Billionaire Richard Chilton’s Top Stock Picks Include Dollar General Corp. (DG)

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Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds, including billionaire Richard Chilton’s Chilton Investment Company- whose most recent filing discloses positions in Sherwin-Williams Company (NYSE:SHW) and Dollar General Corp. (NYSE:DG).

We’ve found that investors can use 13Fs in a number of ways. First, they provide information which can be helpful in developing investment strategies: the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio using this strategy has outperformed the S&P 500 by 33 percentage points over the last 11 months. Second, even if an investor doesn’t want to blindly follow a manager’s picks these stocks can be useful as initial investment ideas. Read on for our thoughts on the five largest positions in Chilton’s portfolio as of the end of June and compare these picks to previous filings.

The fund’s top pick is still specialty chemicals company W.R. Grace & Co. (NYSE:GRA); the company’s products include “cracking” catalysts used by refiners in the production of transportation fuels. W.R. Grace & Co. (NYSE:GRA)’s earnings rose by nearly 20% last quarter compared to the second quarter of 2012, though sales were actually down slightly and we would be concerned that earnings growth coming entirely from higher net margins is unsustainable. Tiger Cub John Griffin’s Blue Ridge Capital had owned 3 million shares of the stock at the end of the first quarter of 2013 (research more stocks Blue Ridge owned).

CHILTON INVESTMENT COMPANYPaint and coatings manufacturer and retailer Sherwin-Williams Company (NYSE:SHW) was another of Chilton’s favorite stocks. The company has become seen as a way to play the housing market, as paint and finish jobs are common for sellers and flippers of houses as well as for eventual buyers to make desired changes. The stock is up over 130% in the last two years. With moderate growth in the financials, this has resulted in trailing and forward P/Es of 27 and 19 respectively which may be a bit high. Renaissance Technologies, founded by billionaire Jim Simons, had been buying the stock earlier this year (see Renaissance’s stock picks).

Chilton and his team added a small number of shares of Dollar General Corp. (NYSE:DG) since their previous 13F filing for a total of 3.1 million shares. As a dollar store, the company has little exposure to the overall economy and so the stock’s beta is only 0.1. Dollar General Corp. (NYSE:DG) trades at 19 times trailing earnings, so markets have priced in some future growth; profits rose only 3% in its fiscal Q1 (which ended in early May) versus a year earlier. Lone Pine Capital, managed by billionaire and Tiger Cub Stephen Mandel, has been another major shareholder in Dollar General Corp. (NYSE:DG) (find Mandel’s favorite stocks).

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