In this piece, we will be taking a look at Gabriel Plotkin’s Melvin Capital portfolio: Top 10 picks.
Gabriel Plotkin is an American hedge fund manager who is behind the reins at the hedge fund Melvin Capital. Mr. Plotkin is a millionaire courtesy of his hedge fund, and he has also spent his career at several hedge funds such as Citadel LLC, North Sound Capital, and SAC Capital.
Melvin Capital is known for its short-selling approach towards stocks, which is a controversial practice according to some viewpoints. In the financial world, short selling involves borrowing a company’s shares and then selling them on the open market in hopes of a price decrease. Should such a drop take place, the short seller buys the shares cheaper, returns them to the owner and keeps the difference.
Mr. Plotkin is also one of the more mysterious investors out there, who maintains a low profile and does not have any social media accounts. By the end of the second quarter, his hedge fund had a portfolio worth $17 billion.
This portfolio consists of more than a hundred companies, with varying kinds of holdings. Some of the top companies in it are Amazon.com, Inc (NASDAQ:AMZN), Visa Inc. (NYSE:V) and Expedia Group, Inc. (NASDAQ:EXPE). Apart from these, the bulk of Mr. Plotkin’s investments also remain in the technology sector, but he expends his attention to others as well.
Our Methodology
In order to determine which stocks and companies are on Mr. Plotkin’s radar, we took a look at Melvin Capital’s Form 13-F filings for the second quarter with the Securities and Exchange Commission (SEC). This enabled us to pick out the top ten stocks in the investor’s portfolio, and when this information was supplemented by Insider Monkey’s survey of 873 hedge funds, earnings reports, analyst coverage and investor letters, it let us gain a holistic picture.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Gabriel Plotkin’s Melvin Capital Portfolio: Top 10 Picks
10. IAA, Inc. (NYSE:IAA)
Mr. Plotkin’s Stake Value: $353.1 million
Percentage of Mr. Plotkin’s 13F Portfolio: 2.02%
Number of Hedge Fund Holders: 33
IAA, Inc. (NYSE:IAA) is an American company that deals with the auctioning of damaged or out-of-commission vehicles in the United States. The company targets both individual and corporate buyers and sellers and it also provides a host of solutions such as replacing inventory and meeting vehicle rebuild requirements.
Mr. Plotkin held 6.4 million shares of the company worth $353 million and which constituted 2.02% of his portfolio by the end of the second quarter.
The company’s largest stakeholder after Melvin Capital is Jeffrey Gates’ Gates Capital Management, which holds 2.2 million shares worth $120 million.
In a June 2021 investor note, Stephens analyst Daniel Imbro kept IAA, Inc.’s price target at $70 along with an Overweight rating, believing that a recent selloff presented an excellent buying opportunity.
9. JD.com, Inc. (NASDAQ:JD)
Mr. Plotkin’s Stake Value: $379 million
Percentage of Mr. Plotkin’s 13F Portfolio: 2.17%
Number of Hedge Fund Holders: 76
JD.com, Inc. (NASDAQ:JD) is a Chinese electronic commerce and retail services provider that focuses its attention on the East Asian country. Not only does it run a diverse marketplace that features products from nearly every walk of life, but the company also provides marketing and other services for corporations.
Mr. Plotkin’s investment firm Melvin Capital added 4.7 million shares of JD.com, Inc. to its portfolio in the second quarter of this year. This stake is worth $379 million and it represents 2.17% of the firm’s portfolio holdings.
JD.com, Inc.’s largest shareholder is Rishi Renjen’s ROAM Global Management, which owns $7.2 billion equity through 90,300 shares.
Insider Monkey’s survey of the holdings of 873 hedge funds reveals that 76 held a stake in the online retailer by the end of the second quarter, and Stifel analyst Derek Johnston kept the stock’s rating at Buy and increased its price target to $100 in an investor note released in September 2021. The analyst believes that reduced regulatory risk will serve the company well.
