In this piece, we will take a look at the top 10 stock picks of Matthew Halbower’s Pentwater Capital Management.
Pentwater Capital Management is an American hedge fund based out of Naples, Florida. It is managed by Mr. Matthew Halbower, who has been at the helm of affairs at the firm ever since he founded it in 2007. The executive has nearly two decades of experience working in the financial sector. Prior to setting up Pentwater Capital, Mr. Halbower worked at Deephaven Capital Management and the Citadel Investment Group. At the former, he was responsible for managing distressed securities, which are those that are not generating sufficient returns to satisfy a hedge fund’s return models and requirements.
Additionally, he also focused on what is termed in the financial world as ‘event-driven trading’ during his career at Deephaven. This refers to watching out for key events related to a company, such as its earnings reports and investing according to the investor’s belief for the share price movement once the event has taken place. For instance, a hedge fund might anticipate that a company is geared up to reveal a bumper earnings report. Subsequently, they might buy the firm’s shares with the hopes of the share price appreciating. Mr. Halbower is also one of the few hedge fund executives out there, especially out of those responsible for multi-billion dollar portfolios, with a degree in a science, technology, engineering, and mathematics (STEM) field.
The executive received his bachelor’s in electrical engineering from the illustrious Massachusetts Institute of Technology (MIT) in 1991. However, after graduating with an engineering degree, he decided to broaden his horizon and ended up receiving a Juris Doctorate (J.D.) from the prestigious Harvard Law School in 1994.
As of the third quarter of last year, Mr. Halbower’s Pentwater Capital had $9.8 billion in assets, making it one of the largest hedge funds out there. However, this portfolio value dropped sequentially, as the firm had a whopping $12 billion in assets by the end of Q2 2021. Annually, the latest portfolio value marks for a 27% annual growth, as its value stood at $7.7 billion as Q3 2020 ended. Some of the famous companies in the portfolio are Alibaba Group Holding Limited (NYSE:BABA), The Boeing Company (NYSE:BA), and The Walt Disney Company (NYSE:DIS).
Matthew Halbower of Pentwater Capital
Our Methodology
In order to determine which stocks made the cut for Pentwater Capital Management in Q3 2021, we dug through the firm’s 13F filings with the SEC for the same time period. This enabled us to identify the top holdings in the firm’s portfolio.
Top 10 Stock Picks of Matthew Halbower’s Pentwater Capital Management
10. Five9, Inc. (NASDAQ:FIVN)
Pentwater Capital’s Stake Value: $198.8 million
Percentage of Pentwater Capital’s 13F Portfolio: 2.02%
Number of Hedge Fund Holders: 78
Five9, Inc. (NASDAQ:FIVN) is an American company headquartered in California that provides cloud software for customer service centers. Its products allow its customers to manage their interactions across multiple channels such as social media and email.
Five9, Inc. reported $154 million in revenue and $0.28 in non-GAAP EPS for its third fiscal quarter, beating analyst estimates for both. Its price target was raised to $195 from $175 by UBS in November 2021 who shared optimism for the company’s strong revenue growth.
Pentwater Capital held 1.2 million Five9, Inc. shares in Q3 2021 in what amounted to a $198.8 million stake comprising 2.02% of its investment portfolio. 78 of the 867 hedge funds part of Insider Monkey’s research for the same period also owned the company’s shares.
Panayotis Takis Sparaggis’ Alkeon Capital Management is Five9, Inc.’s largest investor. It owns 3 million shares worth $480 million.
9. Athene Holding Ltd. (NYSE:ATH)
Pentwater Capital’s Stake Value: $247 million
Percentage of Pentwater Capital’s 13F Portfolio: 2.51%
Number of Hedge Fund Holders: 50
Athene Holding Ltd. (NYSE:ATH) is a financial company that focuses on financial planning and management for retirees. It is based out of Hamilton, Bermuda and it serves customers in both Bermuda and the United States. The firm offers retirement savings products and insurance.
Mr. Halbower’s investment firm owned 3.59 million Athene Holding Ltd. shares during the third quarter of last year, in a $247 million stake that made up 2.51% of its portfolio. During the same time period, 50 out of 867 hedge funds polled by Insider Monkey had owned stakes in the company.
