In this article, we discuss the 10 best stocks according to Al Gore’s Generation Investment Management.
Generation Investment Management was founded by the former U.S. vice president Al Gore and famous finance expert David Blood in 2004. Since its inception, the hedge fund focused on environmental, social, and governance (ESG) investing. Al Gore is currently serving as the chairman of the hedge fund. He is also the chairman of The Climate Reality Project, a non-profit organization focusing on the climate crisis.
This October, Generation Investment Management announced the launch of a new climate-focused asset fund, Just Climate, to address the net-zero emissions challenge. The fund is supported by some of the biggest names in the investment world, including Microsoft’s Climate Innovation Fund, Harvard Management Company, and Hall Capital Partners, to name a few. Just Climate comes at a time when nearly one-third of millennials take ESG factors into account while investing in companies, according to a survey conducted by CNBC.
The climate-focused hedge fund managed to generate stable returns since its inception. From 2004 to 2014, the firm’s annual average returns stood at 12.14%. In the next two years, the firm averaged 17% annually.
As of Q3 2021, Generation Investment Management’s 13F portfolio carries a value of over $24 billion. This value has grown from $3 billion over the past ten years. Currently, the hedge fund invests in the tech sector, especially the companies that focus on green technology. Along with this, it also invests in finance, healthcare, and services sectors. Some of the famous holdings of Generation Investment Management are Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), Cisco Systems, Inc. (NASDAQ:CSCO), Intel Corporation (NASDAQ:INTC), and Microsoft Corporation (NASDAQ:MSFT). In this article, we will focus on the top ten holdings of Generation Investment Management.
David Blood of Generation Investment Management
Our Methodology:
For this list, we considered Generation Investment Management’s 13F portfolio as of Q3 and picked the top ten stocks from the portfolio.
Al Gore’s Generation Investment Portfolio: Top 10 Stock Picks
10. Gartner, Inc. (NYSE:IT)
Number of Hedge Fund Holders: 33
Gartner, Inc. (NYSE:IT) is an American technology and consulting company that is mainly famous for its data visualization and analysis tools. In Q3, Generation Investment Management held over 2.8 million shares in the company, valued at roughly $857 million. Gartner, Inc. represented 3.56% of Al Gore’s portfolio.
On November 2, Gartner, Inc. announced its Q3 results, posting an EPS of $2.03, which beat estimates by $0.48. The company’s total contract value experienced a 13.8% year-over-year growth at $4 billion. Appreciating the company’s organic growth and strong financials, recently, Baird lifted its price target on Gartner, Inc. to $375, while maintaining an Outperform rating on the shares.
As per Insider Monkey’s Q3 data, 33 hedge funds held stakes in Gartner, Inc., down from 39 in the previous quarter. The value of these stakes stood at over $2 billion. Harris Associates was one of the most prominent shareholders of the company in Q3, owning over 1.7 million shares.
Like Alphabet Inc., Amazon.com, Inc., Cisco Systems, Inc., Intel Corporation, and Microsoft Corporation, Gartner, Inc. is also one of the notable stocks in 2021.
Saturna Capital mentioned Gartner, Inc. in its recently-published Q3 2021 investor letter. Here is what the firm has to say:
“Gartner has had a tremendous year, appreciating just shy of 90% through the first three quarters. Gartner provides IT research and advisory services, and the resumption of business activity has been a boon to its business. While the Delta variant continues to affect in-person events, investors are looking ahead to a resumption of its conference business as well.”
9. Becton, Dickinson and Company (NYSE:BDX)
Number of Hedge Fund Holders: 51
An American medical technology company, Becton, Dickinson and Company (NYSE:BDX) recently announced to achieve compound annual revenue growth of 5.5% through continuous innovation in the field. Along with this, the company also aims to achieve double-digit EPS growth and a consistent increase in its dividend.
Insider Monkey’s data for Q3 shows a slight decline in the number of hedge funds holding stakes in Becton, Dickinson and Company. 51 hedge funds tracked by Insider Monkey were bullish on the company in Q3, down from 52 in the previous quarter. These stakes hold a value of over $2.33 billion.
This November, Piper Sandler appreciated the execution of Becton, Dickinson and Company, along with its revenue growth. The firm maintained a Buy rating on the shares, with a $285 price target. Generation Investment Management started investing in Becton, Dickinson and Company during the fourth quarter of 2010, with shares worth over $230.3 million.
As of Q3 2021, the fund held a $932.8 million worth of stake in the company, which represented 3.87% of Al Gore’s portfolio. In fiscal Q4 2021, Becton, Dickinson and Company earned $5.14 billion in revenues, presenting a 7.5% growth from the prior-year quarter.
