In this article, we discuss Billionaire Richard Chilton’s Top 10 Stock Picks. You can skip our discussion about Chilton’s investment philosophy, his hedge fund’s gains and history and go directly to Billionaire Richard Chilton’s Top 5 Stock Picks.
Richard L. Chilton, Jr. established Chilton Investment Company in 1992 with the strategy of generating attractive returns by investing in low volatility stocks. Chilton’s hedge fund prefers holding stocks for a long term to enjoy dividends and steady growth. The fund’s top ten stock holdings account for more than half of its overall 13F portfolio value.
However, it doesn’t mean the firm falls in love with stocks blindly. A veteran of Merrill Lynch, Alliance Capital, and Allen & Company, Chilton seeks to adjust portfolios according to the market trends.
For instance, the hedge fund initiated a position in 13 stocks and added to its 70 existing positions during the September quarter while it exited position from 11 stocks and reduced its stake in 42 stocks.
Billionaire Richard L. Chilton’s strategy of holding a position for a long time worked over the last three decades. His hedge fund’s compound annual return remains in the teen-digit territory since inception. Its Flagship Strategy fund returned an 18.57% in 2013, 13.99% in 2015 and 12.18% in 2018. The hedge fund saw only a few down years in its history, with the most recent loss of 13.66% in 2016.
Chilton Investment Company’s strategy of diversifying its investments across several sectors has been paying off. The materials sector accounted for 18% of the overall portfolio at the end of the September quarter while the billionaire investor also looks bullish on the consumer discretionary stocks. He also seeks to take advantage of robust growth in the information technology sector. Finance and industrial sectors accounted for 13% and 10% of the overall portfolio at the end of the September quarter.
Chilton has a Bachelor of Science degree in Finance and Economics from Alfred University. He grew up in New Jersey.
While Richard Chilton’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 78 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. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start examining billionaire Richard Chilton’s top 10 stock picks to determine whether Chilton Investment Company has extended its winning track record in 2020 and how its stock positions would perform in 2021. We used Chilton Investment’s 13F data disclosed for the third quarter of 2020.
10. Mettler-Toledo International Inc. (NYSE: MTD)
Chilton Investment Company has been holding a position in Mettler-Toledo International Inc. (NYSE: MTD) since 2016 and it appears that the hedge fund has gained from its investment. This is because shares of MTD rallied more than 290% in the past five years and 60% in the last twelve months. It is the tenth-largest stock holding of Chilton’s hedge fund, accounting for 3.46% of the overall 13F portfolio.
Baron Asset Fund, which returned 8.43% for the third quarter, said in their investor letter that Mettler-Toledo International is a smart long-term buy. Here is what Baron Asset Fund stated:
“Mettler-Toledo International, Inc. is the world’s largest provider of weighing instruments for use in laboratory, industrial, and food retailing applications. Shares contributed to performance after reporting second-quarter results with sales and earnings, as well as reinstated 2020 guidance, ahead of investor expectations. We continue to believe Mettler is an exceptionally well-managed business with multiple levers available, including demonstrated pricing power, to compound earnings at attractive rates.”
9. Republic Services, Inc. (NYSE: RSG)
The hedge fund has also benefited from its big stake in Republic Services, Inc. (NYSE: RSG). Shares of environmental and facilities services provider rallied 110% in the past five years despite underperformance in the last twelve months. However, Chilton Investment saw the underperformance as a buying opportunity. The firm has raised its stake by 9% in the September quarter to 3.67% of the overall portfolio.
In addition to share price performance, Chilton Investment has also been bagging big dividends from Republic Services. The company has raised its dividends in the last seventeen successive years. It currently offers a quarterly dividend of $0.42 per share, yielding around 1.85%.
8. Cintas Corporation (NASDAQ: CTAS)
The hedge fund initiated a position in Cintas Corporation (NASDAQ: CTAS) in 2018. Cintas’ share price grew 18% in the last twelve months while shares are up 288% in the past five years.
Diamond Hill Capital said in an investor’s letter that Cintas is likely to see a negative impact of the pandemic. Here is what Diamond Hill Capital stated:
“Cintas Corp. provides U.S. businesses with uniform rental services and restroom cleaning, first aid, safety, and fire protection goods and services. We re-initiated a short position in Cintas as we believe the stock price does not reflect the likelihood its results will be hard hit by increases in unemployment caused by the COVID-19 pandemic.”
7. Costco Wholesale Corporation (NASDAQ: COST)
Costco Wholesale Corporation (NASDAQ: COST) is the long-running stock holding of Chilton Investment Company. The firm first initiated a position in COST in 2010 and it currently accounts for 4.48% of the overall portfolio. Costco’s stock price surged 16% in the last twelve months, extending the ten years gains to 400%.
“For those not signed up for Amazon Prime, there’s still Costco, another firm in an enviable position when consumers are stocking for hard times.”
6. Union Pacific Corporation (NYSE: UNP)
Billionaire Chilton’s strategy of holding a position in Union Pacific Corporation (NYSE: UNP) worked for the hedge fund in 2020. The hedge fund first initiated a stake in Union Pacific in 2011 and it accounted for 4.64% of the overall portfolio at the end of the September quarter. Union Pacific stock price rose 20% in the last twelve months, extending the five years gains to 187%.
Its December quarter revenue of $5.14 billion fell 1.3% year over year but topped the consensus estimate by $40 million.
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