Here’s How Andreas Halvorsen’s Viking Global Managed A Terrific Q4

Viking Global is a force to reckon with on the Street. Not only is it among the world’s largest hedge funds in terms of assets under management, but it has also made a name for itself as one of the best performing funds over the years. The fund was started by one of hedge fund legend Julian Robertson‘s protégés, or, as they are informally called, ‘Tiger Cubs’, Ole Andreas Halvorsen at the end of 1999 together with former Tiger Management employees David Ott and Brian Olson. While Mr. Ott left down the firm in 2005 and Mr. Olson stepped down as its CIO in 2010, Viking Global has continued to make great strides in the asset management space even after their departure. Viking Global is headquartered in Greenwich, Connecticut and also has its offices in New York, Honk Kong and London.

According to Viking Global’s last 13F filing, the fund’s US equity portfolio at the end of the third quarter was worth nearly $26.1 billion. However, despite having so much capital in its equity portfolio, the fund held long positions in only 63 stocks and its top 10 equity holdings accounted for almost half of the value of its equity portfolio at the end of September. Taking these statistics into account, it is clear that Viking Global runs a fairly concentrated portfolio for a fund of its size and only those stocks that meet the fund’s stringent qualifying criteria are able to get a spot in its equity portfolio. Since Viking Global makes large bets on the stocks it has a high conviction in, we keep a close eye on the large moves made by the fund every quarter. In this article we are going to analyze the performance of the fund’s five largest equity holdings during the final quarter of 2015 and figure out if the fund made the right decision by betting big on those companies.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here).

#5 Broadcom Corporation (NASDAQ:BRCM)

– Shares Owned by Viking Global (as of September 30): 23.57 million

– Value of Holding (as of September 30): $1.2 billion

Broadcom Corporation (NASDAQ:BRCM) was a new addition to Viking Global’s portfolio in the third quarter and the firm made the right bet as during the final two months of 2015, shares of the semiconductor major witnessed a strong rally and ended the fourth quarter up by 12.42%. However, due to the selloff in equity markets since the start of 2016  Broadcom Corporation (NASDAQ:BRCM) has given up most of those gains and currently trades down almost 8% year-to-date.

In May 2015, Avago Technologies Limited (NASDAQ:AVGO) announced that it would be acquiring Broadcom Corporation for $37 billion. After spending most of the second-half of last year in getting approvals from regulators across several countries, both the companies now expect that the merger will get completed by the previously announced date of February 1, 2016. Ahead of the merger, shares of Broadcom Corporation are currently trading at a forward price-to-earnings multiple of 17.92 and a price-to-book multiple of 3.60.

On January 7, analysts at Sanford C. Bernstein downgraded the stock to ‘Market Perform’ from ‘Outperform’, but kept their price target at $60. Apart from Viking Global, Eric W. Mandelblatt‘s Soroban Capital Partners also initiated a stake in Broadcom Corporation during the third quarter; it acquired nearly 12.58 million shares of the company.

#4 Amazon.com, Inc. (NASDAQ:AMZN)

– Shares Owned by Viking Global (as of September 30): 3 million

– Value of Holding (as of September 30): $1.54 billion

The e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) had a spectacular run in 2015 with its shares more than doubling during that period. After having initiated a stake in the company during the second quarter, Viking Global solidified it in the third quarter raising it by 33%. The shares of Amazon.com, Inc. (NASDAQ:AMZN) saw a further 32% growth during the fourth quarter.

Although most analysts that cover Amazon’s stock continue to be bullish on it, some have raised concerns over the company’s valuation. Analysts at Monness Crespi & Hardt came out with a very interesting perspective on the stock on January 4, when they downgraded it to ‘ Neutral’ from ‘Buy’, but upped their price target to $675.89 from $656. In their note, they mentioned that they continue to remain upbeat on the “competitive moat” around the ecosystem that Amazon had created and the investment in the growth the company had made, but also pointed out that they estimate “such investments may yield less degrees of upside than delivered throughout 2015”

For the fourth quarter, analysts are expecting the company to report EPS of $1.64 on revenue of $35.99 billion, compared to the $0.45 and $29.33 billion, respectively, it reported for the same quarter last year. Another Tiger cub Chase Coleman also became increasingly bullish on Amazon.com during the third quarter. His firm Tiger Global Management LLC increased its stake in the company by 328% to nearly 3.2 million shares during that period.

#3 Alphabet Inc (NASDAQ:GOOGL)

– Shares Owned by Viking Global (as of September 30): 2.53 million

– Value of Holding (as of September 30): $1.6 billion

After the company changed its name to Alphabet Inc (NASDAQ:GOOGL) from Google its stock gained 22% during the fourth quarter and reached a lifetime high of $798.69 during that period. Viking Global reduced its stake in the class C stock of the company by 8% during the third quarter and trimmed its ownership of class A shares by 2% to 1.12 million shares.

