We recently compiled a list of the 10 Safe Stocks to Buy According to Billionaire Chilton. In this article, we are going to take a look at where Canadian Pacific Kansas City Limited (NYSE:CP) stands against the other safe stocks recommended by billionaire Richard Chilton.
Chilton Investment Company, founded by Richard L. Chilton, Jr. in 1992, aims to achieve appealing long-term returns while minimizing volatility. Since its establishment, the company has diligently adhered to a fundamental bottom-up investment approach, characterized by an ownership mindset. Its primary aim is to acquire fractional ownership in outstanding businesses rather than engaging in short-term stock trading.
Richard L. Chilton Jr. is the chairman, CEO, and chief investment officer of Chilton Investment Co. He has been a hedge fund manager for 18 years, which is a significant tenure in the challenging hedge fund industry. Chilton began his career in 1983 as an analyst with Alliance Capital Management, working alongside small-cap equity managers Frank Burr and Paul Jenkel. In 1990, he started a money management business for Allen & Co., a private bank, but left after two years to establish his own hedge fund company.
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Drawing on lessons in shorting stocks learned from Julian Robertson of Tiger Management Corp., Chilton set up his firm in a small, one-room office in New York, managing a classic long/short equity hedge fund. Chilton’s decision to start his own hedge fund was influenced by Art Samberg, a board member of the mutual fund Chilton co-managed. After expressing his desire to leave Allen & Co., where he had established a money management business, Samberg encouraged him to start his own fund, recognizing his talent. In January 1992, Chilton left Allen & Co., declined an offer from CEO Herbert Allen to buy a stake in his new venture, and instead accepted $1 million in investment from Allen, combining it with family money to launch his hedge fund with $5 million.
Starting his hedge fund in July 1992, Chilton aimed to create a classic long/short equity hedge fund, inspired by the first hedge fund model launched by Alfred Winslow Jones. His strategy was to always remain both long and short, without attempting to time the market. Chilton’s reputation grew through word of mouth, attracting prominent investors, endowments, and foundations. Pension funds later followed.
Chilton Investment’s appeal to institutional investors lies in its client-first approach and strong performance. The firm has been a leader in transparency and SEC registration. During the 2008 financial crisis, Chilton allowed clients to withdraw funds, which later returned. Chilton’s background in managing pension money at Alliance Capital gave him crucial experience in transparency and accountability, making his firm attractive for investors seeking long/short strategies. Chilton sees current opportunities in blue-chip companies with strong financials, solid dividend yields, and steady earnings growth. He expects these “dividend aristocrats” to outperform in a flat S&P environment, offering stability and consistent returns through growing dividends. Today, Chilton’s firm has grown significantly, with offices worldwide, a team of sector specialist analysts, and $7 billion under management across various strategies in global markets.
Richard L. Chilton Jr. graduated with a B.S. degree in Finance and Economics from Alfred University. Acknowledged for his business acumen, Forbes ranks Richard Chilton 773rd among the world’s wealthiest individuals, estimating his net worth at $1.3 billion. Chilton Investment Company caters to 9 clients, managing discretionary assets totaling $1,266,939,000, as per their Form ADV dated March 2024. Their 13F filing for Q1 2024 revealed managed 13F securities amounting to $3.6 billion.
Our Methodology
This article highlights the 10 safe stocks to buy according to billionaire Chilton, including analyst ratings and key details about each company, as well as the number of hedge funds invested in them.
Why focus on the stocks that hedge funds invest in? Our research shows that following the top picks of leading hedge funds can result in returns that beat the market. We use this strategy in our quarterly newsletter, where we choose 14 small-cap and large-cap stocks each quarter. Since May 2014, this approach has generated a 275% return, outperforming the benchmark by 150 percentage points. (see more details here)
A freight train making its way through a majestic mountain range, snow-capped peaks in the distance.
Canadian Pacific Kansas City Limited (NYSE:CP)
Chilton Investment Company’s Stake Value: $157,082,967
Number of Hedge Fund Holders: 48
Canadian Pacific Kansas City Limited (NYSE:CP) is one of the safe stocks to buy according to billionaire Chilton. Canadian Pacific Kansas City Limited (NYSE:CP) is a major North American transportation company specializing in rail freight, offering services that link Canada, the United States, and Mexico. Canadian Pacific Kansas City Limited (NYSE:CP) is set for strong growth due to its robust domestic intermodal business and a strong Canadian grain harvest. The merger with Kansas City Southern (KCS) is also generating significant revenue synergies, enhancing train speeds and reducing terminal delays. These factors position Canadian Pacific Kansas City Limited (NYSE:CP) well to take advantage of cross-border trade, benefit from trends like nearshoring, and increase its market share.
On its recent earnings call, CFO Nadeem Velani stated that Canadian Pacific Kansas City Limited (NYSE:CP) expects to improve its operating ratio in Q4 2024 compared to the previous year, despite challenging comparisons. After posting a 58.7% operating ratio in Q4 2023, a better ratio in Q4 2024 would show significant margin improvement from Q3 2024.
“I think we’ve been accruing on what we anticipate a fair ruling and a fair kind of win-win situation between us and labor. And so I’m not concerned about that. I mean in the near term, we’re going to have a bit of headwind. We had a significant casualty costs that that we faced in July we’re going to feel in the third quarter. That being said, there’s still two months left in the quarter, and we got to keep them on rail, and we can help mitigate some of those costs. And I think we’ve seen some additional stock-based comp costs that we’re going to feel in Q3 year-over-year. Outside of that, the way the network is running and the operating leverage that I see in front of us, I think it more than offset some of those costs, and I think we’re going to have a very strong back half of the year.
So perhaps not sequential improvement in the OR in Q3, because of some of those headwinds I just mentioned. But I think in Q4, we’re set up to have a record operating ratio for CPKC, and I think it’s going to be a very strong finish to the year, and it’s going to set us up for a 2025 that I think could be a very powerful earnings model.”
GS analytics analysts are optimistic about Canadian Pacific Kansas City Limited (NYSE:CP)’s medium to long-term margin prospects with an attractive FY25 forward P/E valuation and are considering the company a strong buy. They expect Canadian Pacific Kansas City Limited (NYSE:CP) should benefit from volume leverage, synergy gains, and improved pricing in the long run.
Canadian Pacific Kansas City Limited (NYSE:CP) is ranked 6th on safe stocks to buy according to billionaire Chilton. As of the end of Q1 2024, Chilton Investment Company held 1,781,592 shares of Canadian Pacific Kansas City Limited (NYSE:CP), valued at $157,082,967. This investment accounted for 4.3% of Chilton’s total portfolio, according to regulatory filings.
Overall CP ranks 6th on our list of the safe stocks to buy according to billionaire Chilton. While we acknowledge the potential of CP as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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