In this article, we discuss the top 5 stock picks in The Motley Fool’s 1623 Capital latest portfolio. If you want to see more top stocks in the 1623 Capital’s portfolio, check out The Motley Fool’s 1623 Capital Latest Portfolio: Top 10 Stock Picks.
5. Apple Inc. (NASDAQ:AAPL)
1623 Capital’s Stake Value: $8.34 million
Percentage of 1623 Capital’s 13F portfolio: 5.2%
Number of Hedge Fund Holders: 128
The largest computer hardware company in the world in terms of market capitalization, Apple Inc.(NASDAQ:AAPL) is a hardware and software company known for producing a variety of popular gadgets and accessories. Shares of the tech giant fell over 8% on October 1 after Bloomberg reported that Apple Inc. (NASDAQ:AAPL) is pulling back from a production increase for the iPhone 14 models given that the anticipated demand might not be as strong as previously expected. 1623 Capital owned 61,032 Apple Inc. (NASDAQ:AAPL) shares during the second quarter of this year for a $8.34 million stake that represented 5.2% of its portfolio.
On September 30, Evercore ISI analyst Amit Daryanani maintained an Outperform rating and $190 price target on Apple Inc. (NASDAQ:AAPL) shares, stating that the strong demand signal for Apple’s iPhone 14 Pro and Pro Max stands “in stark contrast” to recent concerns around a demand slowdown. Although the analyst states that iPhone units will be stable to slightly up, he adds that “the real story” is that average selling prices will be up a high single digits percentage in the second half.
At the close of Q2 2022, 128 hedge funds held stakes in Apple Inc. (NASDAQ:AAPL). The total value of these stakes amounted to $143 billion. As of June 30, Berkshire Hathaway is the top shareholder in Apple Inc. (NASDAQ:AAPL) and has stakes worth $122 billion in the company.
Here is what Distillate Capital Partners LLC had to say about Apple Inc. (NASDAQ:AAPL) in its second-quarter 2022 investor letter:
“Apple was largest new purchase in the quarter, at a 2% weight. Apple underperformed the overall market last quarter, and given very minimal debt, this price weakness translated into a commensurate fall in its enterprise value. For stocks with higher debt levels, it takes a disproportionately bigger market cap drop to achieve the same valuation improvement and this is a key reason we avoid highly leveraged names where significant price weakness can be experienced during a revaluation process. Alongside this decline in EV for Apple, its estimated free cash flows have risen steadily throughout the year. This contrast between a falling enterprise value and rising free cash flow, which is highlighted in Figure 12, made the stock sufficiently better valued such that it entered the portfolio. While Apple’s valuation is now attractive enough to warrant inclusion in the portfolio, it still ranks in the bottom quartile of the portfolio’s holdings and so the stock’s initiating weight is capped at a 2%. This contrasts significantly with Apple’s near-7% position in the S&P 500 benchmark, and reflects both our preference to avoid too much concentration risk as well our goal of ensuring that the overall portfolio valuation is as attractive as possible while balancing characteristics of stability and low indebtedness.”
4. American Tower Corporation (NYSE:AMT)
1623 Capital’s Stake Value: $10.2 million
Percentage of 1623 Capital’s 13F portfolio: 6.37%
Number of Hedge Fund Holders: 52
American Tower Corporation (NYSE:AMT) is an American real estate investment trust and an owner and operator of wireless and broadcast communications infrastructure in several countries worldwide. One of the biggest REITs in the world, the company holds a portfolio of 222,000 communication sites. In the second quarter of 2022, The Motley Fool’s 1623 Capital owned 40,000 shares of American Tower Corporation (NYSE:AMT), worth $10.2 million.
JPMorgan analyst Philip Cusick reiterated an Overweight rating on American Tower Corporation (NYSE:AMT) with a $305 price target after meeting with CFO Rod Smith on September 8. The analyst stated that he came away with “incrementally positive views” on the United States, Europe and Asia-Pacific businesses as well as “encouraged” by trends in both Latin America and Africa.
According to Insider Monkey’s Q2 data, 52 hedge funds held stakes in American Tower Corporation (NYSE:AMT), with combined stakes of $4.37 billion, with Akre Capital Management among the most notable ones.
