In this article we take a look at billionaire Stan Druckenmiller’s top 10 stock picks. The billionaire is making waves as he recently revealed that he is long Bitcoin and considers the cryptocurrency a valuable asset class.
Stanley Freeman Druckenmiller is an American billionaire and hedge fund manager who founded Duquesne Capital in 1981. For 30 years the hedge fund posted excellent returns, but in 2010 the billionaire announced to shutter the fund citing “emotional toll” of not being able to come up to the high expectations of investors. At the time of closing, the hedge fund had $12 billion in managed securities. Druckenmiller’s hedge fund had posted average gains of 30% over two decades of its operations before it closed, an excellent record when compared to peers. In 2008, when most hedge funds suffered heavy losses and declined 19% on average, Duquesne returned 11%.
Duquesne Capital is now a family office.
The 67-year-old billionaire whose net worth stands at $4.4 billion today worked for legendary investor George Soros until 2000. The duo made a fortune when their bets against the British pound paid off on the famous “Black Wednesday” of 1992. Soros gave control of his hedge fund to Druckenmiller in 1989 to focus on philanthropy.
From Hot Dog Stand to Billions
Born in Pennsylvania, Druckenmiller graduated from Collegiate School, Virginia. In 1975, while doing his bachelor’s in English and Economics from Bowdoin College, Druckenmiller started a hot dog stand with Lawrence B. Lindsey, who later became economic policy adviser to President George W. Bush.
Druckenmiller’s investment philosophy gives importance to macroeconomic factors that control the current market environment. Druckenmiller invests in both short and long positions and uses leverage to trade currency and futures.
A “Raging Mania”
During an interview with CNBC a few months back, the investor talked about the current market situation.
“The stock market is in a mania fueled by the Federal Reserve and investor speculation that will end badly in the coming years.”
Here is what Stanley Druckenmiller stated:
“I think the merging of the Fed and the Treasury which is what’s happening during Covid — is obviously creating a massive ranging mania in financial assets. Everybody loves a party. I love a party. I assume you guys love a party, but inevitably after a big party, there’s a hangover. Right now, we’re on an absolute-ranging mania. We’ve got commentators on different networks encouraging companies to do stock splits. Companies then go up 50%, 30%, 40%, big market companies on stock splits. That creates no value, but the stocks still go up. I have no clue where the market’s gonna go in the near term. I don’t know when it’s going to go up 10%, I don’t know when it’s going to go down 10%. I just want to remind people that there is no valuation support just because we dropped 10%. That does not matter because we are so far outside the valuation realm with the Fed doing what they’re doing, that does not matter. But I would say that the next 3-5 years is going to be very very challenging.”
Druckenmiller Is Long Bitcoin
Druckenmiller recently revealed that he owns Bitcoin. The billionaire said that Bitcoin has a lot of inherent value and it’s gaining traction and stability with each passing day.
Frankly, if the gold bet works, the Bitcoin bet will probably work better because it’s thinner, more illiquid and has a lot more beta to it.
Druckermiller’s Latest Moves
During the fourth quarter Stan Druckenmiller sold all of his position in Netflix, Inc. (NASDAQ: NFLX), while increasing hold in Palo Alto Networks, Inc. (NYSE: PANW) by 457%. The fund currently holds $335 million worth of PANW shares, making it Duquesne’s 6th biggest holding.
Druckenmiller also trimmed around a fifth of his Sea Limited (NYSE: SE) and Penn National Gaming, Inc. (NASDAQ: PENN) positions, while dumping his entire stake in Facebook, Inc. (NASDAQ: FB). Duquesne Capital also sold its stakes in Alibaba Group Holding Limited (NYSE: BABA) and Booking Holdings Inc. (NASDAQ: BKNG) in the fourth quarter of 2020.
Druckenmiller isn’t the only one who struggled with his returns. The hedge fund industry’s 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 111 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY (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.
Before we start taking a look at Druckenmiller’s family office’s top stock picks, here’s a an ironic remark the billionaire once made about the soaring tech stock prices during a meeting at Soros Fund Management, as reported by the WSJ in 2000.
“I don’t like this market. I think we should probably lighten up. I don’t want to go out like Steinhardt.”
