Billionaire Richard Chilton’s Top Picks Are Already Hitting All-Time Highs

Founded in 1992, Richard Chilton‘s Chilton Investment Company has over $7 billion worth of regulatory assets under its management. During the third quarter the fund boosted its stake in each of its top five equity holdings, expecting a bright future for them in the upcoming quarter. Most of these picks have posted strong gains this year, which makes it worthwhile to take a look at these companies and analyze the catalysts behind them that have caught the billionaire’s attention, which we’ll do in this article.

But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 3-year period beginning from September 2012, returning 102% (read the details here).

#5 Allergan PLC (NYSE:AGN)

 – Shares held (as of September 30): 417,661

 – Total Value (as of September 30): $113.52 million

During the third quarter, Chilton Investment increased its stake in the $122.77 billion Botox maker by 5%. Pfizer Inc. (NYSE:PFE)’s recent announcement that it will be acquiring the Ireland-based Allergan PLC (NYSE:AGN) in a $160 billion deal to take advantage of the company’s domicile when it comes to taxation puts this merger as the largest ever in the healthcare sector. So far this year Allergan’s stock has appreciated by more than 24%. Among the other funds that were bullish on Allergan PLC (NYSE:AGN) during the September quarter is Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital, holding about 593,000 shares of the company at the end of the trimester.

#4 Costco Wholesale Corporation (NASDAQ:COST)

 – Shares held (as of September 30): 794,002

 – Total Value (as of September 30): $114.79 million

Chilton acquired an additional 71,840 shares of the discount retail juggernaut during the third quarter. While the discount stores industry is up by about 2.3% for the year, Costco Wholesale Corporation (NASDAQ:COST)’s shares have appreciated by more than 14% and recently touched an all-time high. The company’s strategy of razor thin margins while heavily relying on memberships is keeping it ahead of the pack. The global membership renewal rate for the most recent quarter stood at 88%, signifying the loyalty of the company’s customers. Legendary investor Warren Buffett of Berkshire Hathaway is the largest stockholder of Costco Wholesale Corporation (NASDAQ:COST) within our database, owning about 4.33 million shares valued at $626.47 million at the end of September.

#3 Sherwin-Williams Co (NYSE:SHW)

 – Shares held (as of September 30): 533,812

 – Total Value (as of September 30): $118.92 million

Chilton hiked its stake in Sherwin-Williams Co (NYSE:SHW) by a hefty 21% during the last quarter. The paint retailer’s stock has surged by more than 27% since the end of October, when it announced its financial results for the third quarter. The company saw record high profitability, as gross profit rose by more than three percentage points year-over-year to 49.9% of sales. This resulted in net income reaching 11.9% of sales, an all-time high for the $25.73 billion company. Its sales also grew by a healthy 4% on an adjusted currency basis. Eric Mindich‘s Eton Park Capital tops our list of Sherwin-Williams Co (NYSE:SHW)’s stockholders, as it owned about 1.12 million shares of the company valued at $248.96 million at the end of the September trimester.

#2 Home Depot Inc (NYSE:HD)

 – Shares held (as of September 30): 1.11 million

 – Total Value (as of September 30): $128.37 million

Chilton Investment was extremely bullish on the home improvement retailer’s prospects, as it bumped its stake in the company by 21% during the July-to-September quarter. The move has served the fund well, as the stock is currently trading at an all-time high after posting 28.3% gains this year. While the improvement in the housing market helped Home Depot Inc (NYSE:HD) beat both the top and bottom line estimates in its financial results for the third quarter, its management’s strategy to focus on online sales and margin expansion were also vital components of its strong quarterly performance. Digital sales rose by 25% year-over-year during the last trimester and now comprise 5.1% of the company’s top line. Operating margin jumped by two percentage points to 14%, which compares extremely favorably to its main competitors Lowe’s Companies, Inc. (NYSE:LOW) and Target Corporation (NYSE:TGT) having respective operating margins of about 9% and 7.5%. Fisher Asset Management, which is led by billionaire Ken Fisher, owned about 8.38 million shares of Home Depot Inc (NYSE:HD) at the end of September.

#1 W. R. Grace & Co (NYSE:GRA)

 – Shares held (as of September 30): 1.95 million

 – Total Value (as of September 30): $181.58 million

A total of about 2,500 shares were added to Chilton’s W. R. Grace & Co (NYSE:GRA) position during the third trimester. The $6.87 billion specialty chemicals company has seen its stock rise by 2.55% so far this year, which is much better than the 2.43% losses posted by the chemicals industry during the same period. While W. R. Grace & Co (NYSE:GRA)’s third quarter EPS of $1.37 beat estimates by $0.17, its quarterly revenue of $790.1 million missed the expected mark by $10.8 million. David Cohen and Harold Levy‘s Iridian Asset Management is another large stockholder of W. R. Grace & Co (NYSE:GRA), as it owned some 6.34 million shares of the company at the end of the last quarter.

Disclosure: None