Billionaire Richard Chilton’s Latest Stock Picks

Richard Chilton, the founder and manager of Chilton Investment Company, has a net worth of about $1.3 billion. We track 13F filings by billionaire hedge fund managers and other notable investors because these filings provide the most complete public picture as to what these market players are thinking (though they are limited, notably in the sense that they do not include short positions). Chilton recently filed its 13F for the third quarter of the year, ending in September 2012. Read on for some moves that we’ve identified in Chilton’s investment activity and review the fund's previous filings.

CHILTON INVESTMENT COMPANY

Taking some profits on construction. Two of Chilton’s three top picks at the end of June had a strong relationship to construction- The Home Depot, Inc. (NYSE:HD) and paint and finish manufacturer Sherwin-Williams Company (NYSE:SHW)- and while those stocks remained near the top of the fund’s portfolio it sold shares in each during the third quarter. Home Depot’s stock price has risen 62% in the last 52 weeks, so it’s perhaps understandable that the fund would want to lock in some of those profits. Interestingly, earnings have shown little response to improvement in the homebuilding and construction industries and Home Depot now trades at 22 times trailing earnings and 18 times forward earnings estimates. Phil Gross and Robert Atchinson’s Adage Capital Management had owned a large position in Home Depot during the second quarter. We think that we’d avoid the stock at least until we start seeing better business performance. Sherwin-Williams, like Home Depot, is up over 60% in the last year. Earnings have been rising as well- up 31% last quarter compared to the third quarter of 2011- though revenue growth has been much lighter. At a trailing P/E multiples of 28, we wouldn’t buy that stock either and it may even be overvalued.

W.R. Grace. Chilton initiated a position of 1.4 million shares in $4.7 billion market cap specialty chemicals company W.R. Grace & Co. (NYSE:GRA), which is perhaps best known for providing catalysts that are used to convert oil products into fuels such as gasoline. The stock is up 55% in the last year, but the trailing P/E multiple is only 17 as the business has kept pace; we’d note, however, that many other specialty chemicals companies carry significantly cheaper multiples. We’d have to look at the company’s growth more closely to see if it deserves a premium relative to its peers.

Selling some Vivus. Vivus, Inc. (NASDAQ:VVUS), a pharmaceutical company which is being watched closely for its potential to bring an effective (though risky) weight loss drug to market, saw Chilton reduce its stake from 3.4 million shares to 2.9 million. Vivus- as a development stage pharmaceutical company- has been unprofitable thus far though the weight loss market is huge and Vivus has the potential to make a good deal of money as long as its drug is not outcompeted by emerging competitors such as that being developed by Arena Pharmaceuticals. Read our most recent analysis of Vivus.

Dollar General. Chilton slightly increased the size of its position in Dollar General Corp. (NYSE:DG) and closed September with 1.7 million shares in its portfolio. As might be expected of a dollar store, Dollar General has very little exposure to the broader economy with a beta of 0.1. It’s also been doing quite well during a period of fairly low growth in the U.S. as earnings in its most recent quarter came in 47% higher than in the same period a year earlier. At a market capitalization of $16 billion, it now has earnings multiples in the teens on both a trailing and a forward basis. While we’d expect its growth rate to slow to some degree, even moderate growth would make it a buy at these levels and so we’d be interested in examining Dollar General.

Home Depot and Sherwin-Williams don’t look like buys at these valuations, and so we can understand Chilton selling shares there. W.R. Grace and Dollar General could potentially be good buys, even though they’re not notably cheap and investors should review the companies before making any investment decisions.

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