In this article, we discuss the 10 stocks that Ken Griffin’s Citadel Investment Group is loading up on. If you want to skip our detailed analysis of these stocks, go directly to Billionaire Ken Griffin Is Loading Up on These 5 Stocks.
Ken Griffin founded Citadel Investment Group, an investment firm based in Chicago, in 1990 with just $4.2 million in assets under management. In the years since, Citadel has become one of the largest hedge funds in the world. At the end of the fourth quarter of 2021, the value of the firm’s 13F portfolio alone stood at more than $489 billion, with its top holdings concentrated in the technology and consumer goods sectors. The top ten holdings of the fund comprise 29% of the value of its portfolio.
Citadel Investment Group has come under increased scrutiny over the past few months amid probes into short-selling and block trading. The market dominance of Citadel Securities, a market-maker and trading firm, which has been targeted by retail investors in 2021 and is involved in nearly 40% of all retail investor trades, was the subject of a US Securities and Exchange Commission investigation into short-selling last year. Meanwhile, Surveyor Capital, a subsidiary of Citadel Investment Group, is being investigated by the US Department of Justice.
Citadel denies all allegations of wrongdoing and Mr. Griffin himself appeared before a congressional hearing in February 2021 to deny claims of manipulating short trades. As the trades of the hedge fund come under increased media attention, the latest market moves made by Griffin Investment Group are sure to garner attention and make for some interesting reading. Some of the stocks that Citadel has been loading up on include Take-Two Interactive Software, Inc. (NASDAQ:TTWO), DocuSign, Inc. (NASDAQ:DOCU), and The Gap, Inc. (NYSE:GPS), among others discussed in detail below.
Our Methodology
The stocks were picked from the fourth quarter regulatory filings of Citadel Investment Group. Notable companies in which the fund increased a previously-held stake are featured on the list.
Data from the more than 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each firm.
Ken Griffin of Citadel Investment Group
Billionaire Ken Griffin Is Loading Up on These Stocks
10. Sunrun Inc. (NASDAQ:RUN)
Number of Hedge Fund Holders: 31
Percentage Increase in Stake During Q4: 10,011%
Sunrun Inc. (NASDAQ:RUN) develops and installs residential solar energy systems. It is one of the top clean energy stocks on Wall Street. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Tiger Global Management LLC is a leading shareholder in Sunrun Inc. (NASDAQ:RUN) with 7 million shares worth more than $242 million.
The latest 13F filing data shows that Citadel owned over 754,000 shares of Sunrun Inc. (NASDAQ:RUN) at the end of the fourth quarter of 2021 worth $25.8 million, representing a very small portion of its overall portfolio. The company has been in the Citadel portfolio, with minor breaks, since the third quarter of 2015.
Just like Take-Two Interactive Software, Inc. (NASDAQ:TTWO), DocuSign, Inc. (NASDAQ:DOCU), and The Gap, Inc. (NYSE:GPS), Sunrun Inc. (NASDAQ:RUN) is one of the stocks on the radar of elite investors.
In its Q2 2021 investor letter, Horizon Kinetics, an asset management firm, highlighted a few stocks and Sunrun Inc. (NASDAQ:RUN) was one of them. Here is what the fund said:
“What this table did not cover is valuation. What’s expensive, what’s cheap? A good business that is too expensive is not a good investment. The most expensive business in the table is Sunrun Inc. (NASDAQ:RUN). Sunrun is the nation’s largest residential rooftop solar panel system seller/installer. Sunrun’s valuation might also shed Thumbnail valuation.
To start at the top of the income statement, Sunrun Inc. (NASDAQ:RUN) shares trade at 10.3x revenues. The most profitable company in the S&P 500, Microsoft, trades at 13x revenues. Sunrun operates at a loss. Obviously, not only is tremendous growth anticipated, but tremendous profitability, too.
Let’s simply accept that investors have correctly anticipated Sunrun’s future success and make that the starting point for a valuation exercise.
