In this article, we present the list of billionaire Ray Dalio’s top 10 small-cap stock picks. You can skip our comprehensive analysis of Bridgewater Associates’ history, investment philosophy, and hedge fund performance and go directly to Billionaire Ray Dalio’s Top 5 Small-Cap Stock Picks.
Billionaire Ray Dalio is the co-chief investment officer of Bridgewater Associates, the world’s largest hedge fund. Dalio has served in that role since 1985 and is credited with creating the unique culture of transparency and self-analysis that is partly credited for the firm’s sustained and ongoing success over the decades.
That’s not to say it’s been an easy run of late for the fund. While its flagship Pure Alpha fund has averaged 10.5% returns since 1991, it’s nonetheless struggled over the past decade, posting a meager 1.6% annualized return. 2020 was a particularly disappointing one for Bridgewater, as Pure Alpha lost 12.6% even as the hedge fund industry as a whole posted big gains.
Sliding returns and a revolving door of executives joining and leaving the firm in recent years have allowed critics to contend that the company’s culture may have spiraled out of control, or that Dalio has simply lost his mojo. Nonetheless, Dalio is the most successful hedge fund manager of all time as of the end of 2020 according to LCH Investments, posting net gains of $46.5 billion. And Bridgewater also closed out 2021 with a bang, returning 7.8% in December to lift its 2021 returns to 8.14%.
Bridgewater’s mammoth $17.2 billion 13F portfolio is dominated by large-cap stocks like PepsiCo, Inc. (NYSE:PEP), Alibaba Group Holding Limited (NYSE:BABA), and McDonald’s Corporation (NYSE:MCD), all of which rank among the Top 10 Stock Picks of Billionaire Ray Dalio. However, the fund has also shown great conviction in several small-cap stocks, with clothing, food, and education stocks ranking among the favorite small-cap picks of Dalio’s firm.
In this article, we’ll take a look at the ten small-cap stocks that Bridgewater Associates likes the most as of December 31, 2021.
Our Methodology
We follow hedge funds like Bridgewater Associates because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
The following list is ranked according to the amount of money Bridgewater Associates has invested in companies that had a market cap of less than $5 billion as of February 25, 2022 according to the fund’s latest 13F filing for the Q4 2021 reporting period.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q4 2021 reporting period.
Billionaire Ray Dalio’s Top 10 Small-Cap Stock Picks
10. Freshpet, Inc. (NASDAQ:FRPT)
Value of Bridgewater Associates’ 13F Position: $8.00 million
Number of Hedge Fund Shareholders: 26
Ray Dalio’s Bridgewater Associates owns 83,999 shares of Freshpet Inc (NASDAQ:FRPT) as of December 31, ranking the pet food supplier as the tenth-largest small-cap holding in its 13F portfolio. Bridgewater was one of 26 funds long FRPT, up by two quarter-over-quarter.
Freshpet Inc (NASDAQ:FRPT) shares had a remarkable run between January 2018 and April 2021, gaining nearly 900%, but have fallen by nearly 50% since then. The pandemic proved to be a big boost for the company as pet ownership soared, but supply chain issues have been a drag on its productivity in recent months, leading to the company downgrading its 2022 guidance in December.
Nonetheless, Freshpet Inc (NASDAQ:FRPT) remains the industry leader in refrigerated pet food and has plenty of markets left to penetrate. While his position in Freshpet may not be nearly as large as the ones he has in PepsiCo, Inc. (NYSE:PEP), Alibaba Group Holding Limited (NYSE:BABA), and McDonald’s Corporation (NYSE:MCD), Ray Dalio clearly believes in the company’s growth trajectory despite a rocky fourth quarter.
9. The Hain Celestial Group, Inc. (NASDAQ:HAIN)
Value of Bridgewater Associates’ 13F Position: $8.09 million
Number of Hedge Fund Shareholders: 26
There were an equal number of The Hain Celestial Group, Inc. (NASDAQ:HAIN) hedge fund shareholders as Freshpet, and that figure also inched up by two during Q4. Dalio boosted his stake in the supplier of organic food and personal products by 12% during Q4, lifting it to 189,810 shares.
The Hain Celestial Group, Inc. (NASDAQ:HAIN) is also dealing with supply chain issues and has had to likewise lower some of its previous guidance in recent weeks, anticipating flat adjusted EBITDA growth in its fiscal year 2022 compared to previous guidance of mid-to-high single-digit growth.
One of the 12 Healthy and Sustainable Food Stocks to Buy, The Hain Celestial Group, Inc. (NASDAQ:HAIN) is an intriguing organic and natural foods pure-play in an industry that’s expected to grow by at least 6% annually through 2025. Organic and healthy food sales rose by 27% in the U.S in 2020.
