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Margaret Moran
Margaret Moran
Articles (314) 

Top 2nd-Quarter Buys of Steven Cohen's Firm

Point72 ups stakes in beaten-down stocks

Steven Cohen (Trades, Portfolio)'s Point72 Asset Management recently disclosed its portfolio updates for the second quarter of 2020, which ended on June 30.

Point72 is a hedge fund that was formed in 2014 when SAC Capital Advisors converted its investment operations into a family office. In 2018, the firm reopened to external investors. Point72 invests via a wide range of asset classes and strategies worldwide. Its core investing strategy is based on bottom-up research with a focus on fundamentals and macroeconomic conditions. Cohen serves as the president, CEO and chairman of the firm.

The firm's top buys for the quarter were Merck & Co. Inc. (NYSE:MRK), Fiserv Inc. (NASDAQ:FISV), Alibaba Group Holding Ltd. (NYSE:BABA), Oracle Corp. (NYSE:ORCL) and Concho Resources Inc. (NYSE:CXO).

Merck

Point72 established a new position of 3,596,582 shares in Merck after selling out of its previous holding in the company in the first quarter of 2020. The trade had a 1.81% impact on the equity portfolio. During the quarter, shares traded for an average price of $78.88.

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Merck is a pharmaceutical giant based in Kenilworth, New Jersey. Known as Merck Sharp & Dohme outside of the U.S. and Canada, the company focuses its research and production primarily on vaccines, oncology, infectious diseases and cardio-metabolic disorders.

On Aug. 26, shares of Merck traded around $85.13 for a market cap of $215.31 billion and a price-earnings ratio of 20.71. According to the Peter Lynch chart, the stock is trading above its intrinsic value but below its median historical valuation.

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GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.36 is lower than 66.07% of competitors, but the Altman Z-Score of 3.94 indicates the company is not in danger of bankruptcy. The return on invested capital greatly exceeds the weighted average cost of capital, meaning the company is creating value for shareholders.

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Fiserv

The firm increased its stake in Fiserv Inc. by 2,299,909 shares, or 613.8%, for a total holding of 2,674,612 shares. The trade impacted the equity portfolio by 1.46%. Shares traded for an average price of $100.64 during the quarter.

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Based in Brookfield, Wisconsin, Fiserv is a multinational provider of financial services technology to corporate clients in the financial world, including banks, credit unions, thrifts, leasing and finance companies, insurance companies and securities processing organizations.

On Aug. 26, shares of Fiserv traded around $98.69 for a market cap of $66.09 billion and a price-earnings ratio of 77.42. The stock is overvalued according to the Peter Lynch chart.

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GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 1.4 indicates the company may be in danger of bankruptcy within the next two years, but the current ratio of 1.04 indicates that it can pay its short-term debt. The company has a three-year revenue growth rate of 16.6% and a three-year earnings per share without non-recurring items growth rate of -6.3%.

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Alibaba Group Holding

The firm added 878,905 shares, or 121.11%, to its position in Alibaba Group Holding for a total of 1,604,621 shares, impacting the equity portfolio by 1.24%. During the quarter, shares traded for an average price of $207.72.

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Alibaba is a Chinese multinational conglomerate with holdings in e-commerce, retail, internet and technology assets, among many others. By volume, Alibaba is the largest e-commerce company in the world, with millions of merchants and hundreds of millions of users.

On Aug. 26, shares of Alibaba traded around $290.68 for a market cap of $786.03 billion and a price-earnings ratio of 10.93. The Peter Lynch chart indicates that the stock is trading below its intrinsic value.

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GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 2.08 and interest coverage ratio of 20.85 are higher than 68.11% of other retailers. The company has a three-year revenue growth rate of 45% and a three-year EPS without NRI growth rate of 47.9%.

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Oracle

The firm established a new position of 2,318,170 shares in Oracle after selling out of its previous holding in the company in the first quarter of 2019. The trade had a 0.84% impact on the equity portfolio. Shares traded for an average price of $52.90 during the quarter.

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Oracle is a computer software company based in Redwood Shores, California. Best known for its Oracle database software and its computer systems and software, such as Solaris and Java, the company designs, manufactures and sells a variety of technology and software products.

On Aug. 26, shares of Oracle traded around $57.11 for a market cap of $175.25 billion and a price-earnings ratio of 18.44. According to the Peter Lynch chart, the stock is trading above its fair value but below its median historical valuation.

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GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 9 out of 10. The Altman Z-Score of 1.95 suggests the company may face liquidity issues in the next two years, but the current ratio of 3.03 indicates it can pay its short-term debts. The ROIC is significantly higher than the WACC, meaning the company is creating value for shareholders.

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Concho Resources

The firm also acquired a new stake of 2,225,402 shares in Concho Resources after selling out of its previous holding in the company in the fourth quarter of 2019. The trade impacted the equity portfolio by 0.75%. During the quarter, shares traded for an average price of $55.05.

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Concho Resources is a hydrocarbon exploration and production company based in Midland, Texas. With operations in the Permian, Midland and Delaware basins, the company acquires and develops oil and natural gas assets with a focus on keeping a good environmental, social and governance score.

On Aug. 26, shares of Concho Resources traded around $51.20 for a market cap of $10.07 billion. The Peter Lynch chart shows the stock as overvalued compared to recent earnings, which were in the negatives, but undervalued compared to earnings from 2018 and 2019.

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GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of -1.96 and cash-debt ratio of 0.08 indicate that the company will likely need to raise additional liquidity to avoid bankruptcy. The operating margin of -21.31% and net margin of -91.77% show that the company is currently earning a negative return on its operating activities.

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Portfolio overview

Point72 Asset Management's top sells for the quarter included a 98.18% reduction in Micron Technology (NASDAQ:MU) and a complete sellout of CSX Corp. (NASDAQ:CSX) after adding to both these positions in the previous quarter. In total, the firm established 340 new positions, sold out of 313 holdings and added to or reduced many other positions for a turnover rate of 52%.

As of the quarter's end, the firm held shares in 778 stocks, the top holdings being Amazon (NASDAQ:AMZN) with 2.38% of the equity portfolio, Alibaba with 2.26% and Merck & Co. with 1.81%. In terms of sector weighting, the firm was most invested in health care, technology and consumer cyclical.

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Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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