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Billionaire Ken Griffin’s Favorite Stocks

CITADEL INVESTMENT GROUPKen Griffin is the founder and CEO of Chicago-based Citadel and has risen to become a prominent member of the Chicago philanthropy and art scene. Citadel manages $11 billion (peak assets were $20 billion in mid-2008). Last year, Griffin’s hedge funds, Kensington and Wellington, generated net returns over 20%, clawing back some of the losses from 2008 that were over 50 percent. He also sold Citadel’s investment banking unit to Wells Fargo, delaying the vision of building a full-service financial institution.

Griffin spent most of his youth in Boca Raton, Florida and began investing at Harvard, convincing the school to let him install a satellite dish so he could receive stock quotes. His earlier investment strategy took advantage of inefficiencies in the convertible bond market. It is reported that Griffin launched his first fund with $265,000, some of which was from his grandmother, making out like a bandit from short positions when the market crashed in October 1987. After graduating from Harvard in 1989, Griffin moved to Chicago to work with Frank Meyer, who ran Glenwood Capital Investments. The following year, Meyer helped Griffin raise ~$4.6 million to start up Citadel Investment Group. Citadel grew rapidly, buying up several distressed assets. One high-profile investment was Citadel buying Amaranth Advisors’ positions at a heavy discount when it got caught on the wrong side of its natural gas bet in 2006.

Griffin’s wife, Anne Dias, is no trophy wife either, running the hedge fund, Aragon Global Management, among the largest hedge funds run by a woman. Together, Griffin and his wife have made a lasting impression on the Chicago arts scene, donating $19 million for the Modern Wing at the Art Institute. Griffin sits on the boards of the Museum of Contemporary Art and the Art Institute of Chicago. The pair has also been active in political donations, giving more than $3 million to candidates and political action committees.

Top 10 Holdings:

Company

Ticker Value ($000s) Activity
APPLE INC (put) AAPL 4,544,762 50%
APPLE INC (call) AAPL 4,490,150 54%
APPLE INC AAPL 1,365,004 -19%
GOOGLE INC (call) GOOG 521,713 -25%
GOOGLE INC (put) GOOG 506,580 -10%
PRICELINE COM INC (put) PCLN 356,813 36%
E TRADE FINANCIAL CORP ETFC 300,315 0%
PRICELINE COM INC (call) PCLN 296,256 15%
ORACLE CORP ORCL 231,450 927%
NIKE INC NKE 213,565 130%

It’s difficult to tell what options strategies Citadel is employing around highly liquid tech large caps Apple (NASDAQ:APPL), Google (GOOG), and Priceline (PCLN) without additional information but what is clear is his bullishness on Oracle (NASDAQ:ORCL) and Nike (NKE). Year-to-date, ORCL has been flat. And while we see more potential in ORCL over Red Hat (NYSE:RHT), SAP (NYSE:SAP), and Microsoft (NASDAQ:MSFT), we think that BMC Software (BMC) has some interesting upcoming catalysts with Elliott Associates having disclosed that it purchased a 5% stake in the company. We are interested in seeing what actions Elliott plans to take with the company. Oracle trades at 10.3x 2013 earnings, RHT at 37.9x, MSFT at 9.5x, and SAP at 15.9x, but with ORCL Cloud going live earlier this week, the stock could get the bump it deserves. Oracle Cloud is the company’s formal entry into the cloud services market. Before the official launch this week, Oracle Public Cloud had limited availability as of November last year. Also introduced was Oracle Cloud Social Services, an enterprise social platform that has been improved with the acquisition of Vitrue and Collective Intellect. This will compete with Amazon (AMZN) Web Services, Microsoft’s System Center and Azure, and VMware (vCloud). ORCL’s announcement is on the heels of RHT’s announcement of the general availability of CloudForms. We note that RHT is playing some catch-up here and do not expect near-term earnings contribution until the company successful gets attention from open source developers who are probably using OpenStack now.

Nike is moderately popular among hedge funds. There were 32 hedge funds with bullish NKE bets at the end of the third quarter. Billionaire Steve Cohen had more than $100 million in bullish NKE positions as well. The stock’s trailing PE ratio is almost 21 and forward PE ratio is north of 17. This is too rich for our taste despite Nike’s wide moat in its industry. We prefer a long position in Apple which has a higher growth rate and lower PE ratio. Apple’s clients are also as loyal as Nike’s. We think Apple can double in market value over the next 3 years. Apple is also the most popular stock among hedge funds.

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