He was referring to Michael Steinhardt, who closed his hedge fund 1995 after suffering heavy losses.
Let’s start our list of Stan Druckenmiller’s top 10 stock picks.
10. The Walt Disney Company (NYSE: DIS)
Value: $123,988,000
Change in Position Size: 378%
Percent of Stan Druckenmiller’s 13F Portfolio: 3.3%
Walt Disney ranks 10th on our list of Billionaire Stan Druckenmiller’s top 10 stock picks. The California-based mass media company aims to be one of the world’s leading producers and providers of entertainment and information. Recently, The Walt Disney was able to clinch the 4th spot on Fortune’s 2021 list of the “World’s Most Admired Companies,” despite losing billions of dollars amid the coronavirus crisis. With a current market capitalization worth $358.5 billion, Walt Disney delivered a 60% return in the past 12 months.
According to our database, the number of Walt Disney’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 144 hedge funds that hold a position in Disney by the end of December, compared to the 112 funds in the third quarter. The biggest stakeholder of the company is Philippe Laffont’s Coatue Management, with 11 million shares, worth $2 billion.
Ruane, Cunniff & Goldfarb, in their Q4 2020 investor letter, said that they acquired a position in The Walt Disney Company (NYSE: DIS), and believes that there’s still a wide room for growth in the company. Here is what Ruane, Cunniff & Goldfarb has to say about The Walt Disney Company in their investor letter:
“Disney is on the global trend toward subscription-based streaming video consumption, which we think is still in its early innings. As people increasingly watch their TV and movies via apps instead of cable bundles, we expect a relatively egalitarian media ecosystem that historically supported many winners to become much more elitist. The streaming model heavily favors scaled early movers, who benefit from a virtuous cycle in which massive content investment attracts incremental subscribers and revenues, which enable further content investment, which yields still more subscriber growth.
Disney is investing heavily to drive this virtuous cycle, which is depressing their current profits, but people can only watch so much TV and wrap their arms around so much selection, which means that the growth of programming spend will eventually have to slow. If the world’s two most compelling collections of streamed video content continue to attract incremental subscribers amidst a moderating pace of investment, then content cost per subscriber will begin to fall, widening competitive gaps that are already very substantial by layering a cost advantage on top of a product quality advantage. As a result of this dynamic– which we think competitors will struggle to replicate– we believe that the leaders of the video entertainment industry’s streaming era will be far larger and more profitable than those of the cable era. While this possibility is by no means lost on the stock market, we invested in Disney because we believed their prices still failed to discount the degree to which we expect a small handful of victors to take most of the streaming era’s significantly greater spoils.”
9. Nuance Communications, Inc. (NASDAQ: NUAN)
Value: $128,369,000
Change in Position Size: 0%
Percent of Stan Druckenmiller’s 13F Portfolio: 3.5%
Burlington, Massachusetts-based Nuance Communications offers computer software technologies such as conversational and cognitive Artificial Intelligence (AI) innovations. Earlier in February, Nuance Communications announced that it outperformed Zacks Consensus’ quarterly earnings estimate of $0.18 per share by achieving a return of $0.20 per share in the fiscal first quarter. Nuance Communications Inc. delivered a 14.3% return, above the S&P 500 index that gained 3.5%.
Overall, 60 hedge funds tracked by Insider Monkey held long positions in the company at the end of the fourth quarter of 2020. Coatue Management has a very large position in CHRW, which amounts to $732.5 million.
8. Penn National Gaming, Inc. (NASDAQ: PENN)
Value: $131,067,000
Change in Position Size: -20%
Percent of Stan Druckenmiller’s 13F Portfolio: 3.5%
Pennsylvania-based Penn National Gaming is an operator of casinos and racetracks. It currently operates 43 facilities in Canada and America. Recently, PENN disclosed that it signed a 20-year strategic partnership with Capital Region Gaming, LLC doing business as Rivers Casino & Resort that will give Penn Interactive, a Penn National’s subsidiary, access to New York’s digital sports betting and iCasino market.
With a $473 million stake in PENN, Alex Sacerdote’s Whale Rock Capital Management owns 5.4 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 41 hedge funds held stakes in Penn National Gaming Inc. as of the end of the fourth quarter, versus 45 funds in the third quarter.
