This article discusses the top 5 stock picks of billionaire Jorge Paulo Lemann’s 3G Capital at the end of the second quarter. If you want to skip the fund’s history, recent performance and details about its overall portfolio, please check out 3 Best Stocks to Buy According to ‘Warren Buffett of Brazil’.
Swiss-Brazilian billionaire Jorge Paulo Lemann might not be a household name in North America, but the octogenarian is revered in Brazil and most parts of Latin America for his entrepreneurial journey and deal-making skills. His background in investment banking and the many multi-billion deals he and his firm 3G Capital have been a part of over the years have solidified his reputation as an astute financier and even led some people to call him the ‘Warren Buffett of Brazil.’
During his younger days, Mr. Lemann was an avid tennis player, having won the Brazilian national tennis championship five times and playing the Wimbledon in 1962. After finishing his undergraduate degree in economics from Harvard in 1961, he worked for multiple financial services firms and eventually went on to found Banco Garantia in 1971, along with Carlos Alberto Sicupira and Marcel Herrmann Telles. The three partners sold Banco Garantia, an investment banking leader in Brazil at that time, in 1998 to Credit Suisse First for $675 million. They used this money to form an investment office. Amongst their first deal as an investment firm was purchasing controlling stakes in two Brazilian breweries that later became Ambev, which is now a part of the liquor and brewing giant Anheuser-Busch InBev SA/NV (NYSE: BUD).
In 2004, this investment partnership evolved into 3G Capital, and the three partners brought in Alex Behring and Daniel Schwartz to run 3G as a professional investment management firm. Currently, 3G Capital is led by Mr. Behring and Mr. Schwartz, both of whom serve as the firm’s co-managing partner.
Over the years, 3G Capital has been involved in many high-profile deals, primarily in consumer durables and QSR sectors. In some of its major deals, it has partnered with Warren Buffett’s Berkshire Hathaway, including the takeover of Heinz and later the Heinz-Kraft merger.
3G Capital’s Portfolio
3G Capital’s 13F portfolio has shrunk considerably since the end of 2021. The aggregate value of its 13F holdings dropped to just $60.4 million at the end of June from close to half a billion dollars at the end of last year. During the second quarter, the fund reduced its holding in 4 stocks and made only one new purchase. Its top 3 stock picks – Alphabet Inc. (NASDAQ:GOOG), Bill.com Holdings, Inc. (NYSE:BILL), and TaskUs, Inc. (NASDAQ:TASK) – all belonged to the tech sector. The fund sold all of its holdings in 2 companies during Q2, which we’ll discuss in this article.
Two Positions 3G Capital Liquidated in Q2
Snowflake Inc. (NYSE:SNOW)
SaaS provider Snowflake Inc. (NYSE:SNOW) dropped off from 3G Capital’s portfolio at the end of June as the fund unloaded all of the shares it held of the company during Q2. 3G Capital was not alone in selling its entire holdings in Snowflake Inc. (NYSE:SNOW) during Q2. David Harding’s Winton Capital Management and Robert Smith’s Vista Equity Partners also liquidated all the shares they held of the company during that period.
Like the stocks of most currently non-profitable SaaS companies, Snowflake Inc.’s (NYSE:SNOW) stock has also suffered a heavy decline in the last 10 months.
Carvana Co. (NYSE:CVNA)
3G Capital’s Stake Value in Q1: $61,434,000
Shares Owned by 3G Capital at the end of Q2: 0
Number of Hedge Fund Holders (Q2): 47
Shares of used cars e-commerce platform Carvana Co. (NYSE:CVNA) were one of the biggest beneficiaries of the COVID rally seen in the broader markets in late 2020. However, they have completely collapsed in the last one year amid a sell-off in technology stocks and are currently trading down more than 85% year-to-date.
Unlike 3G Capital which sold off its entire stake in the company, several funds tracked by us have seen the recent slump in Carvana Co.’s (NYSE:CVNA) stock as a buying opportunity. Among them were billionaire Jim Simons’ Renaissance Technologies and Israel Englander’s Millennium Management, which initiated a fresh stake in the company during Q2 by purchasing 1.249 million shares and 504,725 shares, respectively.
