Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds, including billionaire Richard Chilton’s Chilton Investment Company- whose most recent filing discloses positions in Sherwin-Williams Company (NYSE:SHW) and Dollar General Corp. (NYSE:DG).
We’ve found that investors can use 13Fs in a number of ways. First, they provide information which can be helpful in developing investment strategies: the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio using this strategy has outperformed the S&P 500 by 33 percentage points over the last 11 months. Second, even if an investor doesn’t want to blindly follow a manager’s picks these stocks can be useful as initial investment ideas. Read on for our thoughts on the five largest positions in Chilton’s portfolio as of the end of June and compare these picks to previous filings.
The fund’s top pick is still specialty chemicals company W.R. Grace & Co. (NYSE:GRA); the company’s products include “cracking” catalysts used by refiners in the production of transportation fuels. W.R. Grace & Co. (NYSE:GRA)’s earnings rose by nearly 20% last quarter compared to the second quarter of 2012, though sales were actually down slightly and we would be concerned that earnings growth coming entirely from higher net margins is unsustainable. Tiger Cub John Griffin’s Blue Ridge Capital had owned 3 million shares of the stock at the end of the first quarter of 2013 (research more stocks Blue Ridge owned).
Chilton and his team added a small number of shares of Dollar General Corp. (NYSE:DG) since their previous 13F filing for a total of 3.1 million shares. As a dollar store, the company has little exposure to the overall economy and so the stock’s beta is only 0.1. Dollar General Corp. (NYSE:DG) trades at 19 times trailing earnings, so markets have priced in some future growth; profits rose only 3% in its fiscal Q1 (which ended in early May) versus a year earlier. Lone Pine Capital, managed by billionaire and Tiger Cub Stephen Mandel, has been another major shareholder in Dollar General Corp. (NYSE:DG) (find Mandel’s favorite stocks).
The filing disclosed ownership of 1.3 million shares of Airgas, Inc. (NYSE:ARG), the $7.6 billion market cap provider of industrial gases. Note that with W.R. Grace & Co. (NYSE:GRA) this makes two industrial materials stocks among the fund’s top picks. Airgas, Inc. (NYSE:ARG)’s recent reports show little change in sales compared to a year ago, with net income declining slightly. Markets seem to expect considerable improvement as the trailing P/E multiple is 24, though certainly the recent results are not in line with this optimism. Robert Caruso’s Select Equity Group had 1.5 million shares of Airgas, Inc. (NYSE:ARG) in its portfolio at the beginning of April.
LKQ Corporation (NASDAQ:LKQ), a replacement auto parts company, rounds out our list of Chilton’s top picks. It is another stock priced for high growth, with its market capitalization of $9.2 billion resulting in a trailing P/E of 34. Partly due to a run of acquisitions, LKQ Corporation (NASDAQ:LKQ) recorded over a 20% increase in revenue in its most recent quarter compared to the same period in the previous year with net income increasing strongly as well. We’d be interested in taking a closer look at the company to see how much of this growth was due to acquisitions and therefore how much organic growth we might expect from LKQ Corporation (NASDAQ:LKQ) in the future.
Disclosure: I own no shares of any stocks mentioned in this article.
