In this article we discuss Billionaire Stan Druckenmiller’s Top 5 Stock Picks. If you want to read our detailed analysis of Stanley Druckenmiller’s investment philosophy, go directly to Billionaire Stan Druckenmiller’s Top 10 Stock Picks.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the Druckenmiller’s top 5 stock picks:
5. Freeport-McMoRan Inc. (NYSE: FCX)
Value: $163,520,000
Change in Position Size: -1%
Percent of Stan Druckenmiller’s 13F Portfolio: 4.4%
Arizona-based Freeport-McMoran is a mining company with operations in several regions including Indonesia, North and South America. Its Indonesian gold and copper production imports are expected to provide rapid growth for the company this year. The company currently has a $53.9 billion market capitalization. It delivered a spectacular 277.50% return in the past 12 months and settled at $37.89 per share at the closing of February 24, 2021.
As of the end of the fourth quarter, there were 61 hedge funds in Insider Monkey’s database that held stakes in Freeport-McMoran, compared to 57 funds in the third quarter. Fisher Asset Management, with 42.8 million shares of FCX, is the biggest stakeholder in the company.
Pixabay/Public Domain
4. Starbucks Corporation (NASDAQ: SBUX)
Value: $211,510,000
Change in Position Size: 35%
Percent of Stan Druckenmiller’s 13F Portfolio: 5.7%
The shares of the world’s largest coffeehouse chain, Starbucks, surged last week after its biggest Chinese competitor, Luckin Coffee Inc. filed for bankruptcy. The company is growing its dominance in China, with 15.4 million digital members in its rewards program. Starbucks delivered a 34.21% return in the past 12 months.
According to our database, the number of SBUX’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 67 hedge funds that hold a position in Starbucks Corp. compared to the 66 funds in the third quarter. The biggest stakeholder of the company is Fundsmith LLP, with 10.4 million shares, worth $1.1 billion.
Polen Global Growth in their Q4 2020 investor letter said that they added their position in Starbucks Corporation (NASDAQ: SBUX) because of the company’s fast-growing business momentum.
Here is what Polen Global Growth has to say about Starbucks Corporation in their investor letter:
“During the quarter, we added our position in Starbucks. We felt it was prudent to reallocate capital to faster-growing companies with greater business momentum like Starbucks. With spread mitigation policies globally stifling foot traffic into brick-and-mortar stores, coffee shops have not been spared the burden. As one can imagine, many smaller “mom & pop” shops and chains have gone out of business as a result. In fact, Euromonitor estimates that the number of coffee shops in the U.S. will decline this year for the first time since 2011. Simultaneously during 2020, the U.S. Securities and Exchange Commission (SEC) discovered that Luckin Coffee, once thought to be a formidable competitor to Starbucks within mainland China, had fabricated the majority of its 2019 sales by “intentionally and materially” overstating them. We believe that the runway of growth for Starbucks has been temporarily cleared on a relative basis as its competitors have either weakened or disappeared around the world.”
Copyright: buschmen / 123RF Stock Photo
3. Amazon.com, Inc. (NASDAQ: AMZN)
Value: $269,521,000
Change in Position Size: -5%
Percent of Stan Druckenmiller’s 13F Portfolio: 7.3%
Ranking 3rd on our list of Billionaire Stan Druckenmiller’s top 10 stock picks is Amazon, which is up 62% over the last 12 months. The company has grown to become a behemoth in the e-commerce world, now making moves in healthcare, digital content and gaming. Hedge funds are piling into the stock. There were 273 hedge funds in our database at the end of the fourth quarter that hold a position in Amazon, compared to 245 funds in the third quarter. Amazon.com, Inc. ranks 1st on our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings. The biggest stakeholder of the company is Masayoshi Son’s SB Management, with 2.2 million shares, worth $7.3 billion.
Pixabay/ Public Domain
2. T-Mobile US, Inc. (NASDAQ: TMUS)
Value: $315,358,000
Change in Position Size: 17%
Percent of Stan Druckenmiller’s 13F Portfolio: 8.5%
T-Mobile ranks 2nd on the list of Billionaire Stan Druckenmiller’s top 10 stock picks. The wireless network operator recently disclosed Ultra Capacity 5G at the Miami Veterans Affairs (VA) Healthcare System, providing spectacular 5G internet speed and performance to its frontliners and patients. T-mobile serves more than 50 VA Healthcare Systems in the country, providing 4G LTE wireless connectivity. With its current $122.4 billion market capitalization, TMUS delivered a 32.94% return in the past 12 months.
