Connoisseur of the untold stories on Wall Street, skewed toward activist hedge funds

Billionaire Hedge Funds Made Billions in 2012

Added on by Lee Ho Fook.
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Be sure to check out our detailed stock analysis (click here). Billionaire hedge fund manager David Tepper posted outstanding 2012 performance; he brought in $2.2 billion and returned some 30% for his hedge fund Appaloosa Management. In light of his success, it's time to dig a bit deeper into how other top hedge fund managers made their fortunes in 2012.

Icahn takes second place 

Billionaire Carl Icahn came in second behind Tepper in 2012, earning some $1.9 billion, and seeing his hedge fund return 28%. Icahn is an activist investor whotakes stakes in companies to push for better organization and management change. A couple of Ichan's big winners in 2012 include CVR Energy (NYSE: CVI) and The Hain Celestial Group, Inc. (NASDAQ:HAIN). At the end of 2012, CVR was still Icahn's second-largest public equity holding, and Hain Celestial was seventh.

Both stocks were up nicely in 2012...

CVR is an independent refiner and marketer of transport fuels, and a producer of nitrate fertilizers. Icahn owns over 80% of CVR and previously planned to take the company private, but the deal fell about in August of last year. Since then, the stock has more than doubled. 

Big CVR news of late includes the company's plans to begin paying a quarterly dividend of $0.75 per share as of Q2 2013. That payout's well backed by its $725 million in cash on hand. A $0.75 quarterly dividend at the current share price represents a 4.8% dividend yield. CVR Energy also recently spun off its refining master limited partnership, but still owns 84% of the MLP, CVR Refining LP.

Icahn first took interest in Hain Celestial back in the first quarter of 2010, and has been buying up shares of the company steadily since then. He now owns more than 15% of the outstanding shares.

At the time Icahn started buying back in 2012, he had this to say about the foods company:“Hain has a strong portfolio of brands that position it well for a continuing secular shift towards organic and all natural foods and consumer packaged goods. We look forward to working with the current board and management toward enhancing stockholder value." I believe this continues to be the case as the market for organic foods gains traction. 

Hain is one of the leaders in natural food industry, with an array of well-known brands. Key acquisitions for the company have allowed it to continue building market share, but a slowing economic environment has limited the growth of Hain's higher-priced product line. However, as of late, the company is seeing growth and margin expansion, with its recent quarterly results showing earnings of $0.72 per share, up 35% from the prior-year quarter, and sales up 25%. 

And earning the bronze medal...

Tying for third were Steve Cohen of SAC Capital and Jim Simons of Renaissance Technologies, both earning $1.3 billion in 2012. 

Cohen's SAC Capital returned 13% net returns in 2012, thanks in part to big picks such asSirius XM Radio (NASDAQ: SIRI)Cohen first made a big bet on Sirius during the first quarter of 2012, putting the stock into into the top five of the hedge fund's holdings. It remained there until the end of 2012, when SAC had Sirius as seventh.

Sirius is a great play on a rebounding auto industry (read more here). The satellite radio company was up almost 60% for 2012, but could still move higher in 2013. The subscription-based satellite radio provider has its radio as the standard product in 70% of the cars produced in the U.S. Recent quarterly results for Q4 came in at $0.02, well above the $0.01 from the same quarter last year.

The company has also offered robust guidance across the board for 2013, with revenue expected to be up 9% year over year, EBITDA up 20%, and free cash flow up 27%. What's more, the valuation and growth for Sirius is quite compelling. The stock trades at six times earnings, while its five-year expected earnings growth is 29%, leading it to a 0.2 PEG. 

Jim Simons' RenTech was also tied for third, in part because of Eli Lilly (NYSE: LLY). Simons founded RenTech in 1982, and the firm now manages some $20 billion. The firm primarily uses complex mathematical models to analyze and execute trades. 

Eli Lilly was as one of RenTech's top five holdings throughout 2012, and was third at the end of 2012. The stock was up almost 20% during 2012, and also pays a 3.5% dividend yield. The drugmaker is looking to counter the loss of its patent for Zyprexa, in part via growth in emerging markets and animal health. Lilly boasts more than fifty compounds in its research and development pipeline. Eli Lilly's returns also compare favorably to those of other major drugmakers:

Return on Sales

  • Eli Lilly 18%
  • Pfizer 16%
  • Merck 13%

Return on Investment

  • Eli Lilly 20%
  • Pfizer 7%
  • Merck 8%

And at No. 5...
Coming in fifth was billionaire George Soros of Soros Fund Management, which pulled in $1.1 billion in 2012 (check out Soros' newest picks). Soros is best known for his Quantum Fund, which is said to have achieved a cumulative 32% annual return over its 26-year history. 

Motorola Solutions (NYSE: MSI)the communication equipment company, was one of Soros' continued "big" bets during 2012, remaining in the top eleven for the entire year. Soros had Motorola Solutions as his seventh largest holding at the end of 2012. The company was up some 20% in 2012 and should move higher in 2013. 

Motorola Solutions appears to be a leader in the lucrative U.S. public safety market. The company's business model should allow it to maintain its solid growth, given the nature of the public safety network in the U.S. The communications equipment company is one of the largest developers of public safety products, commanding nearly half of the total market share in the U.S. This includes being the largest manufacturer of bar code readers and small rugged mobile computers..

All of the top five major hedge fund earners of 2012 were already billionaires, but there's no mistaking how they achieved that status: consistent strong performance year after year. As a result, it is always worthwhile to check out what some of these hedge fund managers had their portfolios invested in, with the hopes of gaining some insight into potential stock picks for outperforming the market.

Icahn has been betting on his energy and natural foods companies for the last couple of years. Cohen has made a bet on the rebounding auto industry Sirius, with Simons still having major drug maker Eli Lilly as one of his top holdings. I think Soros still has one of the most solid bets of the billionaires making it big in 2012. At a 1.25 PEG, and with a 1.6% dividend yield, Motorola Solutions seems to have earned its spot as one of Soros's top picks.