Arisaig Partners, an investment management firm, mentioned JD.com, Inc. in its second-quarter 2021 investor letter. Here is what the fund said:
“JD.com, for example, continues to display impressive operating momentum, with sales on track to grow around 30% this year by our estimates. Looking longer term, this company is making a credible claim to be the dominant player in Chinese grocery ecommerce, an enormous chunk of overall consumption in China, and the last one yet to move online in a big way. We think that JD has a clear advantage over rivals here thanks to its integrated and fully self-managed logistics capabilities. Whereas an offline big box retailer might have 10-20,000 SKUs, JD offers 8 million. 90% of orders fulfilled by JD Logistics can be delivered on the same day or the next day to 500 million customers. The fact that JD has just 30 days of inventory tells us that this is a highly-optimised fulfilment chain. It is very hard to be both fast and efficient, and in order to achieve this it is necessary to know what inventory to hold in which warehouse, and when to hold it (“right place, right time, right person”), a highly information-intensive challenge. The only other retailer that comes close to being able to manage that level of complexity is Amazon, and indeed these are capabilities that are very hard to replicate, taking decades of painstaking investment, trial and error testing, and data accumulation.”
8. Align Technology, Inc. (NASDAQ:ALGN)
Mr. Plotkin’s Stake Value: $386.2 million
Percentage of Mr. Plotkin’s 13F Portfolio: 2.21%
Number of Hedge Fund Holders: 57
Align Technology, Inc. (NASDAQ:ALGN) is an American healthcare equipment provider that is headquartered in Arizona. Its primary products are scanners and aligners that are sold to dental practitioners and the company serves the needs of both dentists and orthodontists.
During its second quarter, Align Technology, Inc. earned $1 billion in revenue and $3.04 in non-GAAP EPS, beating analyst estimates on both counts. In a September 2021 analyst note, Stifel increased the company’s price target to $32 and kept a Hold rating on the shares explaining that while Align Technology, Inc. had posted strong earnings, he preferred companies in other sectors.
By the end of the second quarter 2021, Mr. Plotkin held 632,000 shares of Align Technology, Inc.. These were worth $386 million and made up for 2.21% of his portfolio. During the same time, 57 out of 873 hedge funds polled by Insider Monkey had held a stake in the company.
Align Technology, Inc. largest investor is Andrew Dalrymple and Barry Mccorkell’s Aubrey Capital Management who owns 11,100 shares worth $6.7 billion.
7. Snowflake Inc. (NYSE:SNOW)
Mr. Plotkin’s Stake Value: $465.5 million
Percentage of Mr. Plotkin’s 13F Portfolio: 2.67%
Number of Hedge Fund Holders: 70
Snowflake Inc. (NYSE:SNOW) is an American big data cloud services provider that is headquartered in Montana. Its cloud platform enables users to store and analyze their data for insights that are possible only through crunching heavy numbers and large amounts of data.
In an investor note issued in October 2021, JMP Securities raised its price target to $320 per share from an earlier $300 per share, expressing optimism about the entire software segment and Snowflake Inc.’s role in it.
During the second quarter, Mr. Plotkin held 1.9 million Snowflake Inc. shares. These were worth $465 million and represented 2.67% of his overall portfolio. At the same time, 70 out of the 873 hedge funds polled by Insider Monkey had held a stake in the company.
Snowflake Inc.’s largest investor by the second quarter was Brad Gerstner’s Altimeter Capital Management who owned 24 million shares worth $6 billion.
Therefore, it’s a no brainer that Snowflake Inc. is a part of Mr. Plotkin’s elite stock picks such as Amazon.com, Inc, Expedia Group, Inc. and Visa Inc.
In its first quarter 2021 investor letter published earlier this year, RiverPark Funds had the following to say about Snowflake Inc.:
“We also established a position in Snowflake during the quarter. Snowflake offers cloud-based data storage and analytics, generally termed “data warehouse-as-a-service.” The data warehousing market—created by the massive, growing amount of user, customer, and account data and the need to search and analyze it—has historically stored its data on physical servers located on-premises. The cloud data platform market—storing data off-premises on cloud servers—is a relatively new $70 billion+ market. Significantly, incremental warehouse data capacity and renewals are expected to be driven by and to the cloud, with more than 75% of databases in the cloud by 2022.”