As of the end of the fourth quarter, 103 hedge funds in Insider Monkey’s database of 887 funds held stakes in Citigroup Inc., compared to 94 funds in the third quarter. Viking Global is the biggest stakeholder in the company, with 8.7 million shares, worth $1.1 billion.
“T-Mobile US, Inc.’s (“TMUS”) 2020 merger with Sprint Corporation (“Sprint”) was transformational. The company now controls c.45% of low/mid-band spectrum (which is crucial for 5G) but has only 29% of industry subscribers. We expect this gap to narrow over time, via market share gains, while the deal will also generate significant merger synergies; TMUS should, consequently, achieve substantial profits and free cash flow growth over the next 3-4 years.
TMUS has, hitherto, had an inferior network to its peers, and achieved its subscriber growth via very effective marketing and lower prices, encapsulated in its ‘un-carrier’ approach.
In the 5G era, however, it will have a much better network than its peers – as well as lower prices – because it has more of the critical mid-band (2.5GHz) spectrum than AT&T Inc. (“T”) and Verizon Communications Inc. (“VZ”) combined.
The value of this advantage is reflected in the very aggressive C-Band auction currently underway, in which all three companies have likely spent heavily; T and VZ to supplement their holdings of the key enabling asset for the new 5G era, and TMUS to reinforce its advantage and force its peers to leverage up, so they will be less likely to compete on price. The proceeds from this auction have already reached $81bn (and will entail further substantial spending to ready it for use).
Thus, TMUS is targeting the rollout of its 2.5GHz spectrum across 100mn and 200mn POPs by the end of 2020 and 2021 respectively; this will allow it to offer average speeds of 300Mbps (peak speeds >1Gbps) to subscribers (using only 60MHz of the total 160MHz it owns). Its coverage/offer will be far superior to the competition: T’s standard 5G speeds are 40-60Mbps (i.e. barely faster than 4G LTE); VZ’s 5G ultra-wideband network will offer faster speeds (in theory up to multi-Gbps) but currently covers only 2mn POPs, and is difficult to scale because the mmWave spectrum, on which it relies, propagates only over very short distances and is subject to interference (e.g. by foliage).
It is unlikely that the C-band auction will allow T/VZ to rectify their considerable spectrum lag relative to TMUS: 280MHz is being sold, and VZ requires c.190MHz and T c.150MHz to match TMUS. And the spectrum will take considerable time to clear and be deployed (120MHz clears in December 2021 and 160MHz in December 2023). It is also worth noting C-Band is not nearly as good as TMUS’ 2.5GHz – it has weaker propagation characteristics, thus requiring a much denser network grid which is more costly.
We forecast TMUS to grow its market share of subs by only 100bps per annum 2021-2024, i.e. in line with its prior rates, despite having a better network and cheaper pricing than T/VZ. The key risk to this is stronger competition from Dish Network Corp (“Dish”), who must build out a 5G network as part of the TMUS/Sprint merger conditions. However, it will take time for it to truly be a viable competitor (it targets 50% US POP coverage by 2023), and T/VZ likely have more to lose from a new competitor given their higher prices.
The company has guided to $6.7bn of cost synergies over the next 3-4 years. These have so far come in faster than expected, and we feel that TMUS may exceed its guidance (it beat its targets for the MetroPCS acquisition by 40% and achieved them 1 year early). Network costs represent 63% of expected synergies, and these are cost savings from the decommissioning of cell sites, as the company moves from 110K today to 85K over the next few years. Back office and sales and marketing cost saves will yield the rest.
We estimate that costs/sub will drop from their current c.$26 to c.$19 by 2024 (broadly in-line with VZ) helping drive service margins from 40% to 56%, in-line with T but still well below VZ’s 66% (reflecting TMUS’ lower prices). The combination of modest 3-4% per annum revenue growth, high cost take-out, and declining capital intensity should drive normalised FCF/share to c.$16 in 2024 implying a multiple of c.9x. We feel this is attractive given TMUS’s spectrum advantages and its position as the lowest price, i.e. most competitive, service provider.”
1. Microsoft Corporation (NASDAQ: MSFT)
Value: $586,760,000
Change in Position Size: 0%
Percent of Stan Druckenmiller’s 13F Portfolio: 15.8%
Topping the list of Billionaire Stan Druckenmiller’s top 10 stock picks is Microsoft. Earlier this month, Microsoft introduced its new ‘Employee Experience Platform: Microsoft Viva’ which aims to help people excel and do better at work.
Our database shows that Microsoft ranks 2nd in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings, just behind Amazon. There were 258 hedge funds that held stakes in Microsoft at the end of December, versus the 234 funds in the third quarter.
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You can also take a peek at Top 10 Car Company Stocks to Invest In and Ray Dalio’s Top 10 Stock Picks for 2021.
