In this article we take a look at the Stan Druckenmiller Portfolio: Top 10 Stock Picks.
Amazon.com, Inc. (NASDAQ:AMZN), T-Mobile US, Inc. (NASDAQ:TMUS), and Coupang, Inc. (NYSE:CPNG) are a few of the top stock picks of famed investor Stanley Druckenmiller.
Stan Druckenmiller’s Duquesne Capital is a family office that primarily manages the billionaire money manager’s personal fortune, which stands at about $6.8 billion according to Forbes. Druckenmiller made his billions by being one of the most successful investors of the 1990’s and 2000’s, averaging returns of greater than 30% annually over a period spanning more than two decades.
Druckenmiller is perhaps most famous for shorting the British Pound against the German Deutschmark in 1992 alongside George Soros, a trade that ended up being worth $1 billion when the Pound sank by more than 10% against the Deutschmark over a 21-day span in late September/early October 1992.
Druckenmiller is again looking for stuff to short in the coming year, including stocks and the U.S. dollar, given his bearish outlook on not only the near-term state of the market, but a much longer view of it as well. At the Delivering Alpha Conference in September, Druckenmiller stated that he “would be stunned” if there isn’t a recession next year.
He has an even gloomier outlook on the longer-term state of the market, claiming earlier in the year that there’s a “high probability” the market will be flat for the next decade. Druckenmiller has also conceded that this is the hardest market to forecast that he’s ever seen, given the wide ranging variables of surging inflation, rising interest rates, and the Ukraine war.
There’s also the growing de-globalization trend that’s taking place in many developed countries, which have seen the perils of relying too heavily on cheaper overseas goods and are looking instead to bring more of their production capacity back home.
You wouldn’t know Druckenmiller was as bearish on the state of things as he is given his family’s office trading activity in Q3. Duquesne Capital found plenty of stocks to buy, adding 28 new holdings to its 13F portfolio, while parting ways with just six former holdings. Three of those new additions now rank among the firm’s top ten stock picks.
That quarterly buying spree raised the value of the firm’s 13F portfolio to $1.76 billion September 30, up from $1.38 billion a quarter earlier. That reversed a trend of five straight quarterly declines in the value of Duquesne’s 13F portfolio, which is still significantly smaller than it was in early 2021.
Druckenmiller was further loading up on defensive stocks during the quarter, increasing his family office’s exposure to consumer discretionary and health stocks, while paring back his bets on IT, energy, and materials companies.
In this article, we’ll check out the top ten stock picks in Stanley Druckenmiller’s portfolio as of September 30 to see which companies the legendary investor has conviction in during these chaotic and unpredictable times.
Stan Druckenmiller
Our Methodology
The following data is gathered from Duquesne Capital’s latest 13F filing with the SEC. We follow hedge funds and family offices like Duquesne Capital because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q3 2022 reporting period.
Stan Druckenmiller Portfolio: Top 10 Stock Picks
10. Microsoft Corporation (NASDAQ:MSFT)
Value of Duquesne Capital‘s 13F Position: $45.1 Million
Number of Hedge Fund Shareholders: 272
Coupang, Inc., Amazon.com, Inc., and T-Mobile US, Inc. are some of the top stocks found in Stanley Druckenmiller’s 13F portfolio as of September 30. Barely hanging on to a place in the top ten is Microsoft Corporation (NASDAQ:MSFT) after Druckenmiller sold off 74% of his MSFT stake during Q3, ending the quarter with 193,535 shares. Microsoft remained the most popular stock among hedge funds during Q3 and has hovered near all-time highs in hedge fund ownership during seven of the last eight quarters.
It’s somewhat surprising to see Druckenmiller sell off the majority of his Microsoft Corporation stake given the shares are down by 27% this year and look like a good candidate for a big rebound once the current economic woes subside. Druckenmiller could see more promising near term action elsewhere though, which may have prompted the sale.
Microsoft has its hands in plenty of high-growth tech fields, namely AI and the cloud, and also boasts an outstanding suite of productivity software that generates steady recurring revenue for the tech giant. Microsoft has grown its adjusted earnings per share at an impressive 17% CAGR since its fiscal 2014 year and should continue to generate double-digit growth and exceptional free cash flow in the years to come.
