In this article, we discuss Billionaire Richard Chilton’s Top 10 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.
Richard Chilton of Chilton Investment Company
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%.
Saturna Capital Corporation highlighted a few stocks in their investor letter, and Costco Wholesale Corp (NASDAQ:COST) is one of them. Here is what Saturna Capital Corporation stated:
“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.
5. Mastercard Incorporated (NYSE: MA)
The hedge fund has been holding a position in Mastercard Incorporated (NYSE: MA) over the last eight years. It is the fifth-largest stock holding of billionaire Chilton’s firm. Despite underperformance in 2020, MA stock performed significantly well in the last ten years. Its shares are up 289% in the last five years and grew 1296% in the last ten years.
Del Principe O’Brien Financial Advisors highlighted a few stocks in their investor letter, and that includes Mastercard. Here’s what Del Principe O’Brien Financial Advisors stated:
“The market pullback in the spring gave us a chance to become owners of Mastercard, one of the biggest players in the global payments industry. In the fiscal year 2019, the company processed almost $5 trillion in purchase transactions and holds 29% of the global market share for credit cards and 24% of the global market for debit cards.
In June, Mastercard entered into an agreement to acquire Finicity, a financial data and insight provider, for a purchase price of $825 million. The move is meant to strengthen Mastercard’s existing open banking platform. Open banking is a system that gives third parties, including other banks and tech start-ups that provide financial services (think budgeting apps), digital access to financial data. A user-focused innovation in the banking industry, open banking is thought to be the future of banking. We see an active investment in its open banking platform as a good move for Mastercard toward maintaining its leadership in the global market.”
4. The Home Depot, Inc. (NYSE: HD)
Chilton Investment Company appears to be bullish on The Home Depot, Inc. (NYSE: HD). The hedge fund has been holding a stake in the home improvement retailer over the last ten years. Shares of Home Depot outperformed the broader market in the last twelve months, accelerating ten years gains to 640%.
Ensemble Capital Management stated in an investor’s letter that home improvement spending is likely to remain strong in the months ahead. Here is what Ensemble Capital Management stated:
“A notable detractor from our performance came from our investment in Home Depot. Home Depot reported outstanding results during 2020, with the stock outperforming the S&P 500 for the full year. But after a strong second and third-quarter performance, the stock was down slightly in the fourth quarter, declining approximately 4%. We believe that home improvement spending will remain elevated in the years ahead as housing activity continues to rebound after years of lower than normal rates of Americans moving.”
3. Microsoft Corporation (NASDAQ: MSFT)
The technology giant Microsoft Corporation (NASDAQ: MSFT) is the third-largest stock holding of Chilton Investment Company, as of the end of the third quarter. The firm’s stake in MSFT also helped in generating robust returns over the years. Microsoft’s share price soared close to 40% in the last twelve months and shares are up 351% in the last five years. Moreover, the hedge fund has also received cash in the form of dividends from MSFT.
Wedgewood Partners, which returned 12.2% for the fourth quarter of 2020, highlighted a bullish case for Microsoft Corporation in their investor letter. Here is what Wedgewood Partners stated:
“Microsoft continued to generate solid double-digit top-line, and operating earnings growth. The Company’s all-encompassing portfolio of “hybrid” cloud solutions is compelling for customers as IT organizations vacillate between on-premises and off-premises (and then likely on-premises again). For example, Microsoft 365 has added an array of features to make remote work easier, yet, as customer applications grow in compute intensity, those customers’ on-premises and edge computing topologies retain or grow in importance. Microsoft’s strategic pivot to be more customer-friendly and collaborative will sustain its growth and returns for several more years so we are happy with our position.”
2. Ball Corporation (NYSE: BLL)
The supplier of aluminum packaging products Ball Corporation (NYSE: BLL) has been offering strong dividends and robust share price gains. It is the second-largest stock holding of billionaire Chilton’s hedge fund portfolio, as of the end of the third quarter. Ball Corporation shares price rallied 180% in the past five years and it has topped the S&P 500 index gains in 2020.
Brown Advisory believes that Ball Corporation is a good stock to hold. Here is what Brown Advisory stated in their investor letter:
“Ball Corporation kept our grocery stores stocked while managing through the dramatic worldwide demand shifts from restaurant and bar consumption to in-home. While Brazil is particularly challenging geography, and higher-margin specialty cans made way for more straight-forward production of 6-pack beverages, Ball was able to expand margins on flat sales relative to last year in the same quarter. We maintained our position.”
1. The Sherwin-Williams Company (NYSE: SHW)
Chilton Investment Company has been benefiting from its long-running position in The Sherwin-Williams Company (NYSE: SHW). This is because shares of Sherwin-Williams soared 750% in the past ten years while the company has raised dividends in the past 21 years.
Diamond Hill Capital stated in their investor letter that Sherwin-Williams possess a significant growth potential. Here is what Diamond Hill Capital stated:
“We initiated a position in high-quality paints and coatings retailer Sherwin-Williams Co. Sherwin’s crown jewel is its North American paint stores, which cater primarily to professional painting contractors. There has been a two-decade trend of homeowners hiring painting contractors instead of doing it themselves, which we believe is likely to continue. The pricing power of Sherwin-branded paint is very strong and the store network, which continues to expand, generates very strong returns on invested capital. Longer-term, there is additional opportunity to improve margins from businesses acquired from Valspar.”
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