In their Q3 2020 investor letter, Alger Mid Cap Focus Fund highlighted a few stocks and Penn National Gaming Inc (NASDAQ:PENN) is one of them. Here is what Alger Mid Cap Focus Fund said:
“Penn National operates 40 properties (casinos and racetracks) across 20 states. In February. Penn National purchased a 36% interest in Barstool Sports, an online sports media company with 66 million monthly active users. Penn National is using Barstool Sports as the brand of its digital strategy and retains 100% of the sports betting and online casino (iGaming) proceeds in the relationship. Traditional brick¬and-mortar casino gambling in the U.S. is not a growth industry: however, two unique growth areas exist for casino operators: online sports betting (OSB) and iGaming. More states are considering legalization of OSB and iGaming due to Covid¬19-related budget shortfalls, as gambling can raise substantial tax revenue. Importantly, data shows that sports betting and online casinos do not cannibalize brick-and-mortar casino revenues. Additionally, gaming companies must have a physical presence within the states where they seek to have online gambling and sports betting legalized, so Penn National’s brick-and-mortar facilities give the company an advantage in this area. Shares of Penn National performed strongly during the third quarter in response to the company’s brick-and-mortar properties recently generating higher margins compared to pre-Covid-19 levels. a result of the company cutting costs and increased customer spending. Investors also responded favorably to Barstool’s September launch of its Sportsbook app in Pennsylvania. Additionally. sports betting and online gaming levels have reached record highs in numerous states.”
7. Sea Limited (NYSE: SE)
Value: $152,216,000
Change in Position Size: -22%
Percent of Stan Druckenmiller’s 13F Portfolio: 4.1%
Sea Limited is a Singapore-based consumer internet company that successfully developed an integrated platform composed of electronic commerce, digital financial services, and digital entertainment for hassle-free business transactions. SE’s core businesses include Shopee, the largest actively used e-commerce platform in Southeast Asia. Sea Limited currently has a $122.4 billion market capitalization. It delivered a massive 433.29% return in the past 12 months and settled at $248.04 per share at the closing of February 24, 2021.
Our database shows that 115 hedge funds held stakes in Sea Limited at the end of December, versus 95 funds in the third quarter. SE ranks 15th in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
In their Q3 2020 investor letter, Tao Value highlighted a few stocks and Sea Ltd (NYSE:SE) is one of them. Here is what Tao Value said:
“Sea Ltd (ticker: SE) Based on reported Q2 numbers, Sea did well across the board, beating already high expectation in all 3 business segments. It is evolving into a super app for ASEAN region leveraging its leading positions in all 3 mega trends: gaming, e-commerce & fintech, basically a combined Alibaba & Tencent of ASEAN. Given the strong price reaction, I decided to trim slightly to control position size.”
Copyright: gmast3r / 123RF Stock Photo
6. Palo Alto Networks, Inc. (NYSE: PANW)
Value: $163,145,000
Change in Position Size: 458%
Percent of Stan Druckenmiller’s 13F Portfolio: 4.4%
California-based Palo Alto Networks offers an automated cybersecurity approach to prevent cyberattacks and sells cloud security, network security, endpoint protection, and other related security services. The company recently unveiled NextWave 3.0, a platform to provide new security enhancements for their customers’ needs in a dynamic security market. With a market cap of $35.9 billion, PANW delivered an impressive 97.06% return in the past 12 months.
A total of 61 hedge funds tracked by Insider Monkey were long PANW at the end of December 2020, compared to 59 funds a quarter earlier.
Diamond Hill Capital highlighted a few stocks in their Q1 2020 Investor Letter, and Palo Alto Networks Inc (NYSE:PANW) is one of them. Here is what Diamond Hill Capital has to say about the company:
“Shares of information technology security company Palo Alto Networks, Inc. declined with the broad market during the quarter, and we initiated a position at a very compelling valuation. The firm sells critical products and services, has a significant net cash balance, generates a substantial amount of recurring revenue, and we expect cash generation to be fairly resilient going forward.”