Here’s what Baron Funds said about American Tower Corporation (NYSE:AMT) in its Q2 2022 investor letter:
“American Tower is a leading global tower company with 220,000 communication sites globally and over 40,000 in the U.S. We added to our position during the market dislocation and as it became increasingly clear that the company would put permanent equity financing in place at better-than-expected terms for its previously announced acquisition of CoreSite (thereby removing the “equity overhang”).
In addition, the company stepped back from a large potential deal in Europe, which would have required significant incremental funding, due to unfavorable contract terms and price. This decision further reinforced our confidence in management’s capital allocation discipline knowing that these were highly sought-after assets.”
3. Visa Inc. (NYSE:V)
1623 Capital’s Stake Value: $10.39 million
Percentage of 1623 Capital’s 13F portfolio: 6.48%
Number of Hedge Fund Holders: 166
Visa Inc. (NYSE:V), an American multinational financial services corporation, operates as a payments technology company worldwide. On September 22, the company announced a Banking as a Service, or BaaS, collaboration with Finastra to co-develop a new functionality on Finastra’s Payments Hub solutions and implement Visa Direct. During Q2 2022, 1623 Capital’s total stake in the company amounted to roughly $10.39 million, which represented 6.48% of its 13F portfolio.
Earlier this August, Daiwa analyst Kazuya Nishimura downgraded Visa Inc. (NYSE:V) to Neutral from Outperform with a price target of $225, down from $230. Although the financial technology company continued to offer an upbeat growth scenario given a rebound in cross-border travel, the analyst sees a reduced scope for earnings to surpass market expectations due to border restrictions being lifted. However, Nishimura continues to highly rate the firm’s medium-to-long-term growth prospects.
A total of 166 hedge funds were invested in Visa Inc. (NYSE:V) at the end of the second quarter of 2022. The stock’s largest shareholder in Q2 was TCI Fund Management, which amassed shares of Visa Inc. (NYSE:V) valued at about $3.9 billion.
Here is what Lakehouse Capital specifically said about Visa Inc. (NYSE:V) in its Q2 2022 investor letter:
“It was business as usual for Visa Inc. (NYSE:V) as it delivered another solid quarter driven by strong US growth, the ongoing gradual displacement of cash with digital transactions, and accelerated growth in cross-border volume as travel spending plays catch up post-Covid. Visa processed 49.3 billion transactions on its network, up 16% year-on-year and 39% above pre-pandemic levels, driving $2.7 trillion in total payments volume, both of which have more than recovered from the impacts of the pandemic. The total number of cards in Visa’s network also grew by 8% year-on-year to 3.9 billion.
Cross-border transactions were a key issue for Visa during the pandemic, but this headwind has now turned into a tailwind. Constant currency cross-border volumes rose 40% (48% excluding intra-Europe) in the most recent quarter and we expect this trend will continue to play out in the year ahead. While a potential economic slowdown and geopolitical concerns are always a risk, we take comfort in the fact that Visa has a sixty-plus year track record of successfully overcoming numerous macroeconomic challenges that in the moment appeared insurmountable. We believe this current episode will prove no different and that the combination of a very attractive industry structure and the ongoing secular shift towards digital payments provides a foundation that will enable Visa to continue winning for many years to come.”
2. FedEx Corp. (NYSE:FDX)
1623 Capital’s Stake Value: $11.6 million
Percentage of 1623 Capital’s 13F portfolio: 7.23%
Number of Hedge Fund Holders: 63
FedEx Corp. (NYSE:FDX), formerly Federal Express Corporation and later FDX Corporation, is an American multinational conglomerate holding company focused on transportation, e-commerce and business services. In Q2 2022, 1623 Capital owned 51,200 FDX shares, with a total value of over $11.6 million. The company represented 7.23% of the fund’s portfolio.
On September 23, Evercore ISI analyst Jonathan Chappell lowered the price target on FedEx Corp. (NYSE:FDX) to $225 from $243 and kept an Outperform rating on the shares, following the company’s Q1 report. According to the analyst, FedEx’s earnings release and associated conference call were “far more about the path forward and management’s cost strategies than the financials themselves.” Chappell believes that FedEx Corp. (NYSE:FDX) is likely to be “a strong show-me story” until the execution risk is proven to have passed.