Ever since former Morgan Stanley CFO, Ruth Porat, joined as the company’s new CFO in July last year, things seem to be improving at Google. The company has managed to beat the analysts’ earnings estimate by a wide margin in its last two quarterly reports and also authorized a $5 billion stock buyback program last October. Moreover, the Street widely applauded Alphabet’s move to change its structure under which Google will be one of the many different operating units under its umbrella, which also includes other ‘moonshot’ projects like self-driving cars.

In his third-quarter letter to investors, Halvorsen said that Alphabet “was the biggest winner” among the fund’s long positions, so the small reduction in positions could have been due to profit-taking or portfolio rebalancing reasons. The investor reiterated his core thesis on the company, which is focused on Alphabet’s transition to mobile from desktop.

“In our opinion, prevailing concerns around this transition are misguided and mobile represents a tremendous revenue opportunity. During the quarter, the stock price appreciated on strong earnings growth in support of our thesis. Pricing on mobile advertising improved, narrowing the gap to desktop ad pricing; YouTube views accelerated meaningfully; and desktop search continued to grow. We think that the secular shift of advertising dollars from traditional media to search and YouTube will drive substantial revenue growth going forward,” Halvorsen said.

The investor also considers that Alphabet’s margins are bound to grow due to a “less aggressive hiring” and that the management will be focused on incremental operating efficiencies and streamlining capital allocation.

“We find the current valuation compelling, especially in light of the company’s growing net cash position, and the likelihood that strong revenue growth combined with improved cost control will result in a higher price-to-earnings multiple,” Halvorsen added. 

#2 Walgreens Boots Alliance Inc (NASDAQ:WBA)

– Shares Owned by Viking Global (as of September 30): 23.27 million

– Value of Holding (as of September 30): $1.93 billion

Despite the fact that its shares inched up by 2.4% during the fourth quarter, Walgreens Boots Alliance Inc (NASDAQ:WBA) is the worst performer among Halvorsen’s top five picks. Though shares of Walgreens Boots Alliance Inc (NASDAQ:WBA) shot up significantly after the company announced, on October 27, that it would be acquiring smaller rival Rite Aid Corporation (NYSE:RAD) for $9.4 billion, it was only a momentary spike and the shares quickly came down in the days following the announcement.

On January 7, Walgreens Boots Alliance announced its results for the first quarter of fiscal 2016, declaring EPS of $1.03 on revenue of $29 billion, whereas analysts had expected the company to report EPS of $0.96 on revenue of $29.24 billion. The company also raised the bottom-end of its full-year earnings forecast and now expects adjusted earnings to be in the range of $4.30 to $4.55 per share. Following the earnings release, several analysts who cover the stock reiterated their ratings. Among them were analysts at FBR & Co., who have a ‘Market Perform’ rating and $90 price target.

Although the Walgreens – Rite Aid merger was announced in October, it seems several funds, especially event-driven hedge funds were expecting a positive development. During the third quarter, the number of funds with shares of Walgreens Boots Alliance (among the funds covered by us) increased by 10 to 91. Among the funds that initiated a stake in the company during the third quarter was billionaire Leon Cooperman‘s Omega Advisors, which bought nearly 1 million shares of the company.

#1 Allergan plc Ordinary Shares (NYSE:AGN)

– Shares Owned by Viking Global (as of September 30): 7.2 million

– Value of Holding (as of September 30): $1.96 billion

Allergan plc Ordinary Shares (NYSE:AGN) has consistently ranked as the most popular stock among funds covered by us for the past few quarters. At the end of the third quarter, 151 hedge funds covered by us, (including 26 funds managed or founded by billionaires) disclosed owning a stake in the company. The conviction of all these investors, including Viking Global which increased its stake in the company by 6% during the quarter, paid off handsomely during the fourth quarter as the shares of Allergan plc Ordinary Shares (NYSE:AGN) shot up by 15% during that period.

A large part of the gains that the stock made came in October after rumors emerged that pharmaceutical giant Pfizer Inc. (NYSE:PFE) was interested in buying the company. On November 24, those rumors were confirmed when Pfizer Inc. (NYSE:PFE) announced that it would be merging with Allergan in a $160 billion ‘inversion deal’ and shift its headquarter to Ireland. The deal has received a lot of flak from industry regulators and lawmakers due to its reliance on financial engineering. However, industry experts and analysts feel that barring the financial engineering part, the deal will prove to be beneficial as it will bring together the medical benefits of the drugs that are being developed by both the companies and help the companies to lower their R&D costs.

Ahead of the merger, shares of Allergan are currently trading at a forward price-to-earnings multiple of 17.73, low for the stock of a healthcare company that is about to get acquired. On January 12, analysts at Leerink Swann reiterated their ‘Buy’ rating and $350 price target on the stock. Samuel Islay‘s Orbimed Advisors was one of the few funds that reduced its stake in the company during the third quarter; it sold 68,000 shares and brought down its holding to 1.44 million shares.

Disclosure: None