1% dividend yield (read more about McDonald's big beat).
Comcast Corporation (NASDAQ: CMCSA) is Griffin's fourth largest stock holding after adding 108% from fourth quarter shares. Comcast has seen market infringement from the likes of wireless companies, including AT&T and Verizon, which have been snatching up Comcast video subscribers. During the fourth quarter, Comcast lost 7,000 video subscribers, compared to losing 17,000 in the prior-year quarter. Despite this, the company did manage to gain 341,000 high-speed Internet subscribers and 168,000 telephony customers. As far as rewarding shareholders, the Board has also decided to repurchase $2 billion in shares in 2013 and increased the dividend payout 16%; the stock now pays a dividend yielding 1.9%.
From a valuation standpoint, Comcast is the cheapest among the major media companies:
Price to Sales
- Comcast 1.7 times sales
- News Corp. 1.9 times sales
- CBS 2.2 times sales
- Viacom 2.3 times sales
Simon Property Group (NYSE: SPG) was a 50% increase in shares by Griffin during the fourth quarter and is now his fifth largest holding. Simon is the largest publicly traded real estate company in North America. Fourth quarter results showed that funds from operations came in at $2.29 per share, versus $1.91 from the same quarter last year, and above consensus of $2.15. Occupancy in the U.S. operational portfolio also rose to 95.3% from 94.6% at the end of 4Q 2011.
Simon announced a 21% year over year hike in its dividend payment, now having a dividend yield of 2.9%. One big advantage to Simon's earnings and cash flow is that the company usually enters into only long-term leases, which insulates it from short-term market swings that have weighed on other players in the industry.
Time Warner (NYSE: TWX), a 59% increase in shares, is now sixth in Griffin's portfolio. This media company has a relatively diverse steam of revenues, with three major segments: networks making up 48% of revenue, film and TV is 40% and publishing 12%. The recent news for Time Warner shows that much like its fellow media conglomerates it plans on spinning off its publishing unit. This comes after previous talks of selling the unit to Meredith. Either way, the divesture of its publishing unit will allow the company to focus solely on its cable and film business. Its publishing unit saw revenue fall 7% last quarter on a year over year basis.
As far as its cable focus, Time Warner has recent agreements with Time Warner Cable and Cablevision to bring HBO GO and MAX GO to HBO's entire domestic subscriber base. HBO GO is now available on the Xbox, Samsung TV, the Kindle Fire and Android tablets. Much like Griffin's other picks above, Time Warner has a solid history of returning cash to shareholders. The Board recently approved a share buyback of $4 billion, after the company bought back some $3.5 billion worth of shares during 2012. Meanwhile, earlier this year the company upped its dividend payment by 11%, now paying a dividend that yields 2%.
Don't Be Fooled
Griffin is making some bets on the cable industry by adding Comcast and Time Warner to his top five. Meanwhile, although Apple is one of the more controversial stocks of late, Griffin put the stock as his number one pick during the fourth quarter. I like the McDonald's investment given its solid dividend and growth potential, and the company is the fast food leader. Simon Property is also a solid bet given its robust real estate portfolio and customer diversity.