Billionaire Paul Singer’s Top 10 Stock Picks

In this article, we presented billionaire Paul Singer’s top 10 stock picks that helped in generating double-digit returns in 2020.

Billionaire Paul Singer’s hedge fund Elliott Investment Management underperformed compared to the broader market in 2020 but the firm still managed to generate a 12.7% return on its investments, which it marks as one of the best returns in the past decade, according to an investor letter. Elliott Management remained profitable throughout the pandemic year and it has generated positive returns every month even in March when stocks markets collapsed at a historic pace.

Founded in 1977 by Paul Singer, The New York-based hedge fund, also generated low double-digit returns from its international and onshore funds. Paul Singer has early predicted quarantine and coronavirus related disruptions. In an internal memo on February 1, he warned employees to “make arrangements so that you do not have to leave your home for a month if that becomes necessary.”

Although Elliott has been diversifying its investments across a variety of assets, it is famous for its activist positions. The firm has pushed for changes at companies like SoftBank, Twitter (NYSE: TWTR), and AT&T (NYSE: T).

Billionaire Paul Singer took almost 16 new activist positions in 2020. Elliott has also been popular for creating a stake in small companies and then finding cash-rich private equity funds seeking acquisitions. The firm also offered to buy small companies instead of finding other buyers.

Paul Singer of Elliott Management

For instance, Elliott took a stake in software company Novell in 2010 and then offered to buy the entire equity stake for $1 billion. Similarly in 2012, the firm initiated an 8% stake in Compuware and then presented an offer to buy the company.  It took a stake in BMC, Riverbed, and Informatica in the following years, and all these small companies were acquired by other big players.

However, in the past few years, the firm has slightly shifted its strategy of investing in small companies. It is now targeting bigger tech firms. eBay (NASDAQ: EBAY) has divested its Stubhub business after Elliott’s advice and the firm also criticized Twitter CEO Jack Dorsey for keeping a key position in Twitter and Square (NYSE: SQ).

Nevertheless, the firm’s strategy of investing in high growth companies from information technology and consumer discretionary sectors helped in generating one of the best returns of this decade. The information technology sector accounted for 38% of its overall 13F portfolio while consumer discretionary represented over 12% of the portfolio. The hedge fund also likes to invest in the material, industrial, and communications sectors.

While Paul Singer’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 88 percentage points since March 2017 (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 16. 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’s start our countdown on billionaire Paul Singer’s top 10 stock picks to see the contribution from each stock to overall returns. Its top 10 stock holdings account for 72% of the overall 13F portfolio.

10. Noble Energy (NYSE: NBL)

Billionaire Paul Singer’s hedge fund has initiated a big position in struggling Noble Energy (NYSE: NBL) during the September quarter and the company was acquired by energy giant Chevron Corporation (NYSE: CVX) in July for $5 billion in a stock swap. Shareholders of Noble have received 0.1191 shares of Chevron for each Noble share, representing a per Noble share of $10.38.

Elliot Investment Management had bought 15.7 million shares of Noble Energy at an average estimated price of $8.55 per share.

9. Twitter, Inc. (NYSE: TWTR)

The New York-based hedge fund’s strategy of initiating a position in Twitter, Inc. during the first quarter of 2020 helped in generating positive returns for 2020. Shares of social media company rallied almost 66% in the last twelve months, thanks to staying at home policies.

Carillon Eagle Mid Cap Growth Fund has highlighted strong confidence in Twitter in an investor’s letter. Here is what Carillon Eagle Mid Cap Growth Fund stated:

“Twitter’s user count continues to accelerate due to the global stay-at-home situation as well as the numerous positive changes the company has introduced on the platform in order to keep users engaged. The addition of various topics and lists along with the expansion of video have led to more users joining the platform and kept existing users more engaged. We believe the next positive development on the horizon could come from the company’s ability to increase the monetization of these users.”

8. Arconic Corporation (NYSE: ARNC)

Elliot Investment Management has initiated a position in aluminum manufacturer Arconic Corporation (NYSE: ARNC) during the second quarter when its shares were under pressure. The hedge fund’s strategy worked because shares of Arconic Corporation rallied almost 200% in the last nine months.

The share price rally is backed by improvement in aluminum prices and stronger than expected financial results. Arconic generated $1.42 billion in third-quarter revenue, up 19% from the previous quarter. The company expects 2020 revenue in the range of $5.7 billion. Aluminum prices jumped close to 30% since last April.

“The steps we took to strengthen our financial position combined with the strong recovery of automotive demand and our employees’ hard work enabled us to end the temporary salary reductions and reinstate the 401k match for all impacted employees. While there is uncertainty in the global economy, we demonstrated our agility in responding to challenges quickly and effectively. I appreciate the sacrifices made by our employees and I’m grateful for their continued commitment during these last two quarters to strengthen our company,” Tim Myers, Chief Executive Officer said.

7. Uniti Group Inc. (NASDAQ: UNIT)

The real estate investment trust Uniti Group Inc. (NASDAQ: UNIT) also performed well in 2020 and helped the hedge fund to generate one of the best returns in a decade. Elliot has created a position in Uniti Group during the third quarter of 2020 by purchasing 20.4 million shares for $215 million. Shares of Uniti Group grew 30% in the last three months, outperforming S&P 500 growth of 12% during the same time.

Besides share price gains, Uniti has also been returning cash in the form of dividends. It currently offers a hefty dividend yield of 5%. The company expects 2020 adjusted EBITDA in the range of $812M-$821M, compared to the consensus estimate for $814.2M.