Madison Funds mentioned Becton, Dickinson and Company in its Q2 2021 investor letter. Here is what the firm has to say:
“Becton, Dickinson and Company (“BD”) is one of the world’s largest medical supply, devices, laboratory equipment, and diagnostic products manufacturers. We like BD because it is a leader in the medical and life science industries with a durable mid-single digit growth profile and attractive returns on capital. They generate about 85% of revenue from consumables and 15% from equipment, and each year, they manufacture billions of needles,
syringes, catheters, tubes, and medical devices which results in significant economies of scale that can be matched by few competitors. Their Life Sciences segment produces products that provide diversity in the steadily growing diagnostic testing and life sciences research fields.Regarding the short-term issues, it’s been a challenging past 18 months for the company. In February 2020, they announced the FDA required an updated 510(k) clearance for their Alaris infusion pump. As a result, BD had to suspend selling new pumps until the updated regulatory filing received FDA clearance. In addition to the regulatory headwind, BD’s business was negatively impacted by the COVID-19 pandemic as individuals postponed doctor office visits and hospitals deferred non-emergency medical procedures. We believe these postponements are just now normalizing. Lastly, while BD’s Life Sciences business swiftly brought COVID-19 tests to market, there is uncertainty over the magnitude and duration of these revenues.
We believe these negative dynamics will be resolved over time, and meanwhile, base business growth and managerial actions should move per share earnings power higher. First, BD’s management is confident that the Alaris infusion pump has maintained its market share over the last 18 months and many hospitals have even added to their fleet of pumps with BD shipping them under medical necessity provisions. The new 510(k) filing was submitted in April 2021 and is expected to receive approval sometime in the next year, which will fully alleviate the concern. Second, we believe that hospital utilization and diagnostic testing volumes will return towards normal levels as vaccination rates increase and global economies reopen (the U.S. is reportedly currently at 95% and 100% utilization for inpatient and outpatient volumes, respectively). While COVID testing revenues (about 10% of 2021 BD revenue) are expected to decline, management’s choice to accelerate the depreciation of those production assets and to spend a portion of the excess 2021 profits will dampen the earnings cyclicality. Base diagnostic testing revenue will otherwise recover with patient volumes, and combination flu-COVID tests will help maintain some COVID testing revenues into the future. Third, BD’s balance sheet has improved markedly over the past year, and we expect them to reinitiate share repurchases at a meaningful level. This will lead to the first material share count reductions since 2014.
At today’s share price, we deem this to be value-creative capital allocation. Fourth, BD recently announced its intention to spin off its slower-growing diabetes business in 2022; our observations in recent years suggest that separations such as this have been value-creative for health care investors. Fifth, this year’s earnings quality is high by dint of management underutilizing its production assets to lean out inventories and to accelerate its R&D programs,
both which positively impact future cash earnings power. Thus, while there is near-term uncertainty regarding the resolution of the issues mentioned, we think they’ll resolve. We believe that management’s actions and the resumption of base demand leave BD positioned to return to a good long-term growth profile.The stock trades at less than 19x Wall Street’s consensus earnings estimate for 2022, which is approximately 90% of the earnings multiple of the S&P 500 and an even steeper discount to BD’s medical technology peer group. We think the stock is attractively priced and a good value for a leader in the growing medical technology and life science industries.”
8. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Holders: 59
The Charles Schwab Corporation (NYSE:SCHW) is an American financial services company that also offers banking services and electronic trading platforms to its consumers. Since the start of 2021, the stock is up 57.22%, as of the close of December 18.
As of Q3 2021, Generation Investment Management holds roughly 13 million shares in The Charles Schwab Corporation, worth over $940.4 million. The company constituted 3.9% of Al Gore’s portfolio. This October, The Charles Schwab Corporation reported client assets worth $7.98 trillion, growing 5% from September and 36% from the same period last year. Recently, Deutsche Bank lifted its price target on The Charles Schwab Corporation to $120, with a Buy rating on the shares, expecting a constructive business in 2022 as well.
The number of hedge funds tracked by Insider Monkey having stakes in The Charles Schwab Corporation declined to 59 in Q3, from 72 in the previous quarter. These stakes hold a value of over $4.5 billion. Among these hedge funds, Egerton Capital Management held the largest stake in the company in Q3, worth over $1 billion.
In addition to SCHW, major companies like Alphabet Inc., Amazon.com, Inc. and Microsoft Corporation have been increasing their ESG spending over the last few years.
