In this article, we discussed how billionaire Jorge Paulo Lemann adjusted his stock portfolio in 2020 to generate big gains and also took a look at billionaire Jorge Paulo Lemann’s top 10 stock picks for 2021.
The Brazilian billionaire Jorge Paulo Lemann continues impressing investors with his market-beating portfolio management strategies. His equity investment firm 3G Capital generated robust gains in 2020 amid investments in information technology and consumer discretionary stocks. 3G Capital, which also invests alongside Warren Buffett, has extended its strategy of holding major positions in high growth stocks in 2021 despite investors’ shift towards value stocks. The firm created only two small stock positions in the latest quarter and added to its two existing positions. The Brazilian investor’s group, which was behind Kraft Heinz, Burger King and Tim Hortons, has been delaying big investments amid higher valuations, according to a Financial Times report. 3G is currently sitting on about $10 billion of deployable funds.
The firm ended the December quarter with $24 billion in assets under management and $119 million in 13F stock portfolio. Lemann is the founder of investment firm 3G Capital and a major shareholder in Anheuser-Busch InBev, Kraft Heinz (NYSE: KRFT), as well as Burger King and Tim Horton parent Restaurant Brands International.
He recently decided to step down from the Kraft Heinz board due to personal reasons. He had created Kraft Heinz through a merger in 2015 by teaming up with Buffett. His investment firm 3G capital had exited a stake in the food and beverage company last year. 3G Capital and Warrens Buffett’s bet on Kraft Heinz was didn’t go as expected. Buffett admitted that he paid a bigger price for Kraft. “I made a mistake in the Kraft purchase in terms of paying too much,” Buffett said. Besides that, Lemann successfully completed several biggest consumer deals during the last two decades and his firm has a history of securing a large amount of debt from lenders on top of the fund’s own cash to support mega deals.
Billionaire Jorge Paulo Lemann has a keen eye on the market and he knows how to make gains from changing market trends. This is clearly reflecting in a shift in his investment strategy last year. He slashed stakes in communications stocks to just over 4% of the overall portfolio at the end of Q4 2020 compared to almost 70% of portfolio weighting in the year-ago period. Moreover, he also took advantage of users’ shift to online payments platforms by initiating a big position in Square (NASDAQ: SQ). The billionaire investor also bought shares of a few start-ups including Snowflake Inc. (NASDAQ: SNOW) and nCino, Inc (NASDAQ: NCNO). On the other hand, the firm sold out Fastly Inc (NYSE: FSLY) position during the final quarter of 2020 to capitalize on its share price gains.
While Jorge Paulo Lemann’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let start examining billionaire Jorge Paulo Lemann’s top 10 stock picks to see whether his stock selection would beat the broader market returns in 2021. Billionaire Jorge Paulo Lemann’s top 10 stock picks represent 95.78% of his fund’s 13F portfolio.
10. Coupa Software Incorporated (NASDAQ: COUP)
3G Capital initiated a position in Coupa Software Incorporated (NASDAQ: COUP) during the December quarter by purchasing 1000 shares valued at $3.3 million. Shares of Coupa Software fell sharply since the beginning of this year due to investors’ move towards value stocks. Despite the latest selloff, Coupa stock price is still up 75% in the last twelve months. The company has generated year-over-year revenue growth of 47% in Q4 with a surprise profit of $0.17 per share.
Artisan Partners Limited Partnership, a high value-added investment management firm, highlighted a few stocks including Coupa Software in their Q4 investors’ letter. Here is what Artisan Partners Limited Partnership stated:
“We started new investment campaigns in Coupa Software. Coupa is a leading provider of cloud-based business spend-management software. The company helps 1,400 customers process over $2 trillion in annual spend across more than 5 million suppliers. While this quarter’s announcement of a major new customer win at Walmart shows it still has a long runway for growth in this business, we are particularly excited about Coupa Pay—a recently introduced set of cloud services that seeks to process B2B payments (not just invoices) across its large network. B2B payments has seen far less innovation in recent years compared to B2C (PayPal, Venmo, Square), but we see it as a major opportunity in the years ahead.”
9. ZoomInfo Technologies Inc. (NASDAQ: ZI)
Billionaire Jorge Paulo Lemann’s strategy of initiating a position in the go-to-market data intelligence platform ZoomInfo Technologies Inc. (NASDAQ: ZI) worked for his investment firm in 2020. Despite ZoomInfo stock price underperformance year to date, its future fundamentals look strong amid robust financial growth. Its December quarter revenue grew 50% year over year and the company expects 2021 revenue in the range of $645 million-$655 million compared to expectations for $602.1 million.