6. Nielsen Holdings plc (NYSE: NLSN)

The measurement and data analytics company Nielsen Holdings plc (NYSE: NLSN) is the long-running stock holding of billionaire Paul Singer’s 13F portfolio. The hedge fund first initiated a position in Nielsen in 2018 and it appears that Nielsen’s stock underperformed in the past few years. However, shares rebounded slightly in December after the company guided 2021 free cash flow around $580M-$630M, and organic revenue growth of 4.5%.

“With the rapidly evolving landscape and on-going shifts in consumer behavior, it is no longer acceptable to take a siloed approach to our clients’ video plans,” said Doug Ray, CEO, Dentsu Media. “Cross-media measurement is paramount to maximize reach across platforms with the right frequency. We are encouraged by Nielsen’s commitment to a single measurement solution and unified framework that will drive comparability across TV and digital video so that our clients can better allocate dollars and maximize ROI.”

5. Marathon Petroleum Corporation (NYSE: MPC)

Paul Singer’s hedge fund has been holding a position in Marathon Petroleum Corporation (NYSE: MPC) since the second quarter of 2019. Shares of the oil and gas refining and marketing company underperformed in 2020 due to pandemic related disruptions. Its shares are down 11% in the last twelve months.

First Eagle Investment Management had highlighted concerns over Marathon Petroleum Corporation fundamentals due to the pandemic. Here is what First Eagle Investment Management stated:

“Pervasive weakness across the energy sector, and in global refining markets and crack spreads specifically, pulled down Marathon Petroleum during the quarter. The stock was further hurt by early-March news that Japanese retailer Seven & i Holdings was scrapping plans to acquire Marathon’s Speedway gas station/convenience stores for $22 billion.”

4. eBay Inc. (NASDAQ: EBAY)

The hedge fund has benefited strongly from its eBay (NASDAQ: EBAY) position that it created at the beginning of 2019. Shares of the e-commerce platform rallied almost 60% in the last twelve months alone. In addition to share price gains, eBay also offers increasing dividends to investors. It has recently raised the quarterly dividend by 12.5% to $0.18 per share.

Steel City Capital, which returned 10% net of fees in 2020, highlighted few stocks including eBay in an investor’s letter. Here is what Steel City Capital stated:

“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like eBay because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors that are attractive in a potentially inflationary environment.

In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full-year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus-related boost.

EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio. Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question. Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”

3. Tesla (NASDAQ: TSLA)

Paul Singer’s hedge fund kept a big convertible debt position in Tesla during the third quarter, accounted for 6.31% of the overall portfolio. The convertible debt position can be exchanged for common stock in the issuing company. He has also hedged its position through Tesla Puts. Tesla is one of the fastest-growing electric vehicle company in the world. It has generated profits in the past six consecutive quarters and plans to deliver 1 million vehicles by 2022.

Last month we shared billionaire Chamath Palihapitiya’s Tesla views in an article. Here is an excerpt:

For Chamath Palihapitiya, Tesla is a distributed energy business and not a mere car company. “They are figuring out how to harness energy, how to store it, and then how to use it in a way to allow humans to be productive”. He also stated that the ‘big disruption’ that’s coming is to power utilities. “There are trillions of dollars of bonds, of CapEx, of value sitting inside the energy generation infrastructure of the world that is going to go upside down and when that goes pear-shaped, Tesla will double and triple again,” he said.

Palihapitaya marked that a person fighting against climate change could potentially be the world’s first ‘trillionaire‘ because delivering clean energy and allowing the world to be sustainable is an ‘incredibly’ important thing to do that will be rewarded by markets and individuals.

“I don’t understand why people are so focused on selling things that work… Let’s just say I owned a billion dollars of Tesla stock, if I sold it now, I’ll have a billion-dollar problem. What do I do with that money?” Palihapitiya pointed out that when things are working, people are paid to stay with certain people that know what they are doing. “This is a guy who has consistently been one of the most important entrepreneurs in the world and so why bet against him?… You get behind these people who have an incredibly strong character, who know what they’re doing, who aren’t going to bend short-term profits and we’re just going to drive the train for 10 or 20 years and make the world a better place”.

2. Howmet Aerospace Inc. (NYSE: HWM)

Howmet Aerospace (NYSE: HWM) is the second-largest stock holding of Paul Singer’s 13F portfolio. Its shares fell 10% in the last twelve months despite some gains at the end of the year. The company’s exposure to the aerospace industry negatively impacted its share price during the pandemic year. Elliot Investment Management is the largest shareholder of Howmet Aerospace.

Howmet Aerospace provides advanced engineered solutions for the aerospace and transportation industries including jet engine components, aerospace fastening systems, and titanium structural parts.

1. Dell Technologies Inc. (DELL)

Billionaire Paul Singer’s position in Dell Technologies Inc. (NYSE: DELL) contributed to its 2020 returns. This is because shares of Dell rallied 55% in the last twelve months as staying at home policies has raised the demand for IT hardware, software, and services solutions worldwide.

Horizon Kinetics highlighted a strong bullish case for Dell Corporation in an investor’s letter. Here is what Horizon Kinetics stated:

“Dell made its fortune disrupting incumbent personal computer makers by employing a lower-cost, direct-to-consumer sales model, and by being willing to sustain a low margin. It is in the process of trying to repeat this strategy. This is through its 64% ownership stake in Pivotal Software Inc. (PVTL), a newly public subsidiary that has a $2.7 billion market capitalization. Its mission is to capture market share in cloud computing by underselling the competition, such as Amazon and Microsoft. It has only $657 million of annual revenue, so obviously it is much smaller than the Amazon and Microsoft cloud divisions, but it has grown by 134% cumulatively in the past 36 months. Pivotal Software operates at a loss. It is fairly well-capitalized and certainly would have access to more capital if required. Consequently, the transformation of cloud computing into a low margin commodity-type business has already commenced, albeit, at a very low level.”