Infamous billionaire Steve Cohen is biding his time until he can create a new, bigger hedge fund that will be open to outside money according to recent news reports. In the meantime, Cohen is still investing via his $11 billion Point72 Asset Management family office. It may be his ‘family office’ but Point72 still has over 1,000 employees and five global offices. During the third quarter we can see that Cohen ramped up two of the fund’s key holdings: Alibaba Group Holding Ltd (NYSE:BABA) and Amazon.com, Inc. (NASDAQ:AMZN).
Cohen was barred from accepting investor capital until January 1 2018 following an insider-trading scandal in 2013. The SEC charged the whole $16 billion fund (S.A.C Capital Advisors) with insider trading, while also charging Cohen with failing to supervise the employees who carried out insider trading while working for the fund. Following the indictment, Cohen closed the fund and paid fines of $1.8 billion. Before the fund was shut down, it was recording very impressive annual returns of 29% for 21 years- ensuring that Cohen’s reputation as a star hedge fund manager remains firmly intact despite the scandal.
And as a result, investors are not surprised that Cohen is now back and is looking for $20 billion for a new fund. “I say this with a certain pessimism, but I think he’ll have no difficulty marketing his fund to a certain kind of investor,” said Columbia Law School Professor John Coffee. “The investors don’t take the risk of criminal liability, Cohen and his fund managers do.” He warns that the SEC will watch this new fund like a hawk: ‘The SEC is like an elephant… it never forgets” says Coffee.
“You always want to create options for yourself,” Cohen told Fortune in 2016. “Right now I’m a family office and enjoying it, and 2018, we’ll figure it out when we get there. When we cross that bridge, we’ll get to it.” But for now, let’s dive in and take a closer look at two key trades from Cohen’s existing Point fund:
In the third quarter, Cohen ramped up his holding in Chinese e-commerce giant Alibaba by 37% with the purchase of 278,741 shares. The fund now has a total BABA holding of 1,042,528 shares valued at $180,055,000.
Buy Alibaba! So recommends top Tigress Financial analyst Ivan Feinseth who sees further upside from the stock’s current levels. He is a fan of the stock because of accelerating business performance driven by ‘ongoing monetization of both its core e-commerce platform and developing future growth opportunities in retail, digital content, and logistics’.
He sets out five key reasons to be bullish: 1) strong growth in its core e-commerce business including a record Singles Day 2017 which generated revenue of $25 billion in just 24 hours; 2) strong returns from investments in new technology and strategic acquisitions/ partnerships; 3) increasing international presence, including in China; 4) BABA’s continued drive to invest in increasing return on capital and shareholder value creation; and 5) large corporate adoption onto its Alibaba Cloud platform.
In particular, BABA is benefitting from China’s ‘broad and efficient telecommunications infrastructure’, which enables the company to continue to grow its online customer base. Indeed, China’s e-commerce market has grown from $390 billion in 2014 to over $700 billion in 2017. And good news for BABA- this growth is set to continue. Feinseth is looking at growth of over 20% a year for the foreseeable future, due to the increasing wealth of China’s rising middle class. These customers turn to BABA because it has worked hard to eliminate counterfeit goods from its platform and secure the trust of consumers, says Feinseth.
For example, BABA’s Tmall accepts only verified sellers that sell only genuine brand name merchandise. At the same time the company is investing in Chinese department stores as part of its unique new retail strategy (with Sun Retail Group and Bailian) which mixes digital technology with offline shopping.
Consequently, Feinseth is forecasting a 50% uptick in revenue to $43.44 billion over the next twelve months. This is up from net sales revenue of $28.97 billion for the 12 months ending September 2017 (a 51% increase year/year). The analyst reiterated his buy rating without a price target on November 30. Five-star Feinseth is a top analyst according to TipRanks, where he is ranked #145 out of 4,725 tracked analysts. Across his 184 stock ratings he boasts a 70% success rate and 17% average return.
Overall, we can see that the Street as a whole is very confident in BABA’s prospects. In the last three months, the stock has received no less than 17 consecutive buy ratings from analysts. These analysts are predicting (on average) that the stock can soar a further 25% to hit $215.
Cohen also snapped up a further 188,640 Amazon shares in the third quarter. Following this significant 184% increase in the holding, the fund’s position now stands at 291,304 shares valued at $280,045,000.
No doubt top JP Morgan analyst Doug Anmuth would approve of the fund’s latest move. He has just released a very bullish note on Amazon where he says that the stock is only just getting started. Considering all that Amazon has achieved so far in 2017 (such as the $13.7 billion acquisition of Whole Foods), this is a very bold statement to make. Indeed, the stock is already up by 58% year-to-date.
“We believe Amazon is well positioned as the market leader in e-commerce, where it’s still early days with U.S. e-commerce representing about 12 percent of adjusted retail sales (ex-gas, food, and autos), which we view as likely going to 30 percent over time,” Anmuth wrote on December 18. The company is adept at gaining market share, says Athe five-star analyst, who sees Amazon’s Prime subscription service and own-brand offerings as ‘major advantages.’
Plus, there is also Amazon’s hugely successful Amazon Web Services (AWS) cloud computing platform to factor into the equation. According to Anmuth: “We believe AWS is the leader in the public cloud with roughly 75 percent U.S. market share, and it remains early with only about 10 percent or more of workloads in the cloud today and the pace of cloud adoption accelerating in our view.” Indeed, Amazon reported AWS revenue of $4.58 billion in the third quarter, topping the $4.5 billion average analyst estimate.
As a result, Anmuth reiterated his buy rating on Amazon with a $1,375 price target (16% upside potential). Note that this analyst has a very impressive track record with his recommendations according to TipRanks, where he is ranked #45 out of 4,725 tracked analysts. And most encouragingly, on AMZN stock specifically Anmuth boasts a 96% success rate and 30.7% average return.
In fact, the Street in general is very optimistic about Amazon’s outlook right now. The stock’s ‘Strong Buy’ analyst consensus rating breaks down into 34 buy ratings and just 1 hold rating in the last three months. Meanwhile the average analyst price target of $1,307 suggests over 10% upside from the current share price.