Billionaire Andreas Halvorsen’s Top Long-Term Holdings

Owing to the meteoric rise it has enjoyed over the past couple of years, billionaire Andreas Halvorson‘s Viking Global is counted among the leaders in the hedge fund industry. The Connecticut-based fund was started by Mr. Halvorson in 1999 along with two other ‘Tiger Cubs’, David Ott and Brian Olson. Mr. Olson left Viking in 2005, while Mr. Ott stepped down from active fund management duties in 2010. In spite of their respective departures, Viking Global has continued to grow at a rapid pace under the leadership of Mr. Halvorson, with assets under management (AUM) almost doubling to over $30 billion between April 2012 and December 2015. Due to the consistent outperformance of his fund,  Mr. Halvorson has been routinely ranked among the top earning hedge fund managers on the Street by various publications. Since Viking Global primarily invests in equities and has hit several home runs with its stock picks, in this article we are going to analyze the fund’s top five long-term holdings.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 Canadian Pacific Railway Limited (USA) (NYSE:CP)

 – Shares Owned by Viking Global (as of December 31): 4 million

 – Value of Holding (as of December 31): $510.60 million

Canadian Pacific Railway Limited (USA)(NYSE:CP) was added to Viking Global’s portfolio in the fourth quarter of 2013. Since then, the fund has made a number of changes to its stake in the company, including a 4% reduction to it in the fourth quarter of 2015. Another fund which reduced its stake in the company during that quarter was David Gallo‘s Valinor Management LLC, which trimmed its holding by 7% to 388,653 shares. Canadian Pacific Railway Limited (USA)(NYSE:CP) has seen a significant erosion in its market capitalization over the past few quarters due to the correction in crude oil and other commodities. However, its stock is currently trading up by 5.25% year-to-date. In an effort to compel Norfolk Southern Corp. (NYSE:NSC) to have merger talks, Canadian Pacific Railway Limited filed a definitive proxy statement for a shareholder resolution on March 29. Since November 17, Canadian Pacific has submitted three public proposals to acquire Norfolk Southern Corp.(NYSE:NSC), but Norfolk’s Board has rejected all of them and has thus far shown no interest having merger talks with Canadian Pacific.

#4 Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

 – Shares Owned by Viking Global (as of December 31): 7.8 million

 – Value of Holding (as of December 31): $792.2 million

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is the only stock in this list in which Viking Global increased its stake during the fourth quarter, by 56%. Though shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) have appreciated by 50% since the second quarter of 2010 when Viking initiated its stake, they have seen a 90% fall from the levels they were trading at last August. Another hedge fund which has burned its fingers badly on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is billionaire John Paulson‘s Paulson & Co., which owned 13.26 million shares of the company at the end of 2015. Valeant’s stock is currently trading down by 74% year-to-date, owing largely to the more than 50% drop it suffered on March 15 after the company released preliminary unaudited earnings figures for the fourth quarter and issued disappointing guidance. Prior to the collapse in its stock, several analysts had raised concerns about the company’s aggressive acquisition strategy and the increasing amount of debt on its books. Most analysts are currently of the opinion that investors should stay away from Valeant’s stock until there is more clarity on the company’s financials.

Three of Mr. Halvorsen’s favorite long-term picks are dissected on the following page.

#3 LyondellBasell Industries NV (NYSE:LYB)

 – Shares Owned by Viking Global (as of December 31): 9.33 million

 – Value of Holding (as of December 31): $810.61 million

Viking Global has been an investor in LyondellBasell Industries NV (NYSE:LYB) since the fourth quarter of 2010, when the company was first listed on the NYSE. The company has generated significant returns for its shareholders since then, with its shares having gained over 220%. While Viking Global reduced its stake in the company by 31% during the fourth quarter, Brazilian billionaire Jorge Paulo Lemann‘s 3G Capital increased its stake in the company by 40% during that time. Analysts who track LyondellBasell Industries NV (NYSE:LYB) feel that the stock has little downside risk because it trades at a trailing P/E ratio of 8.96, well below the chemical industry average of 20.78, and sports a respectable annual dividend yield of 3.63%. For its first quarter of fiscal year 2016, analysts project the company to report EPS of $2.26 on revenue of $7.00 billion, considerably lower than the EPS of $2.54 on revenue of $8.19 billion it reported for the same quarter of the previous financial year.

#2 Walgreens Boots Alliance Inc (NASDAQ:WBA)

 – Shares Owned by Viking Global (as of December 31): 12.77 million

 – Value of Holding (as of December 31): $1.08 billion

While Viking Global has held a stake in Walgreens Boots Alliance Inc (NASDAQ:WBA) since the fourth quarter of 2013, it perhaps doesn’t feel that acquiring rival Rite Aid Corporation (NYSE:RAD) will add much value to the company. During the fourth quarter of 2015, when Walgreens Boots Alliance Inc (NASDAQ:WBA) announced its decision to acquire Rite Aid Corporation (NYSE:RAD) for $9 per share, Viking Global reduced its stake in Walgreens by 45%. On March 16, Credit Suisse analyst Robert Willoughby released a note to his clients in which he issued an ‘Outperform’ rating on Rite Aid Corporation’s stock with a $9 price target and noted:

“If Rite Aid held its current Enterprise value/EBITDA multiple while applying free cash flow to debt reduction, a pathway to a higher equity valuation is apparent. Our target price is based on the assumption that it can trade at a higher multiple of 10.5x, which equates to the Walgreens Boots Alliance offer price.”

He also suggested that in spite of the regulatory hurdles the Walgreens-Rite Aid merger will face, “The deal is trading at a roughly 75% implied probability of success assuming a downside risk of $4.65 per share. The Credit Suisse Special Situations Desk believes odds of the deal’s success are approximately 85%.” Daniel S. Och’s OZ Management also reduced its stake in Walgreens during the fourth quarter, by 46%. The billionaire’s firm held 5.36 million shares of the company on December 31.

#1 Allergan plc Ordinary Shares (NYSE:AGN)

 – Shares Owned by Viking Global (as of December 31): 5.98 million

 – Value of Holding (as of December 31): $1.87 billion

Viking Global cut its holding in Allergan plc Ordinary Shares (NYSE:AGN) by 17% during the fourth quarter, relegating the company, which has been in its portfolio since the second quarter of 2013, to the second spot in said equity portfolio as of the end of December. Shares of Allergan plc Ordinary Shares (NYSE:AGN) have fallen by nearly 15% since November 24 when Pfizer Inc. (NYSE:PFE) announced that it will be acquiring the company for $160 billion. Since the Pfizer deal implies a value of $340 per Allergan shares and the recent decline has increased the spread between Allergan’s stock price and the implied value, analysts feel that the stock represents a low-risk, high-reward opportunity for investors. The 17 prominent analysts on Wall Street who track Allergan have an average rating of ‘Buy’ and an average price target of $358.79 on the stock. Eric Mindich‘s Eton Park Capital was one of the hedge funds which initiated a stake in the company during the fourth quarter, purchasing 948,569 shares of Allergan during that period.

Disclosure: None