In this article, we discuss Billionaire Christopher Hohn’s top 5 stock picks. For Hohn’s comments on Alpha generation and his investment philosophy, read Billionaire Chris Hohn’s Top 10 Stock Picks.
5. Visa Inc. (NYSE: V)
Visa Inc. ranks 5th in our list of Chris Hohn’s top 10 stock picks. In fiscal first quarter, Visa’s payments volume and processed transactions grew on the back of ecommerce and spending growth. EPS in the period came in at $1.42, versus the consensus of $1.27. Revenue in the quarter was $5.69 billion, versus the Street’s forecast of $5.52 billion.
According to our database, the number of Visa’s long hedge funds positions increased at the end of the fourth quarter of 2020. 166 funds hold a Visa Inc position compared to 160 funds in the third quarter. The company’s most significant stakeholder is Fisher Asset Management, with 22.2 million shares worth $4.9 billion.
In their Q3 2020 Investor Letter, Qualivian Investment Partners highlighted a few stocks, and Visa Inc. (NYSE: V) is one of them.
Here is what Qualivian Investment Partners said:
“Visa: was a positive contributor in the quarter, just less so than our other holdings. Visa’s fiscal Q4 quarter (calendar Q3) results were better-than-expected as revenue and EPS beat street expectations driven by stabilizing domestic transaction volumes and good expense control. Although results showed continued pressures from depressed crossborder volumes, which may continue for the foreseeable future as with MA, we believe the worst is behind us and our long-term thesis of V’s structural positioning on the other side of the pandemic remains intact. Looking to the back half of 2021 and going into 2022, we see a recovery in cross-border activity, which together with traditional spending improvements at the POS, leaves considerable room for upside upon reopening. Further, once the macro normalizes (medium term), we believe V (and MA) will continue to benefit from structural drivers including increased contactless payments, more eCommerce transactions, as well as a lift in the value-added services like fraud/gateway/marketing services, and demand for other flows such as B2B, G2C and use of Visa Direct. There is no credible competition on the horizon for the Visa/Mastercard payment networks.”
4. Microsoft Corporation (NASDAQ: MSFT)
Hohn is bullish on Redmond software giant Microsoft. Besides being the third biggest Cloud provider and a dominant player in the Enterprise software space, Microsoft is foraying into the EV market. The company recently signed a partnership with Bosch to develop cloud-backed software platform for vehicles. MSFT shares are up 40% over the last 12 months.
As of the end of the fourth quarter, 258 hedge funds in Insider Monkey’s database of 887 funds held stakes in Microsoft, compared to 234 funds in the third quarter. Ken Fisher’s Fisher Asset Management is the company’s biggest stakeholder, with 23.4 million shares worth $5.2 billion. Microsoft Corporation ranks 2nd in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
3. Canadian Pacific Railway Limited (NYSE: CP)
Shares of Canadian Pacific ascended 40.94% in the past 12 months and 1.38% since the beginning of 2021. The company occupies 12.71% of TCI’s overall portfolio. Chris Hohn’s hedge fund first initiated a Canadian Pacific Railway Limited position during the 1st quarter of 2018.
As of the end of the fourth quarter, there were 24 hedge funds in Insider Monkey’s database that held stakes in Canadian Pacific Railway Limited, compared to 32 funds in the third quarter. Chris Hohn’s TCI Fund Management is the company’s biggest stakeholder, with 11.2 million shares worth $3.9 billion.
2. Alphabet Inc. (NASDAQ: GOOG)
Ranking 2nd on the list of Chris Hohn’s top 10 stock picks is Alphabet Incorporated. Hohn’s stock-picking technique paid off as Alphabet is up a stunning 55.35% in the past 12 months.
With a $5.2 billion stake in Alphabet Inc., Chris Hohn’s TCI Fund Management owns 2.95 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 157 hedge funds held stakes in GOOG at the end of the fourth quarter, versus 150 funds at the end of the third quarter.
Kinsman Oak Capital Partners, in their Q4 2020 Investor Letter, said that they have a controversial view on Alphabet Inc. (NASDAQ: GOOG) because they view it as a ‘not so expensive’ company.
Here is what Kinsman Oak Capital Partners has to say about Alphabet Inc. in their Q4 2020 investor letter:
“Our view on Alphabet (GOOG) may be somewhat controversial. The bear case for GOOG boils down to antitrust risk and valuation. Our thesis is predicated on the belief that real earnings power, especially for Alphabet, is higher than it appears on the surface. At first glance, Alphabet’s P/E appears to be 30.2x. Adjusting for net cash brings this down to 27.9x. Alphabet’s “Other Bets” segment generates de minimis revenues but reduces operating income by 13%. Adjusting for that (and assigning zero value to a segment that includes Waymo, Nest, and Verily) brings the multiple to 24.7x versus the S&P 500 trading at 22.3x.
Alphabet, at a 10% premium to the S&P 500, is one of the biggest relative value bargains hiding in plain sight we have seen. Alphabet has a much deeper moat, better margin profile, less capex requirements, and faster growth profile than the average company within the index (estimated 18% CAGR for the next two years versus 8% for the S&P 500).
Pushing the envelope, Alphabet’s multiple would be lower than the overall market if the company treated stock-based compensation as dilution and/or if research & development was capitalized instead of expensed. Internally we use a more detailed sum-of-the-parts analysis to more closely approximate intrinsic value. Further, Waymo provides significant upside optionality, especially if you believe Tesla’s “full self driving” technology justifies a large portion of its market cap.
In short, we believe the obfuscated earnings power makes Alphabet appears more expensive than it really is. After adjusting for factors like “Other Bets” in Alphabet’s case or net cash, stock-based compensation, and research and development treatment, it becomes clear that investors are being adequately compensated for the associated antitrust and regulatory risk.”
1. Charter Communications, Inc. (NASDAQ: CHTR)
The communications services provider Charter Communications Inc. is the largest stock holding of TCI Fund Management, accounting for 22.60% of the overall portfolio. The stock is up 22% over the last 12 months.
As of the end of the fourth quarter, 90 hedge funds in Insider Monkey’s database of 887 funds held stakes in Charter Communications, Inc., compared to 88 funds in the third quarter. Chris Hohn’s TCI Fund Management is the company’s most significant stakeholder, with 10.4 million shares worth $6.9 billion.
Avenir Capital said in their investor letter that Charter Communications Inc. (NASDAQ: CHTR) was one of their biggest gainers.
Here is what Avenir Capital has to say about Charter Communications, Inc. in their investor letter:
“Our third biggest gainer was Charter Communications, the U.S. broadband connectivity business. Our opportunity to buy Charter came in early 2018 when the business was sold off heavily on fears of cable TV cord cutting and the impact of streaming businesses such as Netflix on traditional cable. We felt the bulk of Charter’s underlying value came from its broadband internet business, a highly concentrated industry in which Charter holds a dominant position, not the traditional cable TV business. Charter’s share price has increased by 112% since our initial purchase at US$313 per share, including an increase of 35% in 2020 to end the year at US$665 per share.”
You can also take a peek at 15 Most Valuable Asian Companies and Billionaire Mario Gabelli’s Top 10 Stock Picks.