For its fiscal Q3, Athene Holding Ltd. reported $1.47 billion in net investment income and $2.57 in non-GAAP EPS, beating analyst estimates only for EPS. Truist raised the company’s price target to $88 from $68 in November 2021, due to the EPS beat and high Q4 projections.
Athene Holding Ltd.’s largest investor after Mr. Halbower is Alec Litowitz and Ross Laser’s Magnetar Capital who owns 2.3 million shares worth $160 million.
8. Turquoise Hill Resources Ltd. (NYSE:TRQ)
Pentwater Capital’s Stake Value: $276 million
Percentage of Pentwater Capital’s 13F Portfolio: 2.8%
Number of Hedge Fund Holders: 10
Turquoise Hill Resources Ltd. (NYSE:TRQ) is a Canadian copper, gold, and silver miner headquartered in Montreal, Canada. The company has operations in Southern Mongolia.
Mr. Halbower’s investment firm owned 18.7 million Turquoise Hill Resources Ltd. shares during Q3 2021. These were worth $276 million and represented 2.8% of its portfolio. An Insider Monkey survey conducted for the same time period saw 10 out of 867 hedge funds with ownership stakes in the company.
Turquoise Hill Resources Ltd.’s largest investor is David Iben’s Kopernik Global Investors who owns 11.5 million shares worth $169 million.
7. Hill-Rom Holdings, Inc. (NYSE:HRC)
Pentwater Capital’s Stake Value: $277.5 million
Percentage of Pentwater Capital’s 13F Portfolio: 2.81%
Number of Hedge Fund Holders: 46
Hill-Rom Holdings, Inc. (NYSE:HRC) is a medical devices manufacturer that allows its customers, such as hospitals, to diagnose and prevent diseases alongside providing other services such as patient care. The company was acquired by Baxter International Inc. (NYSE:BAX) in December 2021, for a $10.5 billion price tag.
As the third quarter of last year came to an end, Pentwater Capital owned 1.8 million Baxter International Inc. shares for a $277.5 million stake that represented 2.81% of its portfolio. Insider Monkey’s Q3 2021 survey of 867 hedge funds revealed that 46 had owned the company’s shares.
Hill-Rom Holdings, Inc.’s largest investor after Pentwater Capital was Robert Emil Zoellner’s Alpine Associates who owns 1.2 million shares worth $182 million.
6. Coherent, Inc. (NASDAQ:COHR)
Pentwater Capital’s Stake Value: $384 million
Percentage of Pentwater Capital’s 13F Portfolio: 3.9%
Number of Hedge Fund Holders: 36
Coherent, Inc. (NASDAQ:COHR) is a commercial laser equipment provider that sells its products to researchers and industrial users. These products include precision lasers, laser tools, and other products that are used in a variety of areas such as microelectronics and materials production.
Mr. Halbower’s investment firm owned 1.5 million Coherent, Inc. shares during the third quarter of last year. These were worth $384 million and represented 3.9% of its portfolio. Insider Monkey’s research covering 867 hedge funds for the same time period revealed that 36 had invested in the firm.
For its fourth fiscal quarter, Coherent, Inc. disappointed Wall Street as it missed analyst estimates for revenue and EPS by raking in $391 million in revenue and $1.77 in non-GAAP EPS. Stifel set a $270 price target for the firm in October 2021, sharing its optimism for an acquisition.
Coherent, Inc.’s largest investor after Pentwater Capital is Alec Litowitz and Ross Laser’s Magnetar Capital which owns 671,313 shares worth $167 million.
Appleseed Fund mentioned Coherent, Inc. in its Q1 2021 investor letter which outlined that:
“Our most significant contributors to the Fund’s equity performance during the quarter (includes) Coherent (COHR). During the quarter, Coherent announced that it was being acquired, after which several other bidders emerged. Between the takeover announcement and the bidding war among Coherent suitors, the shares rallied strongly during the quarter.”
Along with The Walt Disney Company, Alibaba Group Holding Limited, and The Boeing Company, Coherent, Inc. is a Pentwater Capital favorite.