In a Q3 investor letter, Baron Asset Fund painted a rosy outlook for ZoomInfo Technologies. Here is what Baron Asset Fund stated:
“ZoomInfo Technologies Inc. operates a cloud-based software platform that provides sales and marketing teams with comprehensive intelligence on approximately 14 million companies and 120 million professionals. Access to this valuable data enables its clients to shorten their sales cycles and achieve higher win rates. The company’s shares declined, given a somewhat uncertain spending environment among its clients. We retain conviction in the long-term opportunity, and we believe the spending environment has since improved. We think ZoomInfo is well positioned given its unique contributory network for data collection and validation, patented data extraction technologies, and proprietary go-to-market strategy.”
8. Microsoft Corporation (NASDAQ: MSFT)
The technology giant Microsoft Corporation (NASDAQ: MSFT) has been a permanent member of 3G Capital’s portfolio since 2015. It is ranked eighth in the list of billionaire Jorge Paulo Lemann’s top 10 stock picks. Shares of Microsoft have extended the upside momentum in 2021, enlarging the twelve months gains to almost 70%.
Bretton Fund, which returned 11.52% for the fourth quarter, highlighted a few stocks including Microsoft in the Q4 investor letter. Here is what Bretton Fund stated:
“Microsoft’s stock also had a great year, returning 42.4% on increased earnings per share of 30%. The main driver of their growth in recent years is their cloud computing business, and while it did see a bump in demand as office workers went remote, most of the growth is from the continued shift of corporate computing systems to “the cloud.” We think this shift is still in its early stages.”
7. Amazon.com, Inc. (NASDAQ: AMZN)
The Brazilian billionaire’s strategy of buying Amazon (NASDAQ: AMZN) shares at the beginning of 2020 helped in generating strong returns during the pandemic year. However, Amazon’s stock price underperformed so far in 2021 due to valuation concerns. Its stock price rallied more than 70% in 2020 on the back of significant growth in revenues. The company generated $125 billion in December quarter revenue.
Mairs & Power, an investment management firm, stated in a Q4 investor letter that Amazon’s rising margins and advertising business are among the catalysts. Here is what Mairs & Power stated:
“We did acquire AMZN in the fourth quarter. But not owning it till then cost the Fund in performance relative to the S&P 500 TR Index. We had held off taking a position in Amazon largely due to concerns about the company’s slim margins. But in 2020, we saw its core margins nearly double as more consumers shopped online, which in turn led to greater utilization and route density within Amazon’s delivery network. In addition, Amazon’s advertising business, which represents a small portion of its overall sales, has been growing quickly. Advertising could become a third leg of growth for the company along with e-commerce and Amazon Web Services. In short, Amazon checks all of our boxes — it has a strong management team, great growth prospects, and a strong competitive advantage. And last year, we initiated our position at an intriguing valuation.”
6. ServiceNow, Inc. (NYSE: NOW)
3G Capital benefited from its position in ServiceNow, Inc. (NYSE: NOW) last year but shares of software systems provider fell more than 14% so far in 2021. It is the sixth-largest stock holding of billionaire Jorge Paulo Lemann’s portfolio, representing 6.70% of the 13F portfolio. The firm first bought ServiceNow during the first quarter of 2020.
ServiceNow was in 96 hedge funds’ portfolios at the end of December compared to the previous all-time high for this statistic of 92. Our calculations also showed that NOW ranked 25th among the 30 most popular stocks among hedge funds (click for Q4 rankings).
5. Square, Inc. (NYSE: SQ)
Billionaire Jorge Paulo Lemann first initiated a position payment technology company Square Inc during the second quarter of 2020. Shares of Square are in the green in 2021 after generating more than 450% growth last year. It was among the biggest contributor to 3G Capital’s performance in the pandemic year. Square is ranked at the fifth spot in the list of billionaire Jorge Paulo Lemann’s top 10 stock picks.