Diamond Hill discussed Microsoft Corporation’s future outlook in its Q3 2022 investor letter:
“Also among our bottom contributors were media and technology giant Alphabet, software and IT services provider Microsoft Corporation and insurance company American International Group (AIG). Microsoft shares declined in Q3, along with other tech companies, as rising interest rates impacted the near-term outlook. We expect the business to continue to generate strong revenue growth and benefit from operating leverage. Microsoft’s cloud computing services business, Azure, is generating robust growth, confirming its competitive positioning.”
9. Vertiv Holdings Co (NYSE:VRT)
Value of Duquesne Capital‘s 13F Position: $47.9 Million
Number of Hedge Fund Shareholders: 32
Vertiv Holdings Co (NYSE:VRT) is the first of three stocks to make this list that were added to Duquesne Capital’s 13F portfolio during Q3. The fund bought 4.93 million shares during the quarter, giving it the third-largest position in the stock among the select group of funds tracked by Insider Monkey’s database. Hedge fund ownership of Vertiv has fallen by 50% over the last two years.
Vertiv Holdings Co is one of the stocks that Druckenmiller appears to have fancied in the near term more than Microsoft, and so far the investment hasn’t disappointed, as VRT shares have gained 43% in Q4. The data center equipment provider grew sales by 21% to $1.48 billion in Q3, but its profitability suffered, as its profit margin slumped by 320 basis points to 1.4% and its net income fell 62% year-over-year to $21.2 million.
The Baron Small Cap Fund was bullish on Vertiv Holdings Co’s earnings potential in the second half of this year, as noted in its Q2 2022 investor letter:
“Vertiv Holdings, LLC, a leading provider of critical infrastructure for data centers, fell in the quarter. The market became concerned that capital spending for data centers might be slowing along with the economy, which could be the case. If you recall, shares of Vertiv were very weak when the company reported first quarter costs were not properly passed through to their customers, so margins would fall well short of projections.
We believe that Vertiv is now ahead of the curve on this and will demonstrate robust earnings power in the back half of 2022 and into next year. We think it’s a very cheap stock, with strong management and board oversight, and remain hopeful that when the company reverts to form, the shares can appreciate significantly.”
8. Datadog, Inc. (NASDAQ:DDOG)
Value of Duquesne Capital‘s 13F Position: $70.1 Million
Number of Hedge Fund Shareholders: 74
Druckenmiller was loading up on more shares of Datadog, Inc. (NASDAQ:DDOG) during Q3, raising the size of his stake by 165% to 789,175 shares. There was an 11% drop in the number of funds long DDOG during Q3, though ownership of the stock is still up by 64% over the last two years. Kathie Wood’s ARK Investment Management and Steve Cohen’s Point72 Asset Management sold off their DDOG stakes during the third quarter.
Datadog, Inc., which operates a cloud-monitoring software platform for clients, is poised for strong long-term growth given the secular tailwinds in the cloud space and the increasingly complicated nature and interaction of cloud setups, which elevates the need for optimization tools like the ones Datadog provides. That’s evident by the company’s strong customer retention rate of greater than 90%. Datadog has raised its sales guidance three times this year and all told, grew revenue by 71% to $1.2 billion during the first three quarters of 2022.
Baron Funds is bullish on the long-term outlook for Datadog, Inc., especially given its impressive retention rate, as the fund noted in its Q3 2022 investor letter:
“Similarly, we continued scaling up our investment in Datadog, Inc., recognizing significant opportunities for the long term, while the majority of investors remain preoccupied with the here and now. While the company may see some short-term headwinds to growth (the company reported seeing some impact to its volume-driven logs and Application Performance Management modules), long-term prospects remain bright, in our view. Datadog reported a best-in-class gross retention rate in the “mid-to-high 90s%,” 74% year-over-year revenue growth, and 21% adjusted operating margins.”