8. Herbalife Nutrition Ltd. (NYSE:HLF)
Value of Bridgewater Associates’ 13F Position: $8.33 million
Number of Hedge Fund Shareholders: 37
Herbalife Nutrition Ltd. (NYSE:HLF) is another health-focused small-cap company that Ray Dalio likes, owning 203,508 shares of it on December 31, a 17% increase quarter-over-quarter. It also ranks as one of the most popular small-cap stocks among hedge funds, with 37 long HFL shares at the end of 2021.
Herbalife Nutrition Ltd. (NYSE:HLF) has performed well during the pandemic despite the apparent issues the company’s distributors would have with social distancing and lockdown orders. In place of in-person selling, sales moved online and helped provide a social outlet for those looking to improve their health at the same time.
Bronte Capital, which owned 2.76 million shares of Herbalife Nutrition Ltd. (NYSE:HLF) on December 31, ranking it as the fund’s third-largest equity position, discussed why Herbalife’s personalized sales channels worked so well during the pandemic in its Q3 2021 investor letter:
“Herbalife is – as we have discussed many times before – a multi-level marketing scheme selling weight-loss shakes. The idea is simple. If I replaced six meals a week with low-calorie protein shakes and I walked an extra 15km a week I would quickly lose 15-20kgs. It would be good for me. It is also well-nigh impossible to do.
One solution is to hire a personal trainer (usually of the opposite sex) and have them nag you. You will do tough stuff for an attractive member of the opposite sex. More realistically you could just have your friends nag you. And that is why this works so well as a multi-level marketing scheme. The person who sells you the shakes has an incentive to keep you on the diet.
We have looked at many distributors and we see a weight-loss program – implemented for (literally) millions of people – which works about as well as any weight-loss health program that ever existed. That still means it fails most of the time – but it works enough that we can be proud of owning this stock and the health benefits it provides. Herbalife, it turns out, grew well during COVID. This was initially a surprise to us – as we thought Herbalife depended on the personal touch to make the sale. But, instead, weight loss and associated social clubs moved online – and – in many cases were the main social outlet the customers had.”
7. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Value of Bridgewater Associates’ 13F Position: $8.75 million
Number of Hedge Fund Shareholders: 31
Dalio’s Bridgewater Associates was one of 31 hedge funds long New Oriental Education & Technology Group Inc. (NYSE:EDU) on December 31, owning 4.17 million shares after hiking the size of its position by 24% during Q4.
Bridgewater has held fast to its stake in New Oriental Education & Technology Group Inc. (NYSE:EDU), which it first built in mid-2018, even as other hedge funds have been fleeing the stock amid sweeping changes to China’s for-profit, after-school education sector last summer which decimated the company’s revenue by 80% and forced it to slash 60,000 workers. New Oriental Education & Technology Group Inc. (NYSE:EDU) is down by 93% over the last year.
Polen Capital’s Polen International Growth was one of the funds that abandoned its New Oriental Education & Technology Group Inc. (NYSE:EDU) position in recent quarters, explaining its decision to do so in its Q3 2021 investor letter:
“The quarter’s leading detractors were Chinese companies that were impacted by the CCP’s regulatory crackdown and liquidity concerns at property developer Evergrande. New Oriental Education—the largest provider of private educational services in China—moved sharply lower in July after policymakers implemented new rules which effectively turned Chinese tutoring companies into non-profits. Looking at New Oriental Education, we closed our position as soon as government policy became clear and used the proceeds to allocate to existing holdings.”
6. I-Mab (NASDAQ:IMAB)
Value of Bridgewater Associates’ 13F Position: $8.80 million
Number of Hedge Fund Shareholders: 19
Closing out the first half of the list is Chinese biotech company I-Mab (NASDAQ:IMAB), which Dalio’s hedge fund owned 185,614 shares of December 31, up 27% from a quarter earlier. Hedge fund ownership of IMAB increased more than five-fold during the second half of 2020 as the company began making promising gains in its pipeline.
I-Mab (NASDAQ:IMAB) has several late-stage assets in its pipeline, including felzartamab for multiple myeloma, the long-lasting growth hormone TJ101, TJ107, lemzoparlimab in combination with rituximab for non-Hodgkin’s lymphoma, and uliledlimab. In addition, the company is developing an innovative second wave of treatments that will utilize novel differentiated bi-specific antibodies.
I-Mab (NASDAQ:IMAB) has been building up its manufacturing capacity in China and announced in November that it will build an R&D facility in San Diego. While it may not have the cachet of PepsiCo, Inc. (NYSE:PEP), Alibaba Group Holding Limited (NYSE:BABA), or McDonald’s Corporation (NYSE:MCD), I-Mab is one of several small-cap Chinese stocks Dalio likes that could deliver exceptional returns in the coming years. See his top Chinese small-cap pick in the second half of this article.
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Disclosure: None. Billionaire Ray Dalio’s Top 10 Small-Cap Stock Picks is originally published at Insider Monkey.
