InvestorPlace’s Brenden Rearick reported on Aug. 17 that Renaissance Technologies upped its stake in AMC Entertainment (NYSE:AMC) in the second quarter by 260%. The hedge fund now owns more than 1.8 million shares of AMC stock.
Jim Simons, the billionaire who runs the hedge fund, seems to be saying yes to moviegoers returning to the cinemas. I don’t think there’s any doubt that this will happen.
After all, a day without the cinema is like a day without sunshine. But that’s not the same thing as AMC stock being an outright buy at $37.
Here’s why.
AMC Stock Weighting
While my colleague brought to my attention Renaissance’s near tripling of its AMC holdings in the second quarter, for which I’m grateful, he didn’t mention what that change meant to the hedge fund’s overall portfolio.
I’ll tell you.
Based on the hedge fund’s 13F, it represents 0.13% of its $80.1 billion in net assets at the end of June. Furthermore, the value of its AMC stock at the end of June was $102.7 million. Today, those same 1.81 million shares are worth $67.9 million, or 34% less.
So, what’s more important if you’re Simons is the price you paid for your additional shares. As my colleague stated, it had 516,333 shares at the end of March, according to its 13F. Therefore, through April, May, and June, it added 1,296,012 shares.
During those three months, AMC stock had a high and low share price of $61.34 (June) and $8.31 (April). Given Renaissance is in business to make money for its clients, I would suggest that it picked up most of the 1.2 million shares between $8 and $15.
Based on a midpoint average price paid of $11.50, it’s sitting on a $47 million profit for the 1.2 million shares it picked up in the second quarter.
However, as I said, AMC shares have lost 34% of their value in the seven weeks since the end of the second quarter. Further, the 516,333 shares it held in AMC at the end of March were acquired in the first three months of 2021. It held none at the end of December.
AMC stock had a high and low of $20.36 and $1.91, respectively, in January, February and March. But, again, based on the fact it’s in business to make money for its clients, I would argue that it bought most of the 516,333 in January when the shares traded between $1.91 and $6. At the midpoint, let’s say it paid $3.96 a share.
So, my estimate suggests Renaissance paid $2.04 million for its AMC shares in the first quarter and $14.9 million for those in the second quarter. That means it was sitting on an overall return of 506% at the end of June. Today, that’s down to 301%.
The Odds Are Good That Simons Moved On
As I said, AMC stock only accounted for 0.13% of Renaissance’s total assets at the end of June. The hedge fund had 15 investments in the “A” section alone with a higher dollar amount than AMC. I won’t bother telling you about the “Bs” or further into the alphabet.
So, to characterize its top-up as a sign Renaissance is in some way super-stoked about AMC’s future potential isn’t accurate. It’s merely another opportunity by the hedge fund to use artificial intelligence to seek out quick profits. Nothing more.
With that in mind, I find it hard to believe that the hedge fund hasn’t sold at least a portion of its AMC shares this quarter. We’ll know for sure when it reports its Q3 13F in mid-November.
Now, if Renaissance releases its 13F in mid-November and the holdings have doubled or tripled from 1.8 million, then I’d be super-stoked about the company’s future.
If you want to rely on Simons’ take on the markets, Renaissance’s largest holding at the end of Q2 was Novo Nordisk (NYSE:NVO) at $2.03 billion, or 2.53% of its portfolio.
If you want to buy based on the hedge fund’s largest increase during the second quarter – only including billion-dollar market caps – you should consider CSX (NASDAQ:CSX) or Nio (NYSE:NIO). It added 7.5 million and 5.3 million shares, respectively, during the second quarter.
As for AMC itself, I would hesitate to own its stock given its debt and the fact it’s done nothing to diversify its revenue stream beyond moviegoing.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.