Activist investing and special situations.

Billionaire Steve Cohen's New Stocks

Added on by Lee Ho Fook.
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Be sure to check out our detailed stock analysis (click here). Billionaire Steve Cohen added a number of stocks to his portfolio last quarter. He manages some $14 billion via his SAC Capital hedge fund, with over half of that being his own personal wealth. Outlined below are Cohen and SAC Capital's five largest new additions to their portfolio last quarter. 

The best part about these five stocks is that they all are all less-covered and less well-known than some of the other mega-cap investments many large hedge funds buy, which means there is a bigger chance of mis-pricing. Let's take a look at Cohen's largest new additions to his portfolio last quarter (see Cohen's tops picks). 

Cohen likes autos and communications

Cohen's largest new addition was O'Reilly Automotive (NASDAQ: ORLY), which is the third largest specialty retailer of aftermarket auto parts. The real tailwind for the company is the fact that the average age of vehicles on the roads is near all-time highs at around 11 years. The company also has a healthy blend of Do-It-Yourself and Do-it-for-Me customers, with a near 50/50 split between the two. 

Big plans for O'Reilly include store expansion, helping the company enter new markets. It opened 185 stores in 2012 and expects to open another 190 in 2013. For the full year 2013, the company anticipates higher earnings per share in the range of $5.57 to $5.67, versus the $4.75 in 2012, and expects to generate free cash flow between $450 million and $500 million for the year.  (check out why O'Reilly's a buy)

Alcatel-Lucent (NYSE: ALU) is a Paris-based telecom equipment company which supplies digital subscriber line (DSL) equipment. The company is a leader in telephone switching equipment, mobile infrastructure, and communications software. Growth in mobile broadband data traffic should help drive its growth via increased spending on capacity and upgrades. 

Alcatel is also relatively diversified across geographical segments, with around 35% of revenue from the U.S., 30% from Europe, and 17% from Asia & Pacific, then another 17% from the rest of the world. As far as valuation is concerned, the stock is cheap on a price to sales basis. Alcatel trades at 0.2 times sales, versus major peers Cisco (2.4 times), Ciena (0.9 times) and Juniper (2.7 times). However, investors should use caution and note the stock's volatility when investing, as it has a beta of 2.3 (see if Alcatel can reach $2).

Cohen's new tech bet

Analog Devices (NASDAQ: ADI) is a leading supplier of analog and DSP integrated circuits. A little known secret is that Analog Devices is the second largest producer of analog chips after Texas Instruments.

The company continues to generate a large portion of revenue from industrials and auto markets, which should lead to impressive growth on the back of strong economic growth. 

Analog has a relatively diverse geographic mix, with around 33% from America and Europe each. The three segments, China, Japan, and Asia (excluding China and Japan), make up just over 10% each. The company has a strong balance sheet, with $3.9 billion in cash and only $760 million in debt. 

Video games and discount retail for Cohen

Take-Two Interactive (NASDAQ: TTWO) was another big addition to Cohen's portfolio (see other hedge funds buying Take-Two). Consensus forecasts show that the video game company has positive growth prospects, with fiscal year 2014 (ending March) revenue expected to be up 48%, after an expected 45% growth for 2013.

This growth should come from some of the company's top games, including the release ofGrand Theft Auto V, which could account for as much as 50% of fiscal year 2014 revenue. The emergence of online games is also impacting the company, but it appears to be taking key steps to enter the digital market. Last quarter, digital revenue grew 244% year over year, and made up 23% of total revenue. 

Worth noting is that the stock does trade on the cheap side of the industry, trading at only 0.85 times sales, compared to major peers Electronic Arts (1.5 times) and Activision Blizzard (2.25 times). 

Big Lots (NYSE: BIG) is one of the major discount retailers in the U.S., competing with the major dollar stores Dollar General and Family Dollar. The sluggish economic environment is boding well for the company, where customers are trading down in an effort to save money. The company continues to surprise investors, beating third and fourth-quarter earnings expectations -- 4Q EPS was up 19% year over year. 

The company also acquired Liquidation World in 2011, which marked its expansion into Canada. The company hopes to expand further, and opened 92 stores in 2011, 87 in 2012, and has plans to open 50 in 2013. Boding well for Big Lots is the fact that the company is also cheap when compared to major peers.  

Don't be fooled

Billionaire Steve Cohen bought a number of stocks last quarter, but his top five largest positions include a number of less covered stocks that could still provide solid undervalued opportunities. O'Reilly is well positioned to capitalize on the aging of vehicles, while Take-Two is taking strides to capitalize on the digitalization of the gaming industry. Both Analog (semiconductors) and Alcatel (communications equipment) operate in rapidly changing industries and caution should be used when investing, while Big Lots is a solid bet in the discount retail sector.