Tairen Capital’s Biggest Moves On Consumer Stocks in Q3

Tairen Capital is a long/short equity hedge fund that was founded by Larry Chen and Terry Zhang in 2007. Its 13F portfolio at the end of the third quarter was $424 million with the top 10 holdings constituting 74% of the total portfolio size. It is one of the largest hedge funds located in the Greater China and Hong Kong region. A large number of its holdings are Asian companies given the background of the founders. At the end of the third quarter, the technology and consumer discretionary sectors accounted for the largest portfolio allocation for this fund. In the article below we look at the some of the major consumer stocks in Tairen Capital’s portfolio.

Last month we took a look at the performance of Tairen Capital’s second quarter picks. Our calculations showed that Tairen Capital’s Q2 picks returned more than 28% during the third quarter thanks to its positions in Alibaba and Amazon.com, Inc. (NASDAQ:AMZN).

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

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New Oriental Education & Tech Grp. Inc (NYSE:EDU) was one of the top purchases by Tairen Capital during the last quarter. The fund held 724,490 shares of this stock valued at $33 million at the end of the third quarter and it was the 4^th largest holding of this fund. This company provides private educational services in China. It offers a diversified set of educational services which include language training and test preparation, primary and secondary school education, online education, content development and distribution, pre-school education, overseas study consulting services and study tours. The stock is trading near the top of its 52 week range and has given a stellar return of almost 80% over the last one year. The company reported revenues of $1.47 billion last year with net income of $224 million. The trailing P/E of New Oriental Education & Tech Grp. (ADR)(NYSE:EDU) is ~36x with a dividend yield of 0.4%. At the end of the third quarter, about 20 funds from our system held shares worth $288 million in this stock.

TAL Education Group (NYSE:XRS) forms 6.53% of Tairen Capital’s portfolio as of September 2016. The fund held 391,027 shares of this stock valued at $27.7 million at the end of the third quarter. It is another major company engaged in providing tutoring services for school students in China. It also operates an online education platform through its website – www.jzb.com. This $6.5 billion company has more than doubled in stock price over the last one year.  Analysts are overwhelmingly positive on this stock with 13 out of the 14 analysts covering the stock, rating it as a buy. Mr. Bang Xin Zhang aged 35 is the Chairman and CEO of this company. Most of the other top officers of this company are also quite young in their early 30’s. The company reported $195 million in revenues in the current quarter with a net income of $13 million. The number of funds holding this stock as per our records, increased during the third quarter to 24 from 15 in the quarter earlier. The value of their holding also appreciated to $341 million from $237 million quarter on quarter.

Amazon.com, Inc. (NASDAQ:AMZN) was the 6^th largest holding of Tairen Capital. The fund owned 23,900 shares of the stock valued at $20 million at the end of the third quarter. Besides being one of the world’s leading retailers, Amazon.com, Inc. (NASDAQ:AMZN) also has a strong presence in the cloud computing segment. The company’s Amazon Web Services (AWS) segment focuses on the sales of compute, storage, database and other service offerings for start-ups, enterprises, government agencies and academic institutions. The stock has outperformed the NASDAQ, giving a return of ~17% over the last one year compared to the 2% return given by NASDAQ. Amazon.com Inc. (NASDAQ:AMZN) is aggressively expanding in India which is the fastest growing major economy in the world. According to our system, the hedge funds having long position in Amazon.com Inc. (NASDAQ:AMZN) also increased by 5 to 150 by September end. Their share holding too appreciated to $20 billion from $19 quarter over quarter.

Priceline Group Inc. (NASDAQ:PCLN) formed 2.39% of Tairen Capital’s portfolio at the end of the third quarter. The fund initiated a new position in this company during the third quarter owning 6,900 shares of Priceline Group Inc. (NASDAQ:PCLN). This world’s largest online travel agency has a market value of $82 billion. The company owns some of the world’s largest brands such as booking.com, priceline.com and agoda.com. The company also offers rental car reservations across the world through rentalcars.com. In its most recent quarter, the company reported a healthy operating margin of 22.5% and a net income margin of 13.7%. This stock has been one of the best performing large online stocks, giving a return of more than 200% in the last 5 years. More than 11% of the company’s float as of September 30th was held by 98 funds from our database, from 85 in the second quarter.

Yum! Brands, Inc.(NYSE:YUM) is one the world’s largest owners and franchisers of restaurants in the world. Tairen Capital owned 135,339 shares of the stock valued at $8.8 million at the end of the third quarter, comprising 2% of its portfolio. The fund reduced its position by more than half during this quarter by selling more than 152,000 shares. The company owns leading brands such KFC, Pizza Hut and Taco Bell which have 42,000 restaurants in over 130 countries and territories. The company’s three brands focus on the chicken, pizza and Mexican-style food categories, respectively. The stock has performed poorly during the last one year falling by ~13% and is trading very near to its 52 week low price of $59.57. The company recently carved out it Chinese subsidiary and the two began trading as separate entities from November 1st. Yum! Brands, Inc.(NYSE:YUM) has a market value of $22.7 billion and reported $13 billion in revenues in fiscal year 2015. More than $4 billion worth of shares was held by 42 hedge funds that we track by the end of third quarter. 

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