Ariel Investments mentioned The Charles Schwab Corporation in its Q3 2021 investor letter. Here is what the firm has to say:
“Additionally, financial services provider Charles Schwab Corporation (SCHW) was another strong performer in the period. Management has made progress increasing new and existing customer engagement through its multichannel approach and low-cost, high value product offerings—bolstering the company’s competitive positioning. Elevated interest rate expectations have been another driver of performance as SCHW reinvests deposits in securities and earns a spread. In our view, SCHW has the ability to weather various macro-economic and competitive pressures by flexing its scale and customercentric focus in support of the company’s industry leading cost advantage. We also believe the TD Ameritrade acquisition will create incremental value and further enhance SCHW’s market place standing and long-term growth trajectory.”
7. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 94
Thermo Fisher Scientific Inc. (NYSE:TMO) develops and sells a range of scientific instruments and also offers related services to its consumers. In Q3 2021, the company experienced a positive hedge fund sentiment, as 94 hedge funds tracked by Insider Monkey reported owning stakes in the company, up from 87 in the previous quarter. These stakes are worth over $8.2 billion, compared with $7.3 billion in Q2.
Generation Investment Management made its first investment of $129.4 million in Thermo Fisher Scientific Inc. during the third quarter of 2016. In Q3 2021, the company accounted for 4% of Al Gore’s portfolio. With the recent threats of the Omicron variant, KeyBanc listed Thermo Fisher Scientific Inc. as one of the stocks that could benefit from renewed demand for PCR tests and vaccines. Recently, Wells Fargo raised its price target on Thermo Fisher Scientific Inc. to $700, while maintaining an Equal Weight rating on the shares.
In its Q3 results, Thermo Fisher Scientific Inc. posted an EPS of $5.76, beating estimates by $1.06. Since the beginning of the year, Thermo Fisher Scientific Inc. delivered a 37.9% return to shareholders, while its 12-month returns came in at 40.66%.
L1 Capital mentioned Thermo Fisher Scientific Inc. in its Q3 2021 investor letter. Here is what the investment management firm has to say:
“Included in these adjustments, in early July 2021, we divested our remaining small investment in Thermo Fisher Scientific (Thermo Fisher), the world leader in the provision of equipment, consumables, and services to the Life Sciences industry. Thermo Fisher has benefited from elevated demand for its products and services associated with COVID-19 and we sold our residual investment at a gain of more than 70% compared to our average investment cost. Thermo Fisher subsequently held an Investor Day and positively surprised many people, including us, with very strong medium-term growth targets, notwithstanding a headwind from normalisation of COVID-19-related business. Thermo Fisher is a high-quality business and remains on our ‘Bench’ for potential reinvestment.”
6. Henry Schein, Inc. (NASDAQ:HSIC)
Number of Hedge Fund Holders: 31
Henry Schein, Inc. (NASDAQ:HSIC) is an American healthcare solutions company that provides related products and services worldwide. Over the last two years, the company has beaten EPS estimates 100% of the time. Following in the trend, in Q3, Henry Schein, Inc. beat EPS estimates by $0.14 at $1.10.
As of Q3 2021, Generation Investment Management holds a $1 billion worth of stake in Henry Schein, Inc.. The company constituted 4.18% of Al Gore’s portfolio. Baird’s analyst Jeff Johnson appreciated the company’s improving margins and organic growth, and lifted his price target on Henry Schein, Inc. to $98 while maintaining an Outperform rating on the shares.
Along with Al Gore’s hedge fund, D E Shaw was one of the major shareholders of Henry Schein, Inc. in Q3, holding over 1.2 million shares. Overall, 31 hedge funds tracked by Insider Monkey held stakes in the company in Q3, down from 39 in the preceding quarter. The total value of these stakes is over $1.48 billion.
Henry Schein, Inc. is also gaining ground among investors like prominent stocks, such as Alphabet Inc., Amazon.com, Inc., Cisco Systems, Inc., Intel Corporation, and Microsoft Corporation.
5. Cisco Systems, Inc. (NASDAQ:CSCO)
Number of Hedge Fund Holders: 63
Cisco Systems, Inc. is an American technology company that mainly specializes in hardware, software, and telecommunication equipment. Generation Investment Management started building its position in the company during the third quarter of 2020, with a stake worth $726.1 million. In Q3 2021, the hedge fund holds shares worth $1.04 billion in Cisco Systems, Inc., which represented 4.31% of Al Gore’s portfolio.
