In this article, we take a look at Chuck Agre’s top 5 stock picks. If you want to check out our detailed analysis of Akre’s “Three-Legged Stool” approach, go directly to Chuck Akre’s “Three-Legged Stool” Approach and His Top 10 Stock Picks.
5. O’Reilly Automotive, Inc. (NASDAQ:ORLY)
Akre Capital Management’s Stake Value: $1 billion
Percentage of Akre Capital Management’s Portfolio: 7.36%
Number of Total Hedge Fund Holders: 48
O’Reilly Automotive, Inc. (NASDAQ:ORLY) is the second automotive retailer in Akre’s top 10 stock picks. It is a US based auto-parts retailer providing aftermarket automotive spare parts, tools and accessories. It caters to both the professional automotive service providers as well as Do-It-Yourself (DIY) customers.
A total of 48 hedge funds are invested in O’Reilly Automotive, Inc. (NASDAQ:ORLY) as of the first quarter of 2022, with a total equity of $2.6 billion. Akre Capital Management holds $1 billion worth of equity in the company alone, making it the leading shareholder.
BofA analyst Elizabeth Suzuki upgraded O’Reilly Automotive, Inc. (NASDAQ:ORLY) to ‘Buy’ from ‘Neutral’ rating with an unaltered $730 price target as part of a general research note on the auto aftermarket industry. Given the recent downturn in stocks across her hardline retail coverage, Suzuki argues that the auto parts retail stocks are frequently thought of as more defensive, “staples-like” within the Consumer-Discretionary sector.
Suzuki further added that her review of O’Reilly Automotive’s Q1, 2022 earnings-miss reflects “primarily a function of sell-side mismodeling of SG&A growth”, which did not properly factor-in the unsustainably low level of SG&A as a percentage of sales in the Q1 quarter.
4. Visa Inc. (NYSE:V)
Akre Capital Management’s Stake Value: $1.16 billion
Percentage of Akre Capital Management’s Portfolio: 7.9%
Number of Total Hedge Fund Holders: 159
Visa Inc. (NYSE:V) is a global payment-network operating company that enables transactions between merchant’s and customer’s banks. Akre Capital Management’s stake in the company amounts to $1.16 billion as of the first quarter of 2022.
On May 11, Global travel platform Agoda announced the news of its partnership with Visa to offer interest-free credit card installments on its booking platform. Agoda will be the first online travel company to offer this payment facility with Visa in the Asia Pacific region.
Goldman Sachs analyst Will Nance initiated Visa’s coverage 6 days later, with a ‘Buy’ rating on the shares and a price target of $282 which implies a 43% upside.
Polen Capital mentioned Visa Inc. (NYSE:V) in their “Polen Global Growth Fund” investor letter of Q1, 2022. Here is what they said:
“We added to both Visa and Mastercard during the final quarters of 2021, based on the belief that both businesses were trading at attractive prices and poised to deliver, double-digit returns over the next three to five years. Cross-border transactions–a highly profitable business segment for both companies–represent roughly 10% of Visa and Mastercard’s volumes and 25% of their gross revenues, so lockdowns have severely impacted this segment due to stifled travel. While it was impossible to know when people would begin traveling again, we accepted this reality with the belief that travel would eventually return. Both companies have commented that as soon as a country or geography reopens, cross-border volumes reignite, amplifying each business’s growth and profitability. We think these near- term headwinds have created an attractive long-term investment opportunity.”
3. American Tower Corporation (NYSE:AMT)
Akre Capital Management’s Stake Value: $1.7 billion
Percentage of Akre Capital Management’s Portfolio: 12%
Number of Total Hedge Fund Holders: 50
American Tower Corporation (NYSE:AMT) is a Fortune-500 company headquartered in Massachusetts. It provides wireless communication services across the globe with over 220,000 sites worldwide.
The company has been consecutively growing the dividend cash amounts it pays to its shareholders for 13 years. Its dividend yield as of Q1, 2022, stands at 2.28%. It is set to pay the next dividend cash amount on July 8, at $1.43 per share.
On June 5, American Tower Corporation’s coverage was resumed by BofA analyst, David Barden with a ‘Buy’ rating on the shares and a $315 price target.
The number of hedge funds holding equity in American Tower Corporation as of the first quarter of 2022 is 50, with Akre Capital Management being the leading stakeholder, holding shares worth $1.7 billion.