6. Alphabet Inc. (NASDAQ:GOOG)
Mr. Plotkin’s Stake Value: $488.4 million
Percentage of Mr. Plotkin’s 13F Portfolio: 2.8%
Number of Hedge Fund Holders: 155
Alphabet Inc. (NASDAQ:GOOG) is the parent company of Google, which is the world’s largest internet search engine. Not only is Google responsible for cataloging the modern day Internet, but it also has a host of other divisions such as YouTube, Cloud and Other Bets, which reflect the diverse nature of the company’s interests.
Mr. Plotkin held 200,000 shares of Alphabet Inc. by the end of the second quarter. These were worth $488 million and represented 2.8% of his portfolio. During the same time period, 155 out of the 873 hedge funds surveyed by Insider Monkey held a stake in the company.
During its third quarter, Alphabet Inc. earned $65.12 billion in revenue and $27.99 in GAAP EPS, beating analyst estimates on both counts. The company’s price target was raised to $3,100 by Mizuho in an October 2021 analyst note which highlighted that higher search spending and the upcoming holiday season make for positive catalysts.
Alphabet Inc.’s largest investor is Robert W. Koehn’s Ivy Lane Capital who owns 9,700 shares worth $24 billion.
In its third-quarter 2021 investor letter, Madison Funds mentioned Alphabet Inc.. Here is what the fund said:
We are also enjoying results from portfolio companies that are benefitting in the current environment. Our largest holding, Alphabet, is experiencing vigorous growth as digital advertising is very strong in the current environment. Google Search and YouTube revenues were $50 billion last quarter, up 69% year-over-year, and up 25% compounded annually over the two-year period since to 2019. We believe these results are driven by robust consumer on-line activity and strong advertising spending from retailers, brand advertisers, travel and financial service companies, and media and entertainment companies. More advertisers are also shifting their spending from traditional TV to YouTube, and this trend should continue as people spend massive hours consuming content there. Last quarter Alphabet management said YouTube has 2 billion monthly active users consuming over a billion hours of video content every day. An equally striking statistic, according to Google Senior Vice President Phillip Schindler, is that 70% of YouTube’s reach was to an audience not reached by advertisers’ traditional TV media. YouTube’s advertising business is accelerating with scale, which adds diversity to Alphabet’s advertising revenue streams.”
Alphabet Inc. joins other big names in Mr. Plotkin’s portfolio such as Amazon.com, Inc, Expedia Group, Inc., and Visa Inc..
5. Fair Isaac Corporation (NYSE:FICO)
Mr. Plotkin’s Stake Value: $495.1 million
Percentage of Mr. Plotkin’s 13F Portfolio: 2.84%
Number of Hedge Fund Holders: 28
Fair Isaac Corporation (NYSE:FICO) is an American company that provides software and automation management solutions for companies. It operates globally by allowing its customers interconnectivity across North America, the Middle East, Asia, Europe and Latin America.
By the end of the second quarter, Mr. Plotkin held 985,000 shares of Fair Isaac Corporation in a stake that is worth $495 million and represents 2.84% of its portfolio. The company earned $338 million in revenue and $3.38 in non-GAAP EPS in its third quarter, beating analyst estimates on both counts.
In an October 2021 investment note, RBC Capital lowered Fair Isaac Corporation’s (NYSE:FICO) price target to $463 citing several concerns such as conservative guidance. Insider Monkey’s second quarter survey of 873 hedge funds revealed that 28 held a stake in Fair Isaac Corporation.
The company’s largest stakeholder after Melvin Capital is Dev Kantesaria’s Valley Forge Capital who owns 671,509 shares worth 337 million.