5. Xilinx, Inc. (NASDAQ:XLNX)
Pentwater Capital’s Stake Value: $435 million
Percentage of Pentwater Capital’s 13F Portfolio: 4.42%
Number of Hedge Fund Holders: 61
Xilinx, Inc. (NASDAQ:XLNX) is an American company that designs and sells programmable semiconductors known as field-programmable gate arrays (FPGAs). These are generally used to assist large-scale datacenters in computing complex programs. Xilinx, Inc. is under acquisition by chip designer Advanced Micro Devices, Inc. (NASDAQ:AMD), and the pair expect the transaction to close by the end of the first quarter of this year.
During Q3 2021, Mr. Halbower’s investment firm owned 2.88 million Xilinx, Inc. shares for a $435 million stake that represented 4.4% of its portfolio. During the same time period, 61 of 867 hedge funds surveyed by Insider Monkey also owned the company’s shares.
Xilinx, Inc.’s largest investor according to Insider Monkey’s research is D. E. Shaw’s investment firm D E Shaw who owns 4.1 million shares worth $632 million.
4. PPD, Inc. (NASDAQ:PPD)
Pentwater Capital’s Stake Value: $497 million
Percentage of Pentwater Capital’s 13F Portfolio: 5.05%
Number of Hedge Fund Holders: 36
PPD, Inc. (NASDAQ:PPD) is a contract research firm, which, as the name suggests, acts as a third-party researcher for the medical industry. The company was acquired by Thermo Fisher Scientific Inc. (NYSE: TMO) in December last year for a $17.4 billion price tag.
Prior to the acquisition, which took place in Q4 2021, Mr. Halbower’s investment firm had owned 10.6 million PPD, Inc. shares that were worth $497 million in Q3 2021. Out of the 867 hedge funds polled by Insider Monkey for the three-month period ending in September last year, 36 had owned PPD, Inc. shares.
For its third fiscal quarter, PPD, Inc. brought in $1.56 billion in revenue and $0.43 in EPS, beating analyst estimates for both.
PPD, Inc.’s largest shareholder after Pentwater Capital was Israel Englander’s Millennium Management who owned 4.4 million shares worth $206 million.
Mentioning PPD, Inc. in its second-quarter 2021 investor letter, DEVON Equity Managemen outlined that:
“…We expect the ~US$4bn of ‘excess’ free cash flow generated from COVID related business to be reinvested into high returning businesses with a more sustainable earnings profile. This is already evident in Thermo’s strong M&A activity YTD, culminating in the US$20bn acquisition of PPD (PPD US).
PPD is a top tier CRO (Contract Research Organisation) which has been in and out of private equity ownership in recent times. To oversimplify, CRO’s effectively provide ‘outsourced’ R&D services across the entire customer spectrum (from big pharma to early stage biotech). Their value proposition varies slightly be customer, but ultimately comes down to quality of drug discovery / development and accelerating time to market (i.e. ‘Return on R&D investment’). CROs must stack up well on this metric vs in-house R&D spend, otherwise Firms would simply keep the spend 100% internal.”
3. Kansas City Southern (NYSE:KSU)
Pentwater Capital’s Stake Value: $574.6 million
Percentage of Pentwater Capital’s 13F Portfolio: 5.83%
Number of Hedge Fund Holders: 59
Kansas City Southern (NYSE:KSU) was a railroad holding company that had operations in the United States, Mexico, and Panama. The company was acquired by Canadian Pacific Railway Limited (NYSE: CP) in December 2021, for a transaction worth $31 billion.
As Q3 2021 came to an end, Mr. Halbower’s Pentawater Capital owned 2 million Kansas City Southern shares for a $574 million stake that constituted 5.83% of its portfolio. Out of the 867 hedge funds polled by Insider Monkey during the same time period, 59 had owned the rail holding company’s shares.
For its third fiscal quarter, the last before the acquisition, Kansas City Southern reported $744 million in revenue and $1.71 in diluted EPS.
Kansas City Southern’s largest investor was Michael Larson and the Bill & Melinda Gates Foundation Trust through a $592 million stake via 2.1 million shares.
Miller/Howard Investments mentioned the company in its Q1 2021 investor letter. It outlined that:
“Canadian Pacific Railway (CP) agreed to acquire Kansas City Southern (KSU) in the largest rail deal in over a decade. The merger will create the first rail network connecting Canada, the US, and Mexico, and it should benefit from the passage of the USMCA Trade Agreement. We initiated a position in KSU in Q4 as we expected it to benefit from growing North American trade and viewed it as a consolidation candidate.”