If, 10 years from now, Sunrun Inc. (NASDAQ:RUN) is ultimately valued at 25x net income, and if today’s $9.5 billion valuation is appropriate, that would require $380 million of net income ($9,500 million ÷ 25).
Let’s say Sunrun will have the same net profit margin as the average S&P 500 company, which is 10%. That means it would need $3,800 million of sales to generate that level of earnings ($380 mill ÷ 10%).
Since sales are now $920 million, they would have to rise by 4.1x in the next 10 years. That would require annual sales growth of 15.2%.
You see how neatly that all works: investors accept the company’s 10-year, 15% annual sales growth projections, and if a 10% net profit margin and a P/E of 25x earnings are reasonable, then the company will have a $9.5 billion market cap at that time. Except that is the current price. That means a 10-year return of zero.
In order to get a 10% annualized return from the stock, Sunrun would need to be priced at a P/E of 65x its earnings 10 years from now, if at a 10% net margin. Or it would have to have some combination of lower P/E and higher growth and/or higher profit margin.
In the meantime, this is Sunrun’s recent pattern of revenue growth and profitability (the company did recently increase its estimate of installed-capacity growth in 2021 from 20-25% to a new estimate of 25% to 30%).
For the time being, SSunrun Inc. (NASDAQ:RUN) loses an extraordinary amount of money, an amount that has been getting larger. Perhaps there are scale economies that will manifest in the future,so that it will attain profitability. Perhaps from the roughly one-half of Sunrun’s revenues that are from long-term customer service agreements that run up to 25 years. For now, though, the company would seem to require a lot of external financing, and that is one of the greatest of business risks.”
9. Advanced Drainage Systems, Inc. (NYSE:WMS)
Number of Hedge Fund Holders: 22
Percentage Increase in Stake During Q4: 10,765%
Advanced Drainage Systems, Inc. (NYSE:WMS) makes and sells water management products. Regulatory filings reveal that Citadel owned over 440,000 shares of Advanced Drainage Systems, Inc. (NYSE:WMS) at the end of the fourth quarter of 2021 worth more than $59 million, representing a meager 0.01% of its portfolio.
The hedge fund sentiment around Advanced Drainage Systems, Inc. (NYSE:WMS) is largely positive. At the end of the fourth quarter of 2021, 22 hedge funds tracked by the database of Insider Monkey held stakes worth $1.2 billion in Advanced Drainage Systems, Inc. (NYSE:WMS), up from 21 in the previous quarter worth $1 billion.
8. Fox Corporation (NASDAQ:FOX)
Number of Hedge Fund Holders: 27
Percentage Increase in Stake During Q4: 11,319%
Fox Corporation (NASDAQ:FOX) is a news, sports, and entertainment firm. Hedge funds have been piling into the stock in recent months. At the end of the fourth quarter of 2021, 27 of the hedge funds tracked by the database of Insider Monkey held stakes worth $711 million in Fox Corporation (NASDAQ:FOX), up from 25 in the previous quarter worth $665 million.
Securities filings show that Citadel owned close to 1 million shares of Fox Corporation (NASDAQ:FOX) at the end of December 2021 worth over $32 million. The company has been in the Citadel portfolio since the second quarter of 2021.
In its Q4 2020 investor letter, Silver Ring Value Partners, an asset management firm, highlighted a few stocks and Fox Corporation (NASDAQ:FOX) was one of them. Here is what the fund said:
“I sold our investment in Fox Corporation (NASDAQ:FOX) during the quarter at a small loss and redeployed the proceeds into shares of Discovery Communications and Mednax. The main reason for my sale was a new competitive threat, which widened the range of likely company outcomes. Furthermore, it added a competitive threat to the existing threat of secular decline that the industry is already battling to overcome. The probability of being right on having two independent things work out for the company is much lower than of it overcoming just one problem.
