Billionaire John Griffin’s Top 5 Large-Cap Ideas

Billionaire John Griffin, one of the most closely-watched hedge fund managers, founded his equity long/short fund Blue Ridge Capital LLC in 1996. Mr. Griffin is a former protégé of renowned investor Julian Robertson, and served for a time as president of Tiger Management LLC. The “Tiger Cub” follows a value-oriented style of investing, which has proven to be very successful over the years. Data compiled by Insider Monkey shows that Mr. Griffin’s top-five large-cap stock positions, which comprise companies with a market capitalization above $20 billion, generated a weighted average monthly return of 0.84% during the period of 1999-to-2012, compared to the return of 0.32% for the S&P 500 Index. This data suggests that the billionaire investor is particularly strong at finding undervalued, large-cap stocks, so in this article we will focus on his top-5 large-cap ideas heading into 2016.

Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details here).

#5 Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)

– Shares Owned by Blue Ridge (as of December 31): 4.00 Million

– Value of Blue Ridge’s Holding (as of December 31): $262.56 Million

New York-based Blue Ridge Capital LLC acquired a new stake of 4.00 million shares in Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) during the fourth quarter of 2015, which was valued at $262.56 million at the end of the year. The Israel-based drugmaker has seen its shares decline by 12% this year, though they are still up by nearly 3% over the past 12 months. In July 2015, the global pharmaceutical company announced the acquisition of Allergan’s business unit Actavis Generics for $33.75 billion in cash and roughly 100 million shares of Teva. That deal is poised to assist Teva in establishing a dominant position in the generics drug market and is anticipated to be completed by early April. Similarly, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) announced the acquisition of Mexican pharmaceutical company Rimsa in October 2015 for $2.3 billion in cash, which will add a number of patent-protected drugs to its existing portfolio in Latin America. Given that the demand for Teva’s medicines is rather inelastic and stable, the stock represents an attractive investment opportunity considering its paltry forward P/E multiple of 9.25, well below the average of 15.10 for the Pharmaceuticals industry. Billionaire John Paulson of Paulson & Co. reported owning 20.41 million shares of Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) through its latest 13F.

#4 Alphabet Inc. (NASDAQ:GOOGL)

– Shares Owned by Blue Ridge (as of December 31): 358,000

– Value of Blue Ridge’s Holding (as of December 31): $278.53 Million

Mr. Griffin owns 358,000 class A shares of Alphabet Inc. (NASDAQ:GOOGL) as of the end of the December quarter, a sizable increase from the stake of 250,000 class A shares owned at the end of September. It is known that Alphabet’s financial success in recent years is mainly attributable to its core business, which focuses on online advertising. However, as the company’s founders have reiterated on numerous occasions, “Google is not a conventional company”. Alphabet Inc. (NASDAQ:GOOGL)’s “Other Bets” could eventually represent a flourishing source of growth in the years ahead. The company’s Other Bets segment includes businesses such as Access/Google Fiber, Calico, Nest, Verily, and GV, to name just a few. The internet giant has been very successful in capitalizing on the secular shift of advertising dollars from traditional media to search and YouTube, while its ambitious projects are generating fast-ballooning revenue. Tiger Cub Andreas Halvorsen of Viking Global owns 1.85 million class A shares of Alphabet Inc. (NASDAQ:GOOGL) as of December 31.

#3 Facebook Inc. (NASDAQ:FB)

– Shares Owned by Blue Ridge (as of December 31): 3.16 Million

– Value of Blue Ridge’s Holding (as of December 31): $330.73 Million

The New York-based hedge fund kept its Facebook Inc. (NASDAQ:FB) stake unchanged during the last three months of 2015, with the position representing the fifth-largest equity holding in the fund’s portfolio. The shares of Facebook have advanced by 32% over the past 12 months and by more than 229% over the past five years, thanks to its phenomenal user growth and successful monetization efforts. Nonetheless, some investors may worry about future user and revenue growth, as those figures are expected to slow in the future. The company’s 2015 advertising revenue increased by 49% year-over-year to $17.07 billion, after growing by 65% during the previous year. Indeed, the company cannot maintain extremely high user growth rates indefinitely, as its platforms are continuously achieving greater market penetration. Just recently, Facebook officials revealed that all publishers could host their articles on Facebook’s “Instant Articles” program, which could benefit both the publishers struggling to monetize content on mobile and Facebook itself, by keeping users glued to its app. Philippe Laffont’s Coatue Management reported an ownership stake of 6.61 million shares of Facebook Inc. (NASDAQ:FB) through the latest round of 13F filings.

#2 Priceline Group Inc. (NASDAQ:PCLN)

– Shares Owned by Blue Ridge (as of December 31): 263,000

– Value of Blue Ridge’s Holding (as of December 31): $336.46 Million

Blue Ridge Capital LLC did not make any changes to its position in Priceline Group Inc. (NASDAQ:PCLN) during the October-to-December period, with the holding standing as the fourth-largest equity position in the fund’s portfolio. The provider of travel and restaurant reservations and other related services has experienced exceptional growth in recent years, which could be explained by the shift in travel purchasing to online from offline and the increased demand for travelling in emerging markets. The shares of Priceline Group Inc. (NASDAQ:PCLN) are up by 1% over the past year, mainly owing to the gain of more than $100 registered on Wednesday after the company revealed better-than-expected financial results for the fourth quarter. This marks the first $100 single-session gain for a company in the S&P 500 benchmark in history. The company reported total revenue of $9.22 billion for 2015, up from the $8.44 billion reported for 2014. This growth was partly attributable to the growing number of bookable properties on the accommodation reservation service website Booking.com. Chase Coleman’s Tiger Global Management acquired a 758,389-share stake in Priceline Group Inc. (NASDAQ:PCLN) during the December quarter.

#1 Allergan plc (NYSE:AGN)

– Shares Owned by Blue Ridge (as of December 31): 2.00 Million

– Value of Blue Ridge’s Holding (as of December 31): $625.00 Million

Mr. Griffin’s 2 million-share stake in Allergan plc (NYSE:AGN) represented the largest equity holding of the billionaire investor at the end of 2015, accounting for 6.96% of his portfolio. Blue Ridge upped its position in Allergan by 22% during the final quarter of 2015. It is already known that Pfizer Inc. (NYSE:PFE) and Botox-maker Allergan sealed a merger agreement in November 2015, which could create the largest drugmaker in the world. The combined company, to be named Pfizer plc, is expected to retain Allergan’s Irish legal domicile, but some market participants continue to believe that the U.S. Treasury might find a way to block the attempted tax inversion deal. The shares of Allergan are trading at a discount of at least 15% to the value of the proposed merger, which values their shares at $363.63. Allergan shareholders will receive 11.3 shares of the combined company for every Allergan share owned, while Pfizer shareholders will get one share of the new company for each Pfizer share owned. Barry Rosenstein’s JANA Partners owned 1.16 million shares of Allergan plc (NYSE:AGN) at the end of December 2015.

Disclosure: None