7. Lamb Weston Holdings, Inc. (NYSE:LW)
Value of Duquesne Capital‘s 13F Position: $73.3 Million
Number of Hedge Fund Shareholders: 44
Lamb Weston Holdings, Inc. (NYSE:LW) is another new addition to Druckenmiller’s 13F portfolio, with his family office adding a 946,800-share position in the company to its portfolio. The number of funds long LW has risen by 38% over the last year. In the third quarter, Noam Gottesman’s GLG Partners and David Zorub’s Parsifal Capital Management added LW to their 13F portfolios.
Lamb Weston Holdings, Inc. has been able to counter inflationary pressures to its input, manufacturing, and transportation costs by greatly improving its price/mix, which jumped by 19% during Q1 of the company’s 2023 fiscal year. Those efforts were particularly strong in the company’s retail segment, which surged its price/mix by 32%. The company believes it’s on track to deliver on the high-end of its FY23 guidance, which calls for $4.7 to $4.8 billion in sales and $2.45 to $2.85 in diluted EPS.
Carillon Tower noted that strong pricing actions have helped Lamb Weston Holdings, Inc. through some recent challenges, as the fund pointed out in its Q3 2022 investor letter:
“Lamb Weston Holdings, Inc. supplies frozen potato products globally to the restaurant and food retail industries. Just as demand began to recover from pandemic shutdowns last year, an unusually small potato harvest exacerbated an inflationary cost environment. Pricing actions have been effective in recent quarters, driving margin recovery and boosting earnings.”
6. KBR, Inc. (NYSE:KBR)
Value of Duquesne Capital‘s 13F Position: $78.5 Million
Number of Hedge Fund Shareholders: 41
Closing out the first half of Stanley Druckenmiller’s top ten holdings is KBR, Inc. (NYSE:KBR), which the money manager raised his stake in by 40% during Q3, ending the quarter with 1.82 million shares. KBR hit an all-time high in hedge fund ownership during Q2 before that figure dipped slightly in Q3. Lauren Taylor Wolfe’s Impactive Capital and Matt Sirovich and Jeremy Mindich’s Scopia Capital are two of the stock’s biggest bulls.
KBR, Inc., a Houston-based technology company, has been awarded two notable contracts in recent weeks, including a $157 million Department of Defense project to upgrade U.S. Army helicopters, which is one of at least three DoD contracts the company has been awarded this year. KBR expects its government solutions work to continue to be strong next year, citing comments from President Biden that defense spending would receive a boost in the 2023 budget.
KBR, Inc. was also awarded a contract from CrossWind to provide engineering solutions for the joint venture’s Hollandse Kust wind farm off the coast of the Netherlands. Bank of America analyst Mariana Perez Mora is bullish on the transformation of KBR’s portfolio, including its growing defense exposure. The analyst has a ‘Buy’ rating and $65 price target on KBR shares.
See where T-Mobile US, Inc., Coupang, Inc., and Amazon.com, Inc. rank in Stan Druckenmiller’s portfolio by following the link below.
5. T-Mobile US, Inc. (NASDAQ:TMUS)
Value of Duquesne Capital‘s 13F Position: $96.5 Million
Number of Hedge Fund Shareholders: 101
After selling off a quarter of his T-Mobile US, Inc. holding during Q2, Druckenmiller was adding to the position in Q3, raising it by 7% to 719,017 shares. Hedge fund ownership of T-Mobile has remained steady for over two years, with the stock hovering around the 30 most popular stocks among hedge funds throughout that time. Warren Buffett’s Berkshire Hathaway owns the largest TMUS position as of September 30 after Andreas Halvorsen’s Viking Global slashed its large holding by 64% during Q3.
T-Mobile US, Inc. is one of the rare large-cap stocks having a banner year, being up by 31% year-to-date as its costly integration with Sprint near its conclusion and the fruits of that deal begin to sweeten. The company anticipates achieving free cash flow of $2 billion in the fourth quarter, which would be an 80% year-over-year increase. If it can continue to generate that kind of money, while simultaneously subtracting the $3.8 billion in merger-related expenses it’s racked up over the last year, the company could be generating as much as $12 billion in free cash flow next year.
