Anytime a person worth $18 billion ups his stake in any stock, it’s worth considering the reasons he or she is doing so. According to Renaissance Technologies’ latest 13F, run by billionaire Jim Simons, the hedge fund added 8.2 million shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) stock in the fourth quarter of 2016, a 254% increase from the quarter prior.
However, just because his fund is buying doesn’t mean you should too. Here are three things to consider before jumping on the AMD stock bandwagon.
AMD Stock — A Drop in the Bucket
Renaissance Technologies’ 11.5 million shares represent $162.2 million in market cap through March 15, a 24% increase over the last two-and-a-half months; a mighty fine return.
Ride the momentum would seem to be the play of the day when it comes to AMD stock, but remember one important thing: Simons’ $162 million holding is just 0.26% of the fund’s entire $63.2-billion portfolio.
At the end of December, Renaissance’s portfolio had nine holdings larger than its AMD position — and that’s just counting the stocks whose names begin with the letter A. In total, the fund holds 3,218 companies, the largest investment being a $623.3 million investment in Mastercard Inc (NYSE:MA).
The point I’m trying to make is that $162.2 million is a drop in the bucket for Jim Simons. Unless you can afford to lose your entire investment, it makes sense to diversify just as Rogers has done.
A good place to start would be the PowerShares Dynamic Tech Sec (ETF) (NASDAQ:PTF), a momentum play that has AMD stock as its number one holding at 5.1% of the $135-million-portfolio. It’s not cheap at 0.6% annually but gives you a lot more diversification (if that’s what lets you sleep at night) with 46 holdings.
You Gotta Make Money
Unless you’re loaded like Jim Simons it makes sense to invest in companies that make money — AMD doesn’t and might not for some time to come.
With Intel, you get a 3% dividend yield, $12.2 billion in free cash flow and a price-to-sales ratio of 2.9; AMD stock gives you no dividend, $13 million in free cash flow (that’s an M, not a B) and a price-to-sales ratio of 2.7, only marginally lower than Intel’s.