In its third-quarter 2021 letter, Richie Capital Group, an investment management firm mentioned the company and stated:
“Fair Isaac Corp (FICO – down 18.84%) – The stock price for the predictive analytics software firm has declined off of very little news outside of an article in the Wall Street Journal highlighting the increasing competitive threats. We view much of this as known. Anytime a company dominates a market in a monopoly-like manner, it will naturally attract competitors as well as customers who will attempt to push back on pricing. However, their solutions are highly predictive within the subprime market and the company continues to identify new opportunities for their software solutions. FICO reported a solid Q3 in August beating earnings and revenue estimates. The report seemed to imply slowing revenue growth, specifically in their DMS and Applications revenue. We believe the market is missing the bigger picture. FICO is transitioning from a licensing model to a subscription model. These transitions typically lead to near term growth headwinds but longerterm profitability improvement and stickier customers. FICO’s scores revenue continues to grow at a double-digit annual rate, and margins (Gross, Operating, and Net Income) are expanding which supports the premise that the company is maintaining their pricing power. We view this decline as a buying opportunity. Management seems to agree with our thinking as they announced a $500M stock repurchase program on August 18th.”
4. Laboratory Corporation of America Holdings (NYSE:LH)
Mr. Plotkin’s Stake Value: $537 million
Percentage of Mr. Plotkin’s 13F Portfolio: 3.09%
Number of Hedge Fund Holders: 53
By the end of the second quarter of this year, Mr. Plotkin’s investment firm held 1.9 million shares of Laboratory Corporation of America Holdings (NYSE:LH) that were worth $537 million and which represented 3.09% of the fund’s portfolio. At the same time, 53 of the 873 hedge funds polled by Insider Monkey held a stake in the company.
The company’s largest shareholder after Melvin Capital is Andreas Halvorsen’s Viking Global who owns 1.3 million shares worth $378 million.
In its second-quarter 2021 investor letter, Broyhill Asset Management mentioned Laboratory Corporation of America Holdings. Here is what the fund said:
“Analysts continued ratcheting up full-year earnings estimates for Lab Corp (LH) driving the stock steadily higher. Despite strong year-to-date gains, shares of the company are trading at lower valuations today than before the pandemic as earnings estimates have outpaced their rising stock prices. Notably, consensus estimates for Lab Corp have nearly doubled over the past year as analysts have been slow to recognize the impact of increased testing volumes on fundamentals.”
3. Visa Inc. (NYSE:V)
Mr. Plotkin’s Stake Value: $701 million
Percentage of Mr. Plotkin’s 13F Portfolio: 4.03%
Number of Hedge Fund Holders: 162
Visa Inc. is a financial services provider that enables digital payments for a large variety of customers, both corporate and individual. It is also one of the most well known payments firms in the world due to its established brand name. Visa Inc. is headquartered in San Francisco, California.
Visa Inc.’s biggest hedge fund holder is Alexander Becker’s Codex Capital, which holds 30,500 shares that are roughly worth $7.1billion.
By the end of the second quarter of this year, Mr. Plotkin’s Melvin Capital held 3 million shares of Visa Inc. with the stake equaling $701 million and representing 4.03% of the investment firm’s portfolio. At the same time, 162 of 873 hedge funds polled by Insider Monkey held shares of Visa Inc..
The company reported $6 billion in revenue for its third quarter, alongside non-GAAP EPS of $1.49 as it beat analyst estimates on both counts. In a September 2021 analyst note, investment bank Morgan Stanley kept a $282 price target and an Overweight rating for Visa Inc. shares, expecting its conflicts to resolve.
Qualified Investment Partners, in its first-quarter 2021 investor letter, highlighted that:
“What Attracts Us
Superior Business:
• Wide moat business with high barriers to entry:
− Duopoly with top 2 players (Mastercard/VISA) owning 68% share of credit and 94% of debit transactions
− A double sided financial transaction network with scale on each end
• High returns on equity (21.8%) and low levels of capital expenditure compared to sales (3.4%)
• Recurring revenue stream:
⎼ Toll booth based on transaction volumes
• Top security platform versus cyber fraudSuperior Reinvestment Opportunities:
• Long Runway: Secular cash to electronic payment trends supporting double digit growth in demand for the foreseeable futureSuperior Management / Capital Allocation:
• Consistent deployment of excess cash flow towards value accretive acquisitions (V Europe), dividends and opportunistic share repos…”
2. Amazon.com, Inc. (NASDAQ:AMZN)
Mr. Plotkin’s’Stake Value: $739 million
Percentage of Mr. Plotkin’s 13F Portfolio: 4.24%
Number of Hedge Fund Holders: 271
Amazon.com, Inc. is one of the world’s largest online retailers. Its other business lines now target established and emerging market segments such as cloud computing and home entertainment. Amazon.com, Inc. is based out of the United States and it is known for its founder Mr. Jeffery P. Bezos, who is also one of the world’s richest men.