T-Mobile US, Inc. is prepared to aggressively redeploy its growing wealth to shareholders, telling investors that it plans to send $60 billion their way between 2023 and 2025. It’s gotten a head start on that initiative this year, announcing that it will buy back $3 billion worth of its shares by the end of this year and $14 billion worth by next September. Given that about half its shares are held by Deutsche Telekom AG and Softbank and are essentially off the market, that buyback initiative could have an even more significant impact on the company’s share price than it otherwise might.
4. Chevron Corporation (NYSE:CVX)
Value of Duquesne Capital‘s 13F Position: $99.2 Million
Number of Hedge Fund Shareholders: 68
Druckenmiller cut his stake in Chevron Corporation (NYSE:CVX) by 17% during Q3, one of only two positions in his top ten whose size was lowered during the quarter. His family office owned 690,295 CVX shares on September 30. Hedge fund ownership of CVX has risen during five of the last six quarters to hit an all-time high on September 30.
Chevron Corporation is another stock that’s done well this year, gaining 46%, so it’s not too surprising to see Druckenmiller do some profit taking from the holding. CVX shares have gained 20% in Q4 alone, bolstered by OPEC’s decision to cut production by 2 million barrels per day in light of oil prices that have been weakened by demand concerns. Chevron’s free cash flow ballooned to $29 billion during the first nine months of 2022, more than double what it earned during the corresponding period of 2021.
The Carillon Eagle Growth & Income Fund discussed the strong performance of Chevron Corporation and the broader energy industry in its Q1 2022 investor letter:
”Along with the spike in oil prices, energy stocks performed best during the quarter, followed by more defensive and countercyclical sectors like utilities and consumer staples. Chevron traded higher with global energy prices. The war in Ukraine prompted fears over a shortage in supply, resulting in higher commodity prices.”
3. Amazon.com, Inc. (NASDAQ:AMZN)
Value of Duquesne Capital‘s 13F Position: $102 Million
Number of Hedge Fund Shareholders: 271
Amazon.com, Inc. was another new addition to Druckenmiller’s 13F portfolio during Q3, with the money manager taking advantage of weakness in the stock to build a position of 906,250 shares. Amazon shares have lost 48% of their value over the last year and have continued to sink in Q4, dropping another 17%. The stock ranks as the second-most popular among hedge funds as of September 30.
It could be said that Druckenmiller traded Microsoft primarily for another AI and cloud powerhouse in Amazon.com, Inc., as he sold off about $120 million worth of MSFT shares and spent most of those proceedings building a large Amazon position. While Microsoft’s shares have struggled this year, Amazon’s have performed even worse, losing nearly half their value. That clearly made them an intriguing buy-low candidate for Druckenmiller.
Investors have fled Amazon shares due in part to the company’s plunge from profitability in 2021 back to a loss in 2022. Weakening demand this year, coupled with the company’s exuberant growth initiatives during the pandemic boom lead to some overcapacity that Amazon is now in the process of correcting. The company is slashing as many as 20,000 jobs in a bid to return to profitability in 2023. Behind the ecommerce churn is the behemoth Amazon Web Services, which continues to grow at a strong pace and provide an anchor for the company’s results.
Lakehouse Capital believes Amazon.com, Inc.’s valuation is the most attractive it’s been since the financial crisis, as the fund shared in its October 2022 monthly letter:
“The Fund’s largest position, Amazon.com, Inc., reported a solid quarterly result with net sales increasing 15% year over year (19% in constant currency terms) to $127 billion. However, the business isn’t without its challenges and the company is seeing increasing macro pressures across both retail and Amazon Web Services (AWS), which resulted in guidance for the fourth quarter coming in below prior expectations. As has been the case for the last several quarters, profitability also remains under pressure due not only to external macro factors, such as elevated shipping and fuel costs, but also lower productivity and efficiency costs as a result of some overcapacity on the back of its recent investment cycle. While this does create some near term uncertainty, we continue to believe Amazon is well positioned to manage these issues and remains on track to deliver significant profit improvements over the next twelve months.