Qualivian Investment Partners mentioned American Tower Corporation in their Q3, 2021 investor letter. Here is what it said:
“What Attracts Us
Superior Business:
- High barriers to entry resulting from low bargaining power of suppliers (land owners) and customers (wireless companies). Neither can find reasonable substitutes for existing cell towers. Combined with low possibility of disruption, this results in a business oligopoly and pricing power.
- Stable business with consistent high returns on equity, low maintenance capital required, and strong cash generation.
− Ten-year, non-cancelable contracts with built in pricing escalators and high renewal rates
− 1%-2% churn
Superior Reinvestment Opportunities:
- Strong growth for the foreseeable future due to increasing demand for wireless data usage, resulting in wireless carriers Capex equipment spend on existing and new towers.
- Low maintenance capital expenditure requirements; most of capital expenditure is for growth
Superior Management / Capital Allocation:
- Capital reinvested back in business has had returns well above cost of capital
- Company has purchased stock opportunistically…” (Click here to see the full text)
2. Moody’s Corporation (NYSE:MCO)
Akre Capital Management’s Stake Value: $1.9 billion
Percentage of Akre Capital Management’s Portfolio: 13%
Number of Total Hedge Fund Holders: 56
Moody’s Corporation (NYSE:MCO) is a financial-services corporation. It is the holding company for Moody’s Investment Services, a credit rating and risk assessment company and Moody’s Analytics, a provider of analytics software and data driven financial insights.
In the Q1, 2022 results, Moody’s Corporation posted a revenue of $1.52 billion, exceeding consensus estimates by $17 million while its EPS was in line with what analysts had estimated, at $2.89.
Moody’s was downgraded from ‘Overweight’ to ‘Neutral’ by Atlantic Equities analyst, Simon Clinch, who set a price target of $298 for the stock, down from $370.
Clinch told investors in a research note that S&P Global Inc. “recently rang the alarm bell” on global issuance by suspending fiscal guidance for 2022. The analyst says the magnitude of the weakness in global issuance was further explained by both S&P Global and Moody’s Corporation at last week’s conferences. The “uniqueness of the macro and geopolitical risks today creates exceptionally low visibility with too wide a range of outcomes,” wrote Clinch.
Qualivian Investment Partners mentioned Moody’s in their Q2, 2021 investor letter. Here’s what they said:
“Moody’s: Revenue, operating profit margins, and EPS all exceeded expectations, and annual guidance for these items (and for free cash flow) was raised. In MIS (Moody’s Investors Service) which houses the traditional ratings business, the outlook for debt issuance was raised for the remainder of the year, while MA (Moody’s Analytics) also came in ahead of expectations. The company leveraged strong revenue growth with strong operating profit margin improvement of 200 bps, with EPS coming in $0.22 ahead of consensus estimates. Management alluded to having interesting opportunities in their M&A pipeline, which we will have to assess when the time comes, but Moody’s management team has been very effective at allocating capital in the past toward value-creating bolt-on acquisitions, especially in their Moody’s Analytics business, a key growth driver for the company.”
1. Mastercard Incorporated (NYSE:MA)
Akre Capital Management’s Stake Value: $2 billion
Percentage of Akre Capital Management’s Portfolio: 14%
Number of Total Hedge Fund Holders: 136
Mastercard Incorporated (NYSE:MA) is the second biggest payment network operating company behind Visa. The company beat consensus estimates on both revenue and EPS in its results of the first quarter. Mastercard’s revenue for Q1, 2022 was at $5 billion, $267 million above consensus.
On May 17, Goldman Sachs analyst Will Nance initiated coverage of Mastercard Incorporated with a ‘Buy’ rating and a $460 price target on the stock, which implies a 38% upside.
Mastercard Inc. has $15 billion invested in it by 136 hedge funds as of the first quarter of 2022, with the top 3 stakeholders being Akre Capital Management, Fisher Asset Management and Berkshire Hathaway.
Here is what Ensemble Capital had to say about Mastercard Incorporated (NYSE:MA) in its Q1, 2022 investor letter:
“Mastercard (7.6% weight in the Fund): This company literally earns a percent based fee on dollars spent. When inflation increases the prices of goods across the economy, Mastercard’s revenue increases along with inflation. Thus, the company in some respects is perfectly hedged against inflation with their revenue accelerating automatically when inflation surges.”
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