Blue Hawk Investment Group, an investment management firm, highlighted a few stocks including Square in a Q4 investor letter. Here is what Blue Hawk Investment stated:
“Square was the next top contributor and ended the year as the third largest holding in the portfolio. Square was a new addition to the portfolio in 2020 and added 436 bps to performance since it was first bought in the summer. It is still our third-largest holding. “
4. Snowflake Inc. (NASDAQ: SNOW)
Like Warren Buffett and several other big investors, Billionaire Jorge Paulo Lemann bought Snowflake Inc. shares on its initial public offerings. Shares of the cloud-based data platform provider rallied in Q4, but failed to sustain gains in 2021. SNOW stock price is down 21% year to date.
In a Q3 investor letter, Baron Opportunity Fund made bullish comments about Snowflake’s fundamentals. Here is what Baron Opportunity Fund said:
“Snowflake Inc. provides a data-warehouse platform for large-scale data analytics and storage. The company is leveraging its cloud-native architecture to offer low-cost storage, scalability, and ease of use that are lacking in many competitive solutions. We participated in the company’s September IPO and the stock has performed well in the after-market. We believe Snowflake has a significant growth runway within its large addressable market given its differentiated technology, platform approach, and highly experienced management team. Snowflake’s CEO Frank Slootman and CFO Michael Scarpelli have successfully partnered at several public technology companies, including ServiceNow, a long-term Fund investment.”
3. Bill.com Holdings, Inc. (NYSE: BILL)
Shares of Bill.com Holdings, Inc. (NYSE: BILL) rose 287% in the last twelve months, thanks to substantial growth in revenues. Its December quarter revenue jumped 38% year over year and the company expects to sustain the momentum in 2021. 3G Capital first initiated a position in Bill.com during the first quarter of 2020. It was the third-largest stock holding of 3G Capital at the end of Q4, accounting for 16.05% of the 13F portfolio.
Bill.com Holdings was in 52 hedge funds’ portfolios at the end of the fourth quarter of 2020 up from 44 positions in the previous quarter.
2. Sea Limited (NYSE: SE)
Billionaire Jorge Paulo Lemann looks bullish over the future fundamentals of Sea Limited (NYSE: SE). His investment firm had raised a stake in Sea Limited during the fourth quarter by 7% to 17.55% of the overall portfolio. The firm first initiated a position in SE at the beginning of 2020. It appears that Jorge Paulo Lemann’s stock-picking strategy worked in the case of Sea Limited. This is because shares of the information technology company rallied 465% in the last twelve months.
Tao Value, which posted a return of 26.43% for the fourth quarter, highlighted a few stocks including Sea Limited in their investor letter. Here is what Tao Value stated:
“Sea Ltd. (ticker: SE) had a beat & raise quarter across segments. E-commerce saw GMV acceleration and better monetization. Gaming saw higher than expected active users’ growth. Last but least, the digital finance services arm (SeaMoney) saw strong adoption. In October, more than 30% of Shopee’s total gross order across markets combined were paid using the mobile wallets. I believe the SeaMoney will be a very important value driver in mid-term future.”
1. Carvana Co. (NYSE: CVNA)
Shares of Carvana Co. (NYSE: CVNA) surged more than 800% in the last twelve months amid investors increased confidence in its e-commerce platform of buying and selling used cars in the United States. It is the largest stock holding of 3G Capital. The firm increased its stake in Carvana by 33% in the December quarter to 20.11% of the overall portfolio.
ShawSpring Partners, a value-focused investment firm, claimed in their investor letter that Carvana’s stock price is overvalued. Here is what ShawSpring Partners stated:
“We made the decision to exit our investment in Carvana. Over our two-year holding period, we generated an internal rate of return of 114%. Our exit decision is unrelated to a change in our assessment of Carvana’s business quality, long-term opportunity, or management team. Instead, our rationale was based on our internal estimate of Carvana’s valuation, and our forecast for prospective returns. We continue to believe in the strength of Carvana’s vertically-integrated business model, and the superior customer proposition Carvana provides to used-car buyers. While we have no doubts that Carvana will remain a great business, we believe that at Carvana’s current valuation, it makes sense to shift our attention towards other equally fantastic businesses which have long growth runways less appreciated by the market. We will continue to follow the company’s progress closely and expect to take advantage of any dislocations that may cause Carvana’s expected return to meet our high hurdle rate for re-investment.”
You can also take a peek at Billionaire Ken Griffin’s Top 10 Stock Picks and Billionaire Nicholas Pritzker’s Tao Capital’s Best Stock Ideas.
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This article is originally published at Insider Monkey.