Aside from e-commerce, the two other most critical segments, AWS and advertising, grew 28% and 30% year-on-year, respectively. While AWS’ growth remains healthy, especially considering its scale, it was a noticeable slowdown from the 33% growth delivered last quarter. Management attributed the deceleration to the fact that they are seeing an increasing number of customers who want to control their cloud computing costs as the economy slows, and the company is proactively helping them move to lower storage tiers or instance levels, while also leveraging its own AWS Graviton chips. In our view, the current pressures Amazon is facing are largely macro-driven and not fundamental. We believe they will prove manageable with time and that the long term risk/reward is very compelling at these levels. As such, we remain patient holders and also note that the valuation is currently the most attractive it has been since the GFC at 5x trailing gross profit.”
2. Eli Lilly and Company (NYSE:LLY)
Value of Duquesne Capital‘s 13F Position: $157 Million
Number of Hedge Fund Shareholders: 75
Druckenmiller’s stake in Eli Lilly and Company (NYSE:LLY) was raised by 64% during Q3, hitting 484,895 shares by the end of the quarter. The investing icon first added LLY to his family office’s 13F portfolio during Q2, a quarter in which there was a huge jump in hedge fund ownership of the stock. The number of funds long LLY ticked up again during Q3, pushing to a new all-time high.
The bigger push into Eli Lilly and Company is paying off for Druckenmiller, as the stock has gained 14% in Q4 to push its year-to-date gains to 36%. Eli Lilly’s current growth isn’t particularly exciting, as the company grew revenue by just 2% to $6.9 billion during Q3. It’s the company’s pipeline of upcoming therapies that has investors like Druckenmiller pouring into the stock, with four potential product launches lined up for 2023. Eli Lilly also has some promising growth prospects among its current crop of treatments, including diabetes medicine Mounjaro, which has blockbuster potential.
The ClearBridge Global Growth Strategy believes investors are undervaluing the market potential that Eli Lilly and Company’s diabetes drugs like Mounjaro have, as it discussed in its Q3 2022 investor letter:
“In the U.S., we initiated a position in pharmaceutical maker Eli Lilly as it brings out new drug candidates for diabetes and Alzheimer’s disease. New drugs impact diabetes but have also demonstrated significant weight loss for patients who are overweight and have other co-morbidity issues as a result. Lilly is one of the two key players in diabetes care and we believe the potential market opportunity is much higher than the consensus forecasts as we are seeing evidence of accelerating adoption.”
1. Coupang, Inc. (NYSE:CPNG)
Value of Duquesne Capital‘s 13F Position: $324 Million
Number of Hedge Fund Shareholders: 36
Stanley Druckenmiller’s top stock pick for the seventh-straight quarter is Coupang, Inc., which his family office owns 19.4 million shares of. At 18.4%, Druckenmiller’s firm has more than twice the 13F exposure to Coupang as it has to any other stock. It’s also the most exposure it’s had to the stock since the fourth quarter of 2021.
Hedge funds as a whole have been hanging in there with Coupang despite its unmitigated struggles since going public in March 2021, as CPNG shares have lost 59% of their value. The value of Druckenmiller’s CPNG holding is down by nearly $200 million since Q1 2021, despite his family office now owning nearly twice as many shares as it did then.
Coupang, Inc. has rallied quite a bit from its 2022 low point, gaining 93% since May 9, and that could be just the beginning for the fast-growing South Korean e-commerce company. Coupang is not only growing customers at a steady rate (7% in Q3), but boosting the revenue derived from each customer at an even greater rate (19%). The company is still losing money, but its margins are improving quickly, which could push it to profitability before long.
Baron Funds is bullish on Coupang, Inc.’s ability to consolidate the fragmented South Korean e-commerce market in several important categories, as the fund discussed in its Q3 2022 investor letter:
“Coupang, Inc., the largest e-commerce platform in South Korea, contributed after reporting a sizable beat on second quarter earnings and raising annual EBITDA guidance. Upside was concentrated in e-commerce, where Coupang is now driving sequential margin expansion while maintaining a growth rate that is triple that of the industry average, lending credence to the investment case that Coupang will consolidate the fragmented e-commerce industry in Korea across both general merchandise and grocery, with healthy long-term margins to follow.”
For more of the latest stock picks worth considering for your portfolio, check out 10 Growth Stocks with Upside Potential and the 14 Best Agriculture Stocks To Buy Now.
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This article is originally published at Insider Monkey.
