Keith Meister, the founder and CIO of the activist hedge fund Corvex Management recently shared his views on the current market state. More precisely he discussed the volatility in the markets and the future of the US economy. Before we get into the details from the CNBC’s “Squawk Box” program where he was a guest, let’s just briefly report on his background. Keith Meister was activist investor Carl Icahn’s right hand before he launched his own investment firm. Naturally, he is also an activist investor, and his views on activism were also discussed in this program. He founded Corvex Capital, seven years ago with seed capital from Goerge Soros in the amount of $250 million. Keith Meister holds a BS in Economics from the University of Pennsylvania and AB in Government, Cum Laude from Harvard College.
While discussing these turbulent market times, Keith Meister said that businesses are doing much better than the stocks, that the economy is overall good, but when it comes to sectors where the profits lay, changes happen; investors should seek assets that have real growth. When asked what sectors he thinks have the most potential, he talked about the businesses tied to enterprise software. “In an economy that may grow at 2 or 3%, there’s gonna be real winners and real losers”. Keith Meister recommends investors to “do what you do really well”, to use their unique skills and talents because if they don’t find a way to stand out from the investor crowd they are probably going to be replaced by a computer at one point. He advised investors to support businesses they have faith in and to leave stock trading to computers. In relation to computer trading, after Keith Meister’s appearance, billionaire Leon Cooperman was a guest on another CNBC’s program and shared his views on this topic (you can read about Leon Cooperman’s perspective in the article Billionaire Leon Cooperman’s New Stock Picks).
A word on activism – Keith Meister said: “what I really think active investing is people acting like business owners in the public markets”. He further explained that the media likes to present it as good guys fighting bad guys, but he thinks of it more as of people acting together as business partners. Keith Meister further exemplified Yum! Brands, Inc. (NYSE:YUM), and said they didn’t invest in it thinking David Novak was a not a good CEO, on the contrary, they had faith both in David and the management team, and just wanted to help the company with their ideas to improve the business for the benefit of both sides.
He further talked about China’s unfair trading practices, which he thinks need to be resolved and that the administration has started taking care of it, but we need to be patient, as “we probably kicked the can too long”. Keith Meister explained that this is a very complex problem, and that we can expect constant “swings from hope to fear as to whether this gets resolved”, but he has hopes on it to get resolved.
Let’s take a peek at his fund’s portfolio and count the top five stock picks in it.
The most valuable position the fund had at the end of the third quarter was in Energen Corporation (NYSE: EGN), which occupied 27.27% of its equity portfolio. Its position counted 6.90 million shares, worth around $594.79 million. In the meantime, the company was acquired by Diamondback Energy, Inc., hence the fund holds no more Energen Corporation’s shares. The second largest stake, and probably currently the biggest one, was in Mohawk Industries, Inc. (NYSE:MHK) one of the world’s largest flooring companies, in which the fund invested around $146.66 million, as it has obtained 836,374 shares. Over the past six months, the company’s stock lost 41.44% and it is currently trading at $120.26, whereas the number of investors from our database who were long the stock inched up by 3 recently, counting 46 hedge funds at the end of the third quarter.
Microsoft Corporation (NASDAQ:MSFT) was the company in which the fund had the third largest stake at the end of the third quarter. It is also the most popular company among hedge funds in the third quarter (take a look at the list 30 most popular stocks among hedge funds in Q3 of 2018). The fund held 1.04 million shares of this software giant, which were valued $118.59 million. Year to date, the company’s stock price gained 24.65%, and it is now trading at $106.61. Smart money investors from Insider Monkey’s table have also become more bullish on Microsoft, and there were 170 hedge funds long the stock, up from 161 in the previous quarter.
Next in line of Corvex Management’s big investments is MGM Resorts International (NYSE:MGM), a global hospitality and entertainment company that runs various resorts. On September 30, the fund held 3.90 million MGM Resorts’ shares with a value of $108.91 million. Over the past twelve months, the company’s stock price dropped by 20% and it is currently trading at $26.67. There were 49 investors bullish on this stock at the end of the third quarter, compared to 51 in the previous quarter.
The fifth largest stake in the fund’s portfolio on September 30 was in Facebook, Inc. Common Stock (NASDAQ:FB), and it counted 631,000 shares valued $103.77 million. Over the past six months, Facebook stock price went down by 26.5% and at the moment of writing, it is trading at $138.30. It seems that hedge funds are losing optimism for Facebook as the number of long investors dropped to 164 during the third quarter, from 193 in the previous quarter.
Insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by 6 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update. They are down about 8% since our update.
Disclosure: None. This article was originally published at Insider Monkey.