Jim Simons (Trades, Portfolio), founder of Renaissance Technologies LLC, has released his firm's portfolio for the third quarter. The guru cut down dozens of holdings, with the largest impacts coming from Tesla Inc. (TSLA, Financial), Bristol-Myers Squibb Co. (BMY, Financial), Walmart Inc. (WMT, Financial), AbbVie Inc. (ABBV, Financial) and Zoom Video Communications Inc. (ZM, Financial).
Renaissance Technologies is a quantitative investment management company that trades in global financial markets. The company is dedicated to adhering to mathematical and statistical methods. Investments are made using a computer algorithm and trades are conducted for Simons by his firm.
Portfolio overview
At the end of the quarter, the portfolio contained 3,335 stocks, with 493 new holdings. Overall, it was valued at $100.15 billion and has seen a turnover rate of 10%. Top holdings at the end of the quarter were Zoom Video Communications., Novo Nordisk A/S (NVO, Financial), Bristol-Myers Squibb, Chipotle Mexican Grill Inc. (CMG, Financial) and Vertex Pharmaceuticals Inc. (VRTX, Financial).
By weight, the top three sectors represented are health care (22.88%), technology (14.06%) and communication services (12.62%).
Tesla
A massive reduction in the holding of Tesla during the quarter resulted in the largest impact on the portfolio overall. The holding was cut by 99.31% with the sale of 5.49 million shares. During the quarter, the shares traded at an average price of $353.47. The sale had a -1.02% impact on the equity portfolio and GuruFocus estimates the total gain on the holding at 115.70%.
Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company that also aims to transition the world to electric mobility by making electric vehicles. It sells solar panels and solar roofs for energy generation plus batteries for stationary storage for residential and commercial properties including utilities. It also makes solar roofs and plans to enter the HVAC market.
On Nov. 19, the stock was trading at $501.39 per share with a market cap of $476.70 billion. The GF Value Line shows that the stock is currently significantly overvalued.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rank of 4 out of 10. There are currently three severe warning signs issued for new long-term debt, declining gross margin percentage and assets growing faster than revenue. Debt has steadily increased to high levels over the last decade for the company as positive net income continues to remain an issue.
Bristol-Myers Squibb
Despite a 29.70% reduction in the holding, Bristol-Myers Squibb remains one of the top holdings in the portfolio. The third quarter saw 12.92 million shares sold. The stock traeded for an average price of $60.17 during the quarter. Overall, the sale had an impact of -0.66% on the portfolio and GuruFocus estimates the total gain of the holding at 12.62% during its lifetime.
Bristol-Myers Squibb discovers, develops and markets drugs for various indications, such as cardiovascular, oncology and immune disorders. A key focus for Bristol is immuno-oncology, where the company is leading in drug development. Unlike some of its more diversified peers, Bristol has exited several nonpharmaceutical businesses to focus on branded specialty drugs, which tend to support strong pricing power.
As of Nov. 19, the stock was trading at $61.78 per share with a market cap of $139.61 billion. The GF Value Line shows that the stock is trading at a modestly undervalued level.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 7 out of 10. There are currently three severe warning signs issued for assets growing faster than revenue, declining gross margin percentage and new long-term debt. While the return on invested capital has declined in recent years, it has supported the weighted average cost of capital, which will allow the company to build value as it grows.
Walmart
Another company to see a large reduction in its size during the quarter was Walmart. The holding was slashed by 69.90% with the sale of 5.42 million shares. The shares traded at an average price of $133.31 during the quarter. The sale represented a -0.56% impact on the portfolio and GuruFocus estimates the total gain of the holding at 16.13%.
Walmart is America's largest retailer by sales, operating over 11,500 stores under 56 banners. selling a variety of general merchandise and grocery items. The company also operates several e-commerce properties apart from its site, including Flipkart and shoes.com.
Nov. 19 saw the stock trading at $151.91 with a market cap of $430.16 billion. The GF Value Line shows that the stock is modestly overvalued.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 2 out of 10. There is currently one severe warning sign issued for declining operating margin percentage. The company has managed to slowly increase dividends over the last decade while maintaining strong free cash flow to support the payouts.
AbbVie
The AbbVie holding was reduced in the portfolio for the first time since 2018. The third quarter saw 5.55 million shares to reduce the stake by 29.18%. The shares traded at an average price of $94.18 during the quarter. GuruFocus estimates the total gain of the holding at 14.69% and the sale had an overall impact of -0.47% on the portfolio.
AbbVie is a drug company with strong exposure to immunology and oncology. Its top drug, Humira, represents over half of the company's current profits. The company was spun off from Abbott in early 2013. The recently announced acquisition of Allergan will add several new drugs in aesthetics and women's health.
On Nov. 19, the stock was trading at $99.82 with a market cap of $176.25 billion. It is trading at fair value according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 8 out of 10. There are currently three severe warning signs issued for assets growing faster than revenue, poor financial strength and an Altman Z-Score of 1.3 placing the company in the distress column. Despite the poor financial strength, the company has strong operating and net margin percentages that outweigh the majority of the industry.
Zoom Video Communications
Despite a relatively short time in the portfolio, the Zoom holding was also reduced during the quarter. It was cut by 27.68% with the sale of 2.00 million shares. The shares traded at an average price of $319.67 during the quarter. Overall, the sale represented a -0.44% impact on the portfolio and GuruFocus estimates the total gain of the holding at 164.54%.
Zoom provides a communications platform that connects people through video, voice, chat and content sharing. The company's cloud-native platform enables face-to-face video and connects users across various devices and locations in a single meeting. Zoom, which was founded in 2011 and is headquartered in San Jose, California, serves companies of all sizes from all industries around the world.
On Nov. 19, the stock was trading at $413.73 with a market cap of $117.45 billion. The Peter Lynch chart shows that the stock is trading above its intrinsic value.
GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rank of 2 out of 10. There is one severe warning sign issued for poor quality of earnings. The company has seen high levels of success during the ongoing pandemic, as represented by the large increase of cash flow and net income.
Disclosure: Author owns no stocks mentioned.
Read more here:
- Daniel Loeb's Top 5 Trades in the 3rd Quarter
- Seth Klarman's Top 5 Buys of the Third Quarter
- Robert Olstein's Top 3rd-Quarter Trades
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