Here is what ClearBridge Investments, a global investment management giant, had to say about Carvana Co. (NYSE:CVNA) in its recently published Q2 investor letter:
“The Strategy’s consumer discretionary holdings weighed on performance as inflation eroded consumer purchasing power and companies faced difficult comparisons with 2021 earnings, which were helped by government stimulus. Our sector exposure is focused on high-quality share-takers such as online used car retailer Carvana (NYSE:CVNA). After being one of the portfolio’s top performers over the last few years, the company has struggled of late due to low used car inventory levels and investor concern about the company’s ability to fund future growth. However, we see Carvana as a consistent earnings compounder that continues to steadily gain share. We took advantage of derating in the stock price to add to our position.”
Our Methodology
At Insider Monkey, we cover the portfolios of 895 hedge funds, closely tracking the stocks they buy and sell. We selected top 5 stocks from Jorge Paulo Lemann’s fund’s Q2 portfolio.
5 Best Stocks to Buy According to ‘Warren Buffett of Brazil’
5. Amazon.com, Inc. (NASDAQ:AMZN)
3G Capital’s Stake Value: $4,248,000
Percentage of 3G Capital’s 13F Portfolio: 7.03%
Number of Hedge Fund Holders: 252
3G Capital first reported initiating a stake in Amazon.com, Inc. (NASDAQ:AMZN) during the first quarter of 2020. However, the fund sold all of its holdings in the online retail giant during the last quarter of 2021 and again initiated a fresh stake in the company during the first quarter of 2022 by purchasing 200,000 shares (post-split). In the second quarter, the fund again seemed to have a change of heart as it unloaded 80% of its holdings and kept just 40,000 shares of Amazon.com, Inc. (NASDAQ:AMZN) at the end of June.
On August 24, The Washington Post reported that Amazon.com, Inc. (NASDAQ:AMZN) is going to close down its telehealth business ‘Amazon Care’ by the end of this year. According to the post, the Amazon Care business had only six corporate customers and Amazon.com, Inc. (NASDAQ:AMZN) decided on closing down the business because customers were not seeing much value in the product offering.
Earlier this year, workers at Amazon.com, Inc.’s (NASDAQ:AMZN) warehouse in Staten Island had voted in favor of forming a labor union. However, the company appealed against it. This appeal was rejected on September 2 by a National Labor Relations Board official who presided over the case. According to Morgan Stanley’s analyst Brian Nowak, for every 1% of Amazon.com, Inc.’s (NASDAQ:AMZN) 750,000 fulfilment and transportation employees in the US that unionizes, the company might have to bear an additional $150 million in operating expenses every year.
4. Microsoft Corp. (NASDAQ:MSFT)
3G Capital’s Stake Value: $12,842,000
Percentage of 3G Capital’s 13F Portfolio: 21.25%
Number of Hedge Fund Holders: 258
Microsoft Corp.’s (NASDAQ:MSFT) stock has been unable to buck the downward trend of the broader tech sector this year but has proven to be far more resilient than most other tech stocks as it trades down 22% year-to-date and very close to $2 trillion market capitalization. It was also the most loved stock among funds tracked by Insider Monkey, with 258 funds out of 895 we track disclosing a stake in the company at the end of Q2.
On September 1, United Kingdom’s antitrust watchdog, Competition and Markets Authority, revealed through a press release that it will conduct an in-depth probe of Microsoft Corp.’s (NASDAQ:MSFT) planned $69 billion acquisition of Activision Blizzard, Inc. (NASDAQ:ATVI) announced earlier this year. The regulator highlighted its concerns in the press release, saying:
“If Microsoft buys Activision Blizzard it could harm rivals, including recent and future entrants into gaming, by refusing them access to Activision Blizzard games or providing access on much worse terms.
The CMA has also received evidence about the potential impact of combining Activision Blizzard with Microsoft’s broader ecosystem. Microsoft already has a leading gaming console (Xbox), a leading cloud platform (Azure), and the leading PC operating system (Windows OS), all of which could be important to its success in cloud gaming. The CMA is concerned that Microsoft could leverage Activision Blizzard’s games together with Microsoft’s strength across console, cloud, and PC operating systems to damage competition in the nascent market for cloud gaming services.
The CMA considers that these concerns warrant an in-depth Phase 2 investigation. Microsoft and Activision Blizzard now have 5 working days to submit proposals to address the CMA’s concerns. If suitable proposals are not submitted, the deal will be referred for a Phase 2 investigation.”
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Disclosure: None. 5 Best Stocks to Buy According to ‘Warren Buffett of Brazil’ is originally published on Insider Monkey.
