Balyasny Asset Management’s Dmitry Balyasny has adjusted some crucial stocks in the fund’s portfolio in Q1. Here we examine his latest moves on controversial speciality pharma Valeant Pharmaceuticals Intl Inc (NYSE:VRX), semiconductor company Advanced Micro Devices, Inc. (NASDAQ:AMD) and tech giant Apple Inc (NASDAQ:AAPL) which is still trading close to $10 below its pre-June 9 price.
The multi-strategy fund, known as BAM, has assets under management of over $12 billion mostly in its Atlas Global fund. The firm was founded by Balyasny in 2001. It employs the ‘BAM model’ which involves multiple risk-taking teams who are charged with spreading capital through a very diverse range of stocks. According to Reuters, the fund is now looking to move more into “pure quant strategies” which have helped other firms drive higher profits.
As for Balyasny himself, he prefers to keep a low profile but we do know that he began his financial career back in 1994 as a trader at Schonfeld Securities before moving to Fountainhead Capital. He says he is actively involved with the allocation of resources- which so far have taken the fund up by 1.15% this quarter. Indeed, in his Q1 investor letter, Balyasny said “Good diversification across regions and frequencies helped performance, and we’re also starting to see the benefits of expanding beyond equities into systematic futures and FX.”
Now let’s see how this strategy played out with three of the fund’s most intriguing moves:
Valeant Pharmaceuticals Intl Inc
In Q1 Balyasny cut the fund’s Valeant holding by -48% to just 784,510 shares worth $8.65 million. This means that Valeant now equates to about 0.04% of the total portfolio.
However, in doing so he missed out on Valeant’s recent strong performance with prices up from $12.12 mid-June to $15.80 on June 25. Moving forward the stock could also benefit from a few positive catalysts including the addition of John Paulson of the $7.5 billion Paulson & Co fund to the Valeant board. The appointment is likely to see Paulson holding onto his $214 million VRX position (unlike the recent exit by fellow activist investor Bill Ackman). Despite Paulson’s very poor performance in recent years, the market backed the move as Paulson made $4 billion in 2007 by betting against the US subprime mortgage.
On June 8, Valeant also announced that it was selling Australian drug developer and marketer iNova Pharmaceuticals for $930 million in cash. Divestures are crucial for Valeant to cut its heavy debt load of over $28 billion- CEO Papa says the company is on track to reduce debt by $5 billion by February 2018, although ultimately he wants to bring the debt level down to a much more manageable $20-15 billion. Valeant achieved a solid price for iNova, which has been bringing in annual revenue for VRX of $250 million after it was purchased by Valeant in 2011 for $724 million. Valeant also still has its valuable stomach drug unit Salix which could be sold for around $10 billion.
In terms of Valeant’s product pipeline, its new Siliq drug for severe to moderate psoriasis was approved by the FDA in February and should begin selling in the second half of this year. Investors have high expectations for the drug, which has shown to be a very effective treatment and, at $3,500/ month is much cheaper than other options on the market. For example, Johnson & Johnson charge $7,500 for their equivalent psoriasis drug offering. However the drug is only available through a restricted program because it comes with a black-box warning due to suicidal ideation and behavior in Siliq-treated patients during clinical trials.
Balyasny went wild on Apple in Q1, with a 1069% increase in the fund’s Apple holding which now totals 872,870 shares worth $125.4 million. This works out at about 0.6% of the fund’s total portfolio.
Following a skeptical Goldman Sachs analyst report the market was shaken into a tech correction. AAPL prices fell down to $142 on June 16 versus $155 on June 8 after Goldman Sachs said the stock was overvalued. The firm pointed out that the stock is beginning to act like a stock safe-haven with very low volatility- and that in doing so the market is ignoring the risks inherent in any business from regulatory issues to supply limitations.
In particular, as far as Apple is concerned, any problem with the upcoming iPhone 8 could lead the stock towards much more significant losses. Already the market has very high expectations of the iPhone 8 with a “supercycle” predicted to take Apple to new levels of growth. However, all the excitement is making Mizuho Securities wary. They downgraded the stock to Hold and a bearish $150 price target two weeks ago because the current price already has any potential upside “fully captured”.
As a result there is little to be gained at current prices, only the risk of a fall if iPhone8 expectations are not met- perhaps due to competition from Samsung’s sleek-looking Galaxy S8 which has received very positive reviews and, at $724-$825 is cheaper than the iPhone 8 which is rumored to cost over $1,000. In addition, investors should also note that Apple crashed back in 2012 and 2015 after posting similarly impressive gains.
The Street rates Apple a strong buy while the $166 average analyst price target predicts upside of 12% from the current share price.
Advanced Micro Devices Inc
Balyasny turned bearish on AMD and cut the fund’s holding of the stock by a dramatic -73% to 72,900 shares worth approx. $1 million.
Balyasny has missed out on the positive reaction to the stock’s recent launch of its much-hyped Epyc data center server processors. Epyc, which is based on the 14nm Zen CPU architecture, is the company’s “single biggest bet” according to CEO Dr Lisa Su. The launch included numerous big-name partner companies such as Microsoft Azure, Baidu, Dell/EMC, HP Enterprise and Samsung. The companies are keen to see an end to Intel’s current dominance of the server market, and the Epyc with its strong performance (especially in the double-socket version) and cheaper price tag could well be up to the job- even when factoring in Intel’s upcoming Purley/Skylake launch.
Top Canaccord Genuity analyst Matt Ramsay was certainly impressed by what he saw at the Epyc launch. Ramsay says he believes Epyc is now a solid competitor as not only is the new processor built with 45% more cores than rival products, but it also comes with unconstrained I/O and memory bandwidth at all price points. On June 21, the analyst reiterated his AMD buy rating with a $20 price target which translates into significant upside of 20%. Ramsay has a very strong track record on TipRanks where he is ranked #35 out of 4,591 tracked analysts due to his 68% success rate and 28.4% average return.