In Q3 2021, Cisco Systems, Inc. reported revenue of $12.9 billion, up 8% from the prior-year quarter. Moreover, the company also reported a 33% year-over-year growth in its total product order. Acknowledging the company’s product portfolio and growth in nearly all segments, recently, Erste Group upgraded Cisco Systems, Inc. to Buy from Hold.
As of Q3 2021, 63 hedge funds tracked by Insider Monkey reported owning stakes in Cisco Systems, Inc., up from 60 in the previous quarter. These stakes are valued at roughly $4 billion. Ken Fisher’s Fisher Asset Management was the company’s largest shareholder in Q3, owning a stake worth $1.24 billion.
ClearBridge Investments mentioned Cisco Systems, Inc. in its Q1 2021 investor letter. Here is what the firm has to say:
“Also in IT, we added Cisco Systems, which provides IT and networking services in the form of network security, software development and cloud computing. Cisco continues to derive over 50% of its sales from on-premise deployments of its products of enterprise and small and midsize customers, while recurring revenues from software are becoming a larger part of the mix. Return-to-office enterprise spending should offer upside to its core campus business. Cisco was an early technology leader in sustainability over two decades ago, through its Internet-connecting capabilities which supported live concerts in partnership with the United Nations Development Program to raise awareness and funds to fight poverty. Cisco has very strong environmental standards (including driving lower energy consumption in IT departments through new product innovations and a longstanding goal to reduce emissions and reliance on non-renewable energy sources). Its data privacy and supply chain management policies are best in class.”
4. Jones Lang LaSalle Incorporated (NYSE:JLL)
Number of Hedge Fund Holders: 30
Jones Lang LaSalle Incorporated (NYSE:JLL) is a real estate services company that also offers investment management services worldwide. Since the start of 2021, the stock is up 74.9%, as of the close of December 18.
As per Insider Monkey’s Q3 data, 30 hedge funds tracked by Insider Monkey reported owning stakes in Jones Lang LaSalle Incorporated, compared with 31 in the previous quarter. These stakes hold a consolidated value of $2.1 billion, up significantly from $1.5 billion in Q2.
In Q3, Jones Lang LaSalle Incorporated reported revenue of $4.9 billion and fee revenue of $2.1 billion, presenting a 22% and 45% year-over-year growth, respectively. Generation Investment Management holds shares worth $1.15 billion in Jones Lang LaSalle Incorporated in Q3, which represented 4.79% of Al Gore’s portfolio. This November, Raymond James lifted its price target on Jones Lang LaSalle Incorporated to $302, while maintaining an Outperform rating on the shares.
Ariel Investments mentioned Jones Lang LaSalle Incorporated in its Q3 2021 investor letter. Here is what the firm has to say:
“In addition, real estate expert Jones Lang LaSalle (JLL) was another strong performer over the trailing one-year period. Despite pandemic related headwinds for commercial real estate transaction activity, the company continued to prudently manage expenditures to preserve cash. JLL’s diverse business model and annuity-like nontransaction revenue mix, such as corporate outsourcing, helped offset weakness in the cyclical leasing and capital market businesses until vaccination rates rose. Then, this summer, JLL reported a broad recovery across the firm’s transaction-based businesses. Strong capital market and leasing activity drove management to meaningfully raise the company’s EBITDA margin outlook. Meanwhile, JLL continues to return excess capital through share repurchases. At current levels, we remain optimistic about JLL’s value proposition for key stakeholders.”
3. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 242
Amazon.com, Inc., an American e-commerce and tech company, was recently listed as one of the top internet stocks by JPMorgan for 2022, due to the company’s e-commerce and subscription business.
Generation Investment Management started investing in Amazon.com, Inc. during the first quarter of 2011. In Q3 2021, the company represented 5.64% of Al Gore’s portfolio. Recently, Cowen called Amazon.com, Inc. the Best Idea for 2022 and top mega-cap pick, lifting the stock’s price target to $4,500, with an Outperform rating on the shares.
As of Q3 2021, 242 hedge funds tracked by Insider Monkey were bullish on Amazon.com, Inc., down from 271 in the preceding quarter. These stakes hold a consolidated value of $42.5 billion. Fisher Asset Management was one of the major shareholders of the company in Q3, owning a stake worth $6.34 billion.
Davis Funds mentioned Amazon.com, Inc. in its Q3 2021 investor letter. Here is what the firm has to say:
“E-commerce, online search and advertising, social media and software are another component of the portfolio that have proven, attractive businesses. The online portion of the Fund is currently dominated by such market leaders as Amazon.com. We are attracted to these names based on the size and rapid expansion of their market opportunities globally, their ability to generate and grow new revenue sources through constant innovation, ample operating leverage as they continue to scale and capable, focused, highly competitive leadership teams. If purchased at sensible prices, these types of businesses in our experience can contribute meaningfully to long-term results.”
2. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 156
As Alphabet Inc. has increased its focus on artificial intelligence to drive greater product functionality, recently, Tigress Financial raised its price target on the stock to $3,540, with a Strong Buy rating on the shares. In Q3, Generation Investment Management held 528,259 shares in Alphabet Inc., worth over $1.4 billion. The company accounted for 5.85% of Al Gore’s portfolio. In the third quarter, Alphabet Inc. presented a 41% year-over-year growth in its revenue at $65.1 billion.
As of Q3 2021, 156 hedge funds tracked by Insider Monkey were bullish on Alphabet Inc., up from 155 in the previous quarter. The total value of these stakes is roughly $35 billion, compared with $33.7 billion in Q2.
Saturna Capital mentioned Alphabet Inc. in its Q3 2021 investor letter. Here is what the firm has to say:
“Alphabet was a new addition to the Fund this year, as we believed it important to have exposure to the top online media and advertising company in the world. Some have raised concerns surrounding Alphabet’s exposure to political interference, but we take comfort from the belief that were the company to be broken up, it would quite likely be worth even more than as a single entity.”
1. Baxter International Inc. (NYSE:BAX)
Number of Hedge Fund Holders: 42
Baxter International Inc. (NYSE:BAX) is an American multinational healthcare company that focuses on products to treat serious ailments. In Q3, the company reported a 26% year-over-year growth in its net income at $450 million, driven by recovery from the pandemic period. Also, the global sales of Baxter International Inc. grew by 9% at $3.2 billion.
As per Insider Monkey’s data for Q3, 42 hedge funds reported owning stakes in Baxter International Inc., down from 46 in the previous quarter. The consolidated value of these stakes is over $3.48 billion, up from $2.9 billion in Q2.
As of Q3, Baxter International Inc. is the largest holding of Generation Investment Management. The hedge fund holds shares worth $1.66 billion in the company, which accounted for 6.93% of its 13F portfolio. Acknowledging the company’s new strategic acquisitions, JPMorgan reinstated its coverage on Baxter International Inc. with an Overweight rating and a $95 price target.
Cooper Investors mentioned Baxter International Inc. in its Q3 2021 investor letter. Here is what the firm has to say:
“During the quarter we exited our position in Baxter, having originally bought in 2017 as a Low Risk Turnaround with clear Stalwart attributes. In essence, the core businesses were highly durable, providing life sustaining or saving medical products such as IV medication or pumps and dialysis machines.
They had been mismanaged prior to the company spinning off its biopharmaceutical business in 2015 which had generated most of the Baxter’s operating profit. With a new CEO in Joe Almeida, who came with a successful track record leading another medical device company (Covidien) we identified three sources of value latency for the new standalone Baxter.
Firstly, optimising the cost structure. Baxter were successful here – they were able to effectively double operating margins from low single digits to mid-to-high teens over a relatively short four-year period. Secondly, accelerating sales growth through a more focused R&D effort. This is inherently more difficult than cost optimisation and on this front success has been muted with only moderate impact to revenues from new product introductions. Finally, capital deployment through Baxter’s significantly under-levered balance sheet. Several smaller bolt-on acquisitions were nicely complementary to the existing portfolio, but in early September the company announced the acquisition of Hil-Rom Holdings, a medical device company with leading positions in bed systems and patient monitoring. The deal is significant at US$12.5bn in size, and exhausts all balance sheet latency in one fell swoop.
Whilst it is “EPS accretive” we believe the high single digit ROIC management are targeting over five years is most reflective of the financial merits of the deal. Put another way, despite visions of providing digital and connected healthcare (think a Baxter IV pump combined with a Hil-Rom smart bed), ultimately the combined entity will likely remain a low-to-mid-single digit grower. Baxter look like they are getting bigger but not necessarily better.
This combination of uncertainty around the merits of the Hil-Rom acquisition and the underwhelming performance on the product development side of the business led us to conclude that the investment proposition today is less attractive relative to other opportunities.”
You can also take a look at Michael Burry’s Top Stock Picks and Marc Lasry’s Avenue Capital Portfolio: Top Stock Picks
Follow Insider Monkey on Twitter
Suggested articles:
- Aquamarine Capital’s Top 10 Stock Picks
- Amish Mehta and SQN Investors’ Top Picks
- Billionaire Andreas Halvorsen’s Top Stock Picks
This article is originally published at Insider Monkey.
