In this piece, we will take a look at the top 5 stock picks of Matthew Halbower’s Pentwater Capital Management. For details about Mr. Halbower and his investment firm, head on over to the Top 10 Stock Picks of Matthew Halbower’s Pentwater Capital Management.
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. (NASDAQ:XLNX) 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. (NASDAQ:XLNX) 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. (NASDAQ:XLNX)’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. (NASDAQ:PPD) 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. (NASDAQ:PPD) shares.
For its third fiscal quarter, PPD, Inc. (NASDAQ:PPD) brought in $1.56 billion in revenue and $0.43 in EPS, beating analyst estimates for both.
PPD, Inc. (NASDAQ:PPD)’s largest shareholder after Pentwater Capital was Israel Englander’s Millennium Management who owned 4.4 million shares worth $206 million.
Mentioning PPD, Inc. (NASDAQ:PPD) 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 (NYSE:KSU) 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 (NYSE:KSU) reported $744 million in revenue and $1.71 in diluted EPS.
Kansas City Southern (NYSE:KSU)’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. (NASDAQ:NUAN) 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. (NASDAQ:NUAN) 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. (NASDAQ:NUAN)’s largest investor. It owns 6.4 million shares worth $355 million.
Rhizome Partners mentioned Nuance Communications Inc. (NASDAQ:NUAN) 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. (NYSE:INFO) 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. (NYSE:INFO) 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. (NYSE:INFO)’s acquisition deal with S&P Global.
IHS Markit Ltd. (NYSE:INFO)’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. (NYSE:INFO) 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.”
Disclosure: None. You can also take a peek at the 15 Biggest Tech Companies In The World and 17 Largest Fintech Companies In The World.