As of Q2 2022, 63 hedge funds held a collective stake of $1.75 billion in FedEx Corp. (NYSE:FDX) This is up from 52 funds having a stake of $1.79 billion in the company in Q1 2022. As of Q2 2022, Ken Griffin’s Citadel Investment Group is the largest stakeholder in FedEx Corp. (NYSE:FDX), owning more than 2.1 million shares worth at around $480 million.
Here is what Artisan Partners specifically said about FedEx Corporation (NYSE:FDX) in its Q2 2022 investor letter:
“FedEx Corporation (NYSE:FDX), a global shipping and logistics firm, was another relative winner in Q2. Its stock price was mostly unchanged in Q2, which made it a strong outperformer in a weak quarter for US stocks. Over the past 12-18 months, the stock has suffered from weak sentiment as labor cost headwinds and air network disruptions have overshadowed solid top-line trends. However, the stock’s reaction to the company’s first investor day in 10 years may be an early sign that the company is beginning to get more credit for its improved governance. At the investor day, new CEO Raj Subramanian outlined the company’s multi-year financial plan targeting EPS growth of 14%-19% driven by revenue growth of 4%-6% and increased operating margins from technology investments and efficiency gains, as well as an increase in its dividend payout ratio to 25% from ~20%. With the company’s mixed record of achieving its targets, we believe there remains a fair amount of skepticism embedded in the current stock price as it sells at just 10X our estimated of normalized earnings power.”
1. Dollar General Corporation (NYSE:DG)
1623 Capital’s Stake Value: $14.13 million
Percentage of 1623 Capital’s 13F portfolio: 8.81%
Number of Hedge Fund Holders: 51
Dollar General Corporation (NYSE:DG) is an American chain of variety stores that offer a range of goods throughout the mid-western, southern, southwestern, and eastern regions of the United States. The Motley Fool’s 1623 Capital holds 57,600 shares of Dollar General Corporation (NYSE:DG) worth $14.13 million, representing 8.81% of the fund’s overall portfolio.
On September 16, JPMorgan analyst Matthew Boss raised the price target on Dollar General Corporation (NYSE:DG) to $294 from $287 and maintained an Overweight rating on the shares. The analyst established December 2023 price targets across his coverage, with Consumer and retail CEOs remaining “tempered” on second half of 2022 expectations given the broader macroeconomic environment. However, nearly every company cited signs of “improvement” in August relative to the June trough.
At the end of the second quarter of 2022, 51 hedge funds in the database of Insider Monkey held stakes worth $2.4 billion in Dollar General Corporation (NYSE:DG), compared to 53 the preceding quarter worth $2.25 billion. William B. Gray’s Orbis Investment Management is the most prominent shareholder of Dollar General Corporation (NYSE:DG) in the second quarter, with a stake consisting of 1.59 million shares valued at $390.04 million.
Here’s what LRT Capital Management said about Dollar General Corporation (NYSE: DG) in its Q3 2021 investor letter:
Executive Summary
At LRT Capital Management we are continuously searching the market for great investment opportunities. Our favorite finds are companies with moats and growth opportunities that justify a higher price than what the stock is trading for. One of our holdings (approximately 1.5% of our long exposure) is Dollar General (DG), so today, we wanted to tell you a bit about this great company.
Company Overview
Dollar General is a discount retailer with the largest brick-and-mortar presence in the United States by store count. The company’s largest concentration of stores can be found in the southern, southwestern, midwestern, and eastern parts of the United States.10 Dollar General was founded in 1939 by J.L. Turner, who originally named the company “J.L. Turner and Son, Wholesale”. As the name suggests, the company began its life as a wholesaler, but quickly turned to a retailer of general store goods. By the early 1950s, the company had annual sales of $2 million per year,12 which is the equivalent of $22.95 million in 2021 dollars when adjusted for inflation.
The first Dollar General store opened on June 1, 1955 in Springfield Kentucky. The simple concept was that no item in the store would cost more than one dollar. The company changed its name to Dollar General Corporation in 1968 when Dollar General became publicly traded. At the time of its initial public offering, the business generated more than $40 million in annual sales. The company’s common stock was publicly traded from 1968 until July 2007, when it was taken private by KKR. The company went public again in November 2009, under the ticker DG.
Today, Dollar General is an evolved, and phenomenal business with more room for growth. Annual sales reached a record $33.7 billion in fiscal year 2021 after consecutively growing the top line for many years. The company’s main products are every-day necessities and consumables purchased by lower income consumers on tight budgets…
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