The Top Q4 Stock Picks of Billionaire ‘Tiger Cub’ Rob Citrone

Discovery Capital Management is a Connecticut-based long/short equity hedge fund founded by billionaire ‘Tiger Cub’ Rob Citrone in 1999. Prior to founding Discovery, Mr. Citrone worked as a portfolio manager at both Fidelity Investments and Julian Robertson’s Tiger Management. Funds managed by Discovery Capital Management have been volatile of late, which can be gauged from the fact that the firm’s flagship fund Discover Global Opportunity returned 27.5% in 2013, was down by 3.2% net of fees in 2014 and was again down by 4.4% for the first-half of 2015. However, barring 2014 , the only other time the fund has posted yearly losses in its 16-year history was during the financial crisis, when it was down by 33%. These performance swings have had an impact on Discovery Capital Management’s assets under management (AUM), which was down to nearly $12.5 billion in August 2015 from $15 billion a few quarters earlier. Discovery Capital Management recently submitted its 13F filing for the reporting period of September 30 with the SEC, revealing a U.S equity portfolio worth almost $9 billion. In this article we will take a look at the fund’s top five stock picks and try to understand why the fund is making a big bet on those stocks.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

#5 Amazon.com, Inc. (NASDAQ:AMZN)

– Shares Owned by Discovery Capital Management (as of September 30): 521,948

– Value of Holding (as of September 30): $267.18 Million

The 18% rise that Amazon.com, Inc. (NASDAQ:AMZN) shares saw during the third quarter coupled with the 715% addition that Discovery Capital Management made to its Amazon holding during the third quarter pushed the e-commerce behemoth to fifth-place in Discovery’s portfolio as of September 30. 2015 has been a very favorable year for Amazon.com, Inc. (NASDAQ:AMZN) and its shareholders, with its stock currently trading up by 114.21% year-to-date and the company becoming one of the most popular stocks among hedge funds. Of the over 700 hedge funds we cover, 113 of them reported having a stake in the company as of the end of September, up notably from 103 hedge funds that disclosed a stake in it as of the end of June. On Monday, Amazon unveiled its latest delivery drone prototype, which it plans to use as part of its Prime Air drone delivery program. Stephen Mandel‘s Lone Pine Capital initiated a stake in the company during the third quarter by purchasing almost 1.94 million shares.

#4 Pfizer Inc. (NYSE:PFE)

– Shares Owned by Discovery Capital Management (as of September 30): 9.64 Million

– Value of Holding (as of September 30): $302.9 Million

Discovery Capital Management made full use of the volatility that shares of pharmaceutical giant Pfizer Inc. (NYSE:PFE) suffered during the third quarter by initiating a stake in the company during the period. Barring the turmoil they have experienced since August, Pfizer Inc. (NYSE:PFE) shares have mostly been range-bound this year and currently trade with year-to-date gains of 5.2%. Citrone was not the only hedge fund manager that found Pfizer Inc. attractive during the third quarter as the number of hedge funds tracked by us that reported owning a stake in the company rose to 97 from 85. The last two months have been a roller coaster ride for Pfizer’s stock, following news surfacing that it was interested in buying Allergan PLC (NYSE:AGN). However, when the $160 billion deal formally announced on November 23, it received a lukewarm response from Pfizer’s shareholders and considerable flak from lawmakers. Apart from Discovery Capital, Lee Ainslie‘s Maverick Capital also initiated a stake in Pfizer Inc. during the third quarter, purchasing almost 7.0 million shares of the company.

#3 Endo International plc (NASDAQ:ENDP)

– Shares Owned by Discovery Capital Management (as of September 30): 4.5 Million

– Value of Holding (as of September 30): $313.53 Million

Even though its stock suffered a 13% decline during the July-to-September period, Endo International plc (NASDAQ:ENDP) rose to third-place in Citrone’s equity portfolio after the billionaire bumped the position up by 61%. After rising for the first four months of the year, shares of Endo International plc (NASDAQ:ENDP) have been on a gradual decline since and now trade with year-to-date losses of nearly 15%. This lackluster performance has also weighed on the company’s popularity among hedge funds, as only 61 funds tracked by us reported owning a stake in it at the end of September, compared to 67 at the start of the third quarter. On November 30 , analysts at Guggenheim reiterated their ‘Buy’ rating and $110 price target on the stock. Daniel S. Och‘s OZ Management boosted his Endo International plc position by 15% during the third quarter and remained the company’s largest shareholder among funds we track.

#2 Alibaba Group Holding Ltd (NYSE:BABA)

– Shares Owned by Discovery Capital Management (as of September 30): 6.57 Million

– Value of Holding (as of September 30): $387.35 Million

When shares of Alibaba Group Holding Ltd (NYSE:BABA) slumped by more than 28% during the third quarter and its popularity among hedge funds also dropped significantly, Discovery Capital Management displayed its conviction in the company by purchasing an additional 44,572 shares of it. Alibaba Group Holding Ltd (NYSE:BABA) saw the largest drop in popularity during the third quarter of any stock, with only 60 funds tracked by us reporting being long Alibaba at the end of the quarter, compared to 85 funds that were long at the start of that period. Though shares of Alibaba Group Holding Ltd have recovered notably during the fourth quarter, they still trade down by 19.11% year-to-date. On Monday, Alibaba shares soared by over 2% during the final 15 minutes of trading on the news that the MSCI Emerging Markets index will include U.S-traded Chinese stocks in its indices beginning on December 1. On the same day, analysts at Goldman Sachs reiterated their ‘Buy’ rating on the stock, while upping their price target on it to $102 from $98. D.E. Shaw, founded by billionaire David E. Shaw, increased its stake in the company by 525% to 2.7 million shares during the third quarter.

#1 Allergan PLC (NYSE:AGN)

– Shares Owned by Discovery Capital Management (as of September 30): 1.98 Million

– Value of Holding (as of September 30): $540 Million

Finally, owing to Discovery Capital Management more than doubling its stake in the company during the third quarter, even the 10.4% decline the stock of Allergan PLC suffered during the period couldn’t stop it from rising to the top of Discovery’s equity portfolio. Notwithstanding the third quarter decline, the rally Allergan PLC’s stock saw during the first seven months of the year coupled with the rally it saw after the rumor of its acquisition by Pfizer started floating around, have helped it to now trade up by 22% year-to-date. Not surprisingly, Allergan PLC has also been one of the most popular stocks among hedge funds this year, with over 20% or 151 hedge funds we cover, reporting a stake in it as of the end of September. On November 30, analysts at Nomura reiterated their ‘Buy’ rating and $350 price target on the stock, which is actually lower than Pfizer’s $363.63 per share offer for Allergan PLC. John A. Levin‘s Levin Capital Strategies was another hedge fund that increased its stake in Allergan PLC during the third quarter; it held 464,077 shares of company as of September 30.

Disclosure: None