2. Nuance Communications Inc. (NASDAQ:NUAN)
Pentwater Capital’s Stake Value: $966 million
Percentage of Pentwater Capital’s 13F Portfolio: 9.82%
Number of Hedge Fund Holders: 60
Nuance Communications Inc. (NASDAQ:NUAN) is a software provider that covers speech recognition and artificial intelligence. Its products allow users to improve patient record-keeping among other users. The company is under acquisition by software giant Microsoft Corporation (NASDAQ:MSFT).
For its fourth fiscal quarter, Nuance Communications Inc. reported $333 million in revenue and $0.09 in non-GAAP EPS, missing analyst estimates for both. Its price target was reduced to $56 from $60 by Morgan Stanley in May 2021, with the bank sharing pessimism for the Microsoft acquisition.
Pentwater Capital owned 17.5 million Nuance Communications Inc. shares during Q3 2021. These were worth $966 million and represented 9.82% of its portfolio. Out of 867 hedge funds part of Insider Monkey’s research for the same time period, 60 owned the company’s shares.
After Pentwater Capital, Israel Englander’s Millennium Management is Nuance Communications Inc.’s largest investor. It owns 6.4 million shares worth $355 million.
Rhizome Partners mentioned Nuance Communications Inc. in its third-quarter 2021 investor letter, stating that:
“We also exited our small position in Nuance upon Microsoft’s acquisition. Nuance is a leader in voice recognition software, with dominant market share, and its speech-to-text product is the gold standard in radiology. In addition, by eliminating the need for note taking and allowing doctors to focus on patient care, Nuance could transform the way doctors treat patients. We built a 1% position in Nuance after attending its comprehensive investor day. Our view is that if Nuance can successfully grow its voice-recognition software in doctor’s offices, it could be worth multiples of our cost basis. Microsoft’s acquisition eliminated the multi-bagger upside but also partially validates the belief that Nuance is a high-quality technology company. We exited Nuance with a 62% gain in less than a year. This example is representative of the slight adjustments we made to our portfolio construction. We will allocate to small bets on technology and high-growth companies that could increase our exposure to “right tail” upside. Rest assured that our focus is still roughly 50% real estate, 30% high-quality companies trading at cheap multiples of free cash flow, and the rest in investments with the potential for growth and higher upside.”
1. IHS Markit Ltd. (NYSE:INFO)
Pentwater Capital’s Stake Value: $1 billion
Percentage of Pentwater Capital’s 13F Portfolio: 10.22%
Number of Hedge Fund Holders: 63
IHS Markit Ltd. (NYSE:INFO) is an information and analytics services provider that compiles and shares market data with companies to aid them with their decision-making process.
Mr. Halbower’s investment firm owned 8.6 million IHS Markit Ltd. shares worth $1 billion during the third quarter of last year. Insider Monkey’s Q3 2021 research covering 867 hedge funds revealed that 63 had also owned stakes in the company.
For its third fiscal quarter, IHS Markit Ltd. posted $1 billion in revenue and $0.85 in non-GAAP EPS, beating analyst estimates for both. Deutsche Bank raised the firm’s price target to $127 from $123 in July 2021, after being satisfied with IHS Markit Ltd.’s acquisition deal with S&P Global.
IHS Markit Ltd.’s largest investor following Pentwater Capital is Ken Griffin’s Citadel Investment Group who owns 3.8 million shares worth $448 million.
Artisan Partners mentioned IHS Markit Ltd. in its Q1 2021 investor letter, which stated that:
“We ended our campaign in IHS Markit. IHS Markit is a global provider of information services to the financial services, automotive and energy sectors. Since beginning our investment campaign in 2009, we have been attracted to the company’s position relative to the meaningful secular tailwind driving demand for data and analytics to help guide business decisions. The company announced in Q4 it is merging with S&P Global, one of the largest credit ratings agencies globally and a provider of benchmarks, data and analytics to the global capital and commodities markets. We believe the combination provides a good level of cost and revenue synergies which will help drive profit growth, and S&P Global has a solid track record of acquiring and integrating new businesses. However, we exited our position as the combined entity will be well beyond our mid-cap market cap mandate.”
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This article is originally published at Insider Monkey.