Fox Corporation (NASDAQ:FOX) gets a substantial majority of its profits from Fox News. This is a network with very inelastic demand which has appeal to the ~45% of the country with conservative political views. With President Trump having lost the election, he began to agitate his supporters to switch viewership to more right-wing news outlets that were being more supportive of him and his claims about the election. Furthermore, there has been talk of him launching or backing a competing network, fracturing the conservative audience.
It’s possible that I am over-reacting and that nothing will come of this threat. Fox Corporation (NASDAQ:FOX) has a strong competitive position and has contracts with key on-air talent. However, initial evidence showed a spike in viewership at previously fringe right-wing networks as Trump supporters began to switch in droves away from the (in Trump’s view) insufficiently loyal Fox News network.
I don’t know how this will play out, but investing is not about answering tough questions, but rather about finding easy ones to answer. This would be a tougher decision if the choice were between continuing to own FOX and holding cash. However, I was able to redeploy the proceeds into two investments that were on average equally undervalued without the complexity of a looming competitive threat.”
7. Fastly, Inc. (NYSE:FSLY)
Number of Hedge Fund Holders: 24
Percentage Increase in Stake During Q4: 11,543%
Fastly, Inc. (NYSE:FSLY) owns and runs an edge cloud platform. Citadel owned over 1.4 million shares of Fastly, Inc. (NYSE:FSLY) at the end of December 2021 worth $52.7 million, representing 0.01% of the value of its 13F portfolio. The company has been in the Citadel portfolio since the second quarter of 2019.
Hedge funds are particularly bullish on Fastly, Inc. (NYSE:FSLY) right now. At the end of the fourth quarter of 2021, 24 of the hedge funds that are monitored by the database of Insider Monkey held stakes worth $716 million in Fastly, Inc. (NYSE:FSLY), up from 17 in the preceding quarter worth $561 million.
6. Confluent, Inc. (NASDAQ:CFLT)
Number of Hedge Fund Holders: 46
Percentage Increase in Stake During Q4: 11,588%
Confluent, Inc. (NASDAQ:CFLT) owns and runs a data platform that provides real-time analytics. Among the hedge funds being tracked by Insider Monkey, Connecticut-based firm Lone Pine Capital is a leading shareholder in Confluent, Inc. (NASDAQ:CFLT) with 4.3 million shares worth more than $335 million as of December 31, 2021.
According to the latest disclosures, Citadel owned over 431,000 shares of Confluent, Inc. (NASDAQ:CFLT) at the end of the fourth quarter of 2021 worth $32.9 million, again representing a very small portion of its total portfolio. The company has been in the Citadel portfolio since the third quarter of 2021.
In addition to Take-Two Interactive Software, Inc. (NASDAQ:TTWO), DocuSign, Inc. (NASDAQ:DOCU), and The Gap, Inc. (NYSE:GPS), Confluent, Inc. (NASDAQ:CFLT) is one of the stocks that hedge funds are buying.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Confluent, Inc. (NASDAQ:CFLT) was one of them. Here is what the fund said:
“The new issue market remains an attractive source of new ideas and we participated in four IPOs in the latest period. Confluent sells and distributes a commercialized version of open source software called Kafka created by former executives at LinkedIn. The solution allows enterprise users the ability to capture data in real time as it is streaming. A prime use case is capturing real-time inventory across retail stores and distribution centers to enable omni-channel commerce. We believe it is early days in the company’s commercialization of this technology which can capture data in both on-premise and hybrid cloud environments. Global-e Online, meanwhile, removes many of the frictions around cross-border ecommerce by handling the different tax structures, languages, currencies, local logistics and fulfillment/returns for any size retailer. The company’s initial customers have been mostly mid to higher end retailers but an investment by Shopify should enable Global-e to significantly increase merchant reach.”
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Disclosure. None. Billionaire Ken Griffin Is Loading Up on These 10 Stocks is originally published on Insider Monkey.
