We recently compiled a list of the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb and in this article we will discuss the billionaire’s position in S&P Global Inc. (NYSE:SPGI).
Billionaire investor