Mr. Plotkin’s holdings in the company involve 215,000 shares that are worth $739 million. They represent 4.24% of his portfolio. 271 out of the 873 hedge funds polled by Insider Monkey at the end of the second quarter of this year held a stake in the company whose price target was lowered to $4,200 by Credit Suisse in October 2021 due to an expected increase in expenses.
Amazon.com, Inc. largest shareholder is Alexander Becker’s Codex Capital who owns 2,850 shares worth $9.8 billion.
In its third-quarter 2021 investor letter, Madison Funds had the following to say about Amazon.com, Inc.:
“We did add a modest new position weight to the portfolio in the quarter in Amazon.com, Inc. stock (AMZN). We acknowledge that many aspects of Amazon’s merit as an investment are well appreciated. However, our work leads us to conclude that shares are attractive. Leadership positions in both e-commerce and cloud computing provide the company with significant durable competitive advantages in industries that we think can produce above average growth over the next decade. Over the past year, AMZN shares have trailed the market as investors debate near-term growth prospects following the pandemic-induced e-commerce demand. Additionally, margins have been depressed due to Amazon’s unprecedented increases in spending to build out fulfillment and in-house logistics capabilities – Amazon will build out more square footage this year and last than it did cumulatively over the previous 10 years, more than doubling its in-house delivery capacity. We like the investments Amazon is making and believe they will further advantage the company relative to other retailers, making it nearly impossible for competitors to match the same level of delivery speed and convenience. With its large and frequently engaged customer base, Amazon has multiple mechanisms to make money, including selling advertising and enhanced subscription services. Within the cloud business, we forecast Amazon Web Services (AWS) leveraging its strengths in Infrastructure-as-a-service (IaaS) to move into higher value segments of cloud computing (such as platform-as-a-service: PaaS), allowing the company to continue outgrowing the overall IT sector with strong profitability. While Amazon shares have performed extremely well over the long-term, we think near-term concerns about whether Amazon will earn a return on its accelerated investments provide an opportunity now for investors willing to look through the investment period. Our view is that the investments likely earn strong returns and extend Amazon’s competitive advantages and above average growth.”
1. Expedia Group, Inc. (NASDAQ:EXPE)
Mr. Plotkin’s Stake Value: $1 billion
Percentage of Mr. Plotkin’s 13F Portfolio: 5.85%
Number of Hedge Fund Holders: 87
Expedia Group, Inc. is an online travel services provider that enables travelers to make sound decisions about their plans. Its services involve travel bookings, rental car services, accommodation marketing and booking provisions.
During the second quarter, Mr. Plotkin held 6.2 million Expedia Group, Inc. shares. These were worth $1 billion and represented 5.85% of his overall portfolio. At the same time, 87 out of the 873 hedge funds polled by Insider Monkey had held a stake in the company.
Expedia Group, Inc.’s largest investor by the second quarter was Daniel Sundheim’s D1 Capital Partners who owned 7.5 million shares worth $1.2 billion.
In its first-quarter 2021 investor letter, ClearBridge Investments had the following to say about the company:
“Several of our better performers in the first quarter were purchased while their business models were under stress from COVID restrictions or the macro environment the pandemic created. What gave us confidence in purchasing Expedia were the actions the company took to extend out their balance sheets until travel resumed. It should benefit as a broader vaccination rollout prompts cruise lines to resume operations and consumers to start traveling again and are positioned to deliver better margins and gain pricing power as the economy normalizes due to the cost controls implemented during the downturn.”
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This article is originally published at Insider Monkey.
