We recently compiled a list of the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb and in this article we will discuss the activist investor’s position in Corpay, Inc. (NYSE:CPAY).
Billionaire investor Dan Loeb’s hedge fund Third Point had a strong start to 2024 after its offshore fund posted returns of 7.8% in the first quarter chugging along with the broader market’s 10.6% gain. AI has been one of his top investing themes for some time now and the activist shareholder maintains his bullish view on the technology. In the first quarter, he initiated a position in Alphabet and also increased his position in Amazon by 22% to about $920 million.
Loeb Thinks This Company’s Capital Allocation Strategy is “Brilliant”
Loeb’s also bullish on the energy transition and one of his favorite stocks that is expected to benefit from the AI-driven electricity demand is Vistra, one of the largest independent power producers and retail electricity providers in the US. Though the power company’s core markets have experienced volatility due to weak domestic electricity demand, its “capital allocation strategy has been brilliant”, he stated in his Q1 2024 letter to shareholders, seen by Insider Monkey. In the weak demand environment for fossil fuels, The Texas-based energy group made smart moves by shutting down its unprofitable coal plants and instead buying back 33% of its shares between 2018 and 2023. Additionally, its acquisition of nuclear generation assets of Ohio-based energy company, Energy Harbor, was right on time as governments are turning to nuclear fuel sources to meet the world’s growing energy demands. Loeb expects Vistra to be a direct beneficiary of AI-driven electricity demand and is bullish on the company’s unique position of holding both renewable and fossil fuel-based assets under its belt.
Loeb’s Bullish on LSEG, and For Good Reason
Another AI play Loeb is increasingly bullish on is UK-based stock exchange and financial data company London Stock Exchange Group. The activist investor likes the company’s unique market position as a data provider that is democratizing and making financial data accessible to consumers without the use of additional third-party software. He sees London Stock Exchange Group benefitting from generative AI as information retrieval systems in financial services become more powerful. He also expects the company to develop “a powerful Research Assistant application” with Microsoft to reduce both human resources and time needed to process financial data. He thinks London Stock Exchange Group is at the forefront of capitalizing on the transition of the financial services industry “from manual data processing via clunky desktop terminals to machine-assisted data processing”.
A customer using the the latest B2B payment platform for banking products and services.
Our Methodology
We scanned Third Point’s Q1 portfolio and picked growth stocks from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Note: All pricing data is as of June 6.
Is Corpay Dan Loeb’s Favorite Growth Stock?
Corpay, Inc. (NYSE:CPAY)
Third Point’s Stake Value: $200,551,000
Number of Hedge Fund Holders: 32
This fintech stock has also caught the attention of Dan Loeb and was a new addition to Third Point’s portfolio in the first quarter. Corpay, Inc. (NYSE:CPAY) is a payment services company that serves both consumers and businesses. It offers vehicle payment solutions, corporate payment solutions, and lodging payment solutions, among other products. It also facilitates cross-border payments. Corpay, Inc. (NYSE:CPAY) rebranded itself in March 2024 and changed its name from FLEETCOR Technologies, Inc., to better reflect its corporate payments portfolio, a major driver for its top-line. Corpay, Inc. (NYSE:CPAY) is one of Dan Loeb’s top growth stocks picks.
Corpay, Inc. (NYSE:CPAY) serves over 800,000 business across the globe and is the number 1 B2B commercial Mastercard issuer in North America. The company is a frontrunner in a niche yet high-growth industry (B2B payments). CPAY’s multiple revenue streams and diversified business model have allowed it to drive growth over the years. The company knows where to invest and has been focusing on wheelhouse deals. In March, it closed a majority investment in Brazilian vehicle payments company Zapay and has the right to fully acquire it over four years. In May, the company signed agreements to acquire Paymerang, an invoice and payment automation platform operator that operates in newer markets, including healthcare and manufacturing, that CPAY already doesn’t have a presence in.
In addition to the company’s strong history of successful deals, it has managed to drive organic growth through high retention rates. Its retention rate in Q1 2024 was logged at 91%. Over the past 10 years, Corpay, Inc. (NYSE:CPAY) has grown its revenue by 14.8% and net income by 13%. In fiscal 2023, it logged a 9.7% year-over-year increase and reported a revenue of $3.75 billion. For 2024 management expects total revenues to range within $3.96 billion and $4.04 billion, and analysts’ estimates sit at $4.01 billion. If CPAY beats analysts’ estimates, that would mean it grew its revenue by about 7%.
So you’ve got a company with consistent double-digit or high single-digit growth, is working on cementing its position in its specialized market, and is going to benefit from the digitization of business payments. If CPAY continues to grow at double digit rates in the future, it may be an idea worth exploring as the stock is currently trading at 13.6 times its forward earnings, lower than its 5-year average P/E ratio of 23x. The stock has gained 10% over the past year and analysts’ median consensus price targets point to a 26% upside from current levels.
Corpay, Inc. (NYSE:CPAY) ranks 7th on our list. To discover Dan Loeb’s top growth stock picks, check out our free report on the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb. While we acknowledge the potential of CPAY as an investment, our conviction lies in the belief that 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 NVIDIA 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 on Insider Monkey.