Pixabay/Public Domain
5. Freeport-McMoRan Inc. (NYSE: FCX)
Value: $163,520,000
Change in Position Size: -1%
Percent of Stan Druckenmiller’s 13F Portfolio: 4.4%
Arizona-based Freeport-McMoran is a mining company with operations in several regions including Indonesia, North and South America. Its Indonesian gold and copper production imports are expected to provide rapid growth for the company this year. The company currently has a $53.9 billion market capitalization. It delivered a spectacular 277.50% return in the past 12 months and settled at $37.89 per share at the closing of February 24, 2021.
As of the end of the fourth quarter, there were 61 hedge funds in Insider Monkey’s database that held stakes in Freeport-McMoran, compared to 57 funds in the third quarter. Fisher Asset Management, with 42.8 million shares of FCX, is the biggest stakeholder in the company.
Pixabay/Public Domain
4. Starbucks Corporation (NASDAQ: SBUX)
Value: $211,510,000
Change in Position Size: 35%
Percent of Stan Druckenmiller’s 13F Portfolio: 5.7%
The shares of the world’s largest coffeehouse chain, Starbucks, surged last week after its biggest Chinese competitor, Luckin Coffee Inc. filed for bankruptcy. The company is growing its dominance in China, with 15.4 million digital members in its rewards program. Starbucks delivered a 34.21% return in the past 12 months.
According to our database, the number of SBUX’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 67 hedge funds that hold a position in Starbucks Corp. compared to the 66 funds in the third quarter. The biggest stakeholder of the company is Fundsmith LLP, with 10.4 million shares, worth $1.1 billion.
Polen Global Growth in their Q4 2020 investor letter said that they added their position in Starbucks Corporation (NASDAQ: SBUX) because of the company’s fast-growing business momentum.
Here is what Polen Global Growth has to say about Starbucks Corporation in their investor letter:
“During the quarter, we added our position in Starbucks. We felt it was prudent to reallocate capital to faster-growing companies with greater business momentum like Starbucks. With spread mitigation policies globally stifling foot traffic into brick-and-mortar stores, coffee shops have not been spared the burden. As one can imagine, many smaller “mom & pop” shops and chains have gone out of business as a result. In fact, Euromonitor estimates that the number of coffee shops in the U.S. will decline this year for the first time since 2011. Simultaneously during 2020, the U.S. Securities and Exchange Commission (SEC) discovered that Luckin Coffee, once thought to be a formidable competitor to Starbucks within mainland China, had fabricated the majority of its 2019 sales by “intentionally and materially” overstating them. We believe that the runway of growth for Starbucks has been temporarily cleared on a relative basis as its competitors have either weakened or disappeared around the world.”
Copyright: buschmen / 123RF Stock Photo
3. Amazon.com, Inc. (NASDAQ: AMZN)
Value: $269,521,000
Change in Position Size: -5%
Percent of Stan Druckenmiller’s 13F Portfolio: 7.3%
Pixabay/ Public Domain
2. T-Mobile US, Inc. (NASDAQ: TMUS)
Value: $315,358,000
Change in Position Size: 17%
Percent of Stan Druckenmiller’s 13F Portfolio: 8.5%
T-Mobile ranks 2nd on the list of Billionaire Stan Druckenmiller’s top 10 stock picks. The wireless network operator recently disclosed Ultra Capacity 5G at the Miami Veterans Affairs (VA) Healthcare System, providing spectacular 5G internet speed and performance to its frontliners and patients. T-mobile serves more than 50 VA Healthcare Systems in the country, providing 4G LTE wireless connectivity. With its current $122.4 billion market capitalization, TMUS delivered a 32.94% return in the past 12 months.
As of the end of the fourth quarter, 103 hedge funds in Insider Monkey’s database of 887 funds held stakes in Citigroup Inc., compared to 94 funds in the third quarter. Viking Global is the biggest stakeholder in the company, with 8.7 million shares, worth $1.1 billion.
“T-Mobile US, Inc.’s (“TMUS”) 2020 merger with Sprint Corporation (“Sprint”) was transformational. The company now controls c.45% of low/mid-band spectrum (which is crucial for 5G) but has only 29% of industry subscribers. We expect this gap to narrow over time, via market share gains, while the deal will also generate significant merger synergies; TMUS should, consequently, achieve substantial profits and free cash flow growth over the next 3-4 years.
