Billionaire Jorge Paulo Lemann‘s 3G Capital made some major changes in its equity portfolio during the final quarter of 2015 and is reaping rich dividends this year. The equity portfolio of the fund saw a quarterly turnover of 112% during the October-December period and sported stakes in several energy companies at the end of 2015. Most of those stakes were initiated in the fourth quarter, including four of the fund’s top five stock picks, which were all from the energy space. The small rebound in oil and natural gas prices, which ensued a turnaround in the energy sector during the first quarter has translated well for 3G’s equity portfolio this year. Analysis done by Insider Monkey of the fund’s 13F holdings in companies worth at least $1 billion shows that the 35 long positions held by the fund delivered a weighted average return of 7.9% during the first quarter. Since the fund’s major holdings are the ones which have contributed the most to its gains during the quarter, in this post, we are going to take analyze how 3G’s top five stock picks at the end of 2015 performed individually during the first quarter.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Diamondback Energy Inc (NASDAQ:FANG)
– Shares Owned by 3G Capital (as of December 31): 800,000
– Value of Holding (as of December 31): $53.52 million
Diamondback Energy Inc (NASDAQ:FANG) has turned out to be one of the best performing oil and natural gas stock in the last few years with its shares appreciating by over 350% since its IPO in October 2012. Though 3G capital initiated its stake in the company only in the last quarter of 2015, it would have also made decent gains because of the 15.36% rise in Diamondback Energy Inc (NASDAQ:FANG)’s stock during the first three months of 2016. Among the funds which reduced their stake in Diamondback Energy Inc (NASDAQ:FANG) significantly during the fourth quarter was Rob Citrone‘s Discovery Capital Management, which brought its holding down by 85% to 208,795 shares. For its fiscal 2016 first quarter, analysts expect the company to report a loss of $0.05 per share on revenue of $90.48 million, compared to EPS of $0.38 on revenue of $101.40 million delivered in the same quarter last year. On March 29, analysts at Goldman Sachs reiterated their ‘Buy’ rating on the stock while lowering their price target on it to $99 from $102.
#4 Chevron Corporation (NYSE:CVX)
– Shares Owned by 3G Capital (as of December 31): 700,000
– Value of Holding (as of December 31): $63 million
3G Capital initiated a stake in Chevron Corporation (NYSE:CVX) during the third quarter of 2015 and boosted it by 133% during the fourth quarter. Ken Griffin‘s Citadel Investment Group was another fund that raised its holding company significantly during the fourth quarter, by 93% to 375,855 shares. Chevron Corporation (NYSE:CVX)’s stock ended the first quarter with gains of 7.4%, but is still way below the technical $100 mark it fell below last June. The company recently announced that due to mechanical problems it will be temporarily shutting down Gorgon LNG plant in Australia. Though this will hurt the company’s financial results this quarter, analysts believe that it will also help in raising in LNG prices due to the deficit in supply. With the demand for LNG set to double in the next 15 years, Chevron Corporation (NYSE:CVX) has been making considerable efforts in the last few quarters to ramp up its LNG production. The company has also been trying to deleverage its balance sheets through the sale of non-core assets. According to recent reports, several global energy companies are currently preparing to bid for Chevron Corporation’s geothermal energy blocks in Asia, which are valued at around $3 billion.
#3 Suncor Energy Inc. (USA) (NYSE:SU)
– Shares Owned by 3G Capital (as of December 31): 3 million
– Value of Holding (as of December 31): $77.4 million
Suncor Energy Inc. (USA) (NYSE:SU) was another new entrant in 3G Capital’s portfolio during the fourth quarter. The company lost nearly half of its market capitalization amid a rout in oil prices between mid-2014 and January this year. However, its stock managed to end the first quarter with gains of 8.26%. Suncor Energy Inc. (USA) (NYSE:SU) is one of the most financially-stable energy companies currently owing to its strong balance sheet and the large amount of cash and cash equivalents on its books. However, the company will soon be spending almost half of its available cash on its Fort Hills bitumen mine. Ahead of the company’s annual shareholder meeting on April 28, two proposals have been filed by separate shareholder groups asking the company to reveal its plans to deal with a tougher climate policy and it’s lobbying practices. On April 7, analysts at Goldman Sachs reiterated their ‘Buy’ rating on the stock and increased their price target on it to $35 from $31. With ownership of 30 million shares of the company, Warren Buffett‘s Berkshire Hathaway is Suncor Energy’s largest shareholder among the funds we track.
#2 Exxon Mobil Corporation (NYSE:XOM)
– Shares Owned by 3G Capital (as of December 31): 1 million
– Value of Holding (as of December 31): $78 million
Moving on, 3G Capital not only initiated a stake in Exxon Mobil Corporation (NYSE:XOM) during the fourth quarter, but also made the company its largest energy holding at the beginning of 2016. Jim Simons‘ Renaissance Technologies also initiated a stake in the company during the same period by purchasing 1.31 million shares. Shares of Exxon Mobil Corporation (NYSE:XOM) appreciated by 8.2% during the first three months of 2016, but, like last November, are finding it hard to break above the $85 mark. The company is expected to report its first–quarter earnings by the end of this month and the consensus among analysts include EPS of $0.33 on revenue of $47.50 billion, significantly below the EPS of $1.17 on revenue of $67.60 billion it had reported for the same quarter last year. On April 6, a massive fire broke out at the company’s refinery in Baytown, Texas. However, the fire has been extinguished and no loss of life or injuries have been reported as of yet. Exxon Mobil Corporation has also announced that the production won’t be curtailed at the facility, which is the second-largest refinery in the United States.
#1 Time Warner Cable Inc (NYSE:TWC)
– Shares Owned by 3G Capital (as of December 31): 1.54 million
– Value of Holding (as of December 31): $286.71 million
3G Capital brought down its stake in Time Warner Cable Inc (NYSE:TWC) by 1% and the company represented its largest equity holding heading into 2016. Shares of Time Warner Cable Inc (NYSE:TWC) have appreciated by 35% since Charter Communications, Inc. (NASDAQ:CHTR) announced its plans to merge with the company for $56 billion last May and ended the first quarter up by 10.65%. While shareholders of both the companies and most U.S. states have approved the Charter – TWC merger, the Federal Communications Commission, which was expected to decide on the merger last month, is yet to approve the deal. According to recent reports, Charter Communications, Inc. (NASDAQ:CHTR) has upped its price for the deal after taking into account the appreciation in its stock over the past few weeks. Amid a continuous rise in cord-cutting, Time Warner Cable added 54,000 subscribers in the fourth quarter of 2015, which analysts are viewing as a major positive development for the company along with the growth displayed by its data business. John Paulson‘s Paulson & Co. reduced its stake in Time Warner Cable Inc by 28% to 5.87 million shares during the fourth quarter.