TMUS has, hitherto, had an inferior network to its peers, and achieved its subscriber growth via very effective marketing and lower prices, encapsulated in its ‘un-carrier’ approach.
In the 5G era, however, it will have a much better network than its peers – as well as lower prices – because it has more of the critical mid-band (2.5GHz) spectrum than AT&T Inc. (“T”) and Verizon Communications Inc. (“VZ”) combined.
The value of this advantage is reflected in the very aggressive C-Band auction currently underway, in which all three companies have likely spent heavily; T and VZ to supplement their holdings of the key enabling asset for the new 5G era, and TMUS to reinforce its advantage and force its peers to leverage up, so they will be less likely to compete on price. The proceeds from this auction have already reached $81bn (and will entail further substantial spending to ready it for use).
Thus, TMUS is targeting the rollout of its 2.5GHz spectrum across 100mn and 200mn POPs by the end of 2020 and 2021 respectively; this will allow it to offer average speeds of 300Mbps (peak speeds >1Gbps) to subscribers (using only 60MHz of the total 160MHz it owns). Its coverage/offer will be far superior to the competition: T’s standard 5G speeds are 40-60Mbps (i.e. barely faster than 4G LTE); VZ’s 5G ultra-wideband network will offer faster speeds (in theory up to multi-Gbps) but currently covers only 2mn POPs, and is difficult to scale because the mmWave spectrum, on which it relies, propagates only over very short distances and is subject to interference (e.g. by foliage).
It is unlikely that the C-band auction will allow T/VZ to rectify their considerable spectrum lag relative to TMUS: 280MHz is being sold, and VZ requires c.190MHz and T c.150MHz to match TMUS. And the spectrum will take considerable time to clear and be deployed (120MHz clears in December 2021 and 160MHz in December 2023). It is also worth noting C-Band is not nearly as good as TMUS’ 2.5GHz – it has weaker propagation characteristics, thus requiring a much denser network grid which is more costly.
We forecast TMUS to grow its market share of subs by only 100bps per annum 2021-2024, i.e. in line with its prior rates, despite having a better network and cheaper pricing than T/VZ. The key risk to this is stronger competition from Dish Network Corp (“Dish”), who must build out a 5G network as part of the TMUS/Sprint merger conditions. However, it will take time for it to truly be a viable competitor (it targets 50% US POP coverage by 2023), and T/VZ likely have more to lose from a new competitor given their higher prices.
The company has guided to $6.7bn of cost synergies over the next 3-4 years. These have so far come in faster than expected, and we feel that TMUS may exceed its guidance (it beat its targets for the MetroPCS acquisition by 40% and achieved them 1 year early). Network costs represent 63% of expected synergies, and these are cost savings from the decommissioning of cell sites, as the company moves from 110K today to 85K over the next few years. Back office and sales and marketing cost saves will yield the rest.
We estimate that costs/sub will drop from their current c.$26 to c.$19 by 2024 (broadly in-line with VZ) helping drive service margins from 40% to 56%, in-line with T but still well below VZ’s 66% (reflecting TMUS’ lower prices). The combination of modest 3-4% per annum revenue growth, high cost take-out, and declining capital intensity should drive normalised FCF/share to c.$16 in 2024 implying a multiple of c.9x. We feel this is attractive given TMUS’s spectrum advantages and its position as the lowest price, i.e. most competitive, service provider.”
1. Microsoft Corporation (NASDAQ: MSFT)
Value: $586,760,000
Change in Position Size: 0%
Percent of Stan Druckenmiller’s 13F Portfolio: 15.8%
Topping the list of Billionaire Stan Druckenmiller’s top 10 stock picks is Microsoft. Earlier this month, Microsoft introduced its new ‘Employee Experience Platform: Microsoft Viva’ which aims to help people excel and do better at work.
Ken Wolter / Shutterstock.com
You can also take a peek at Top 10 Car Company Stocks to Invest In and Ray Dalio’s Top 10 Stock Picks for 2021.
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This article is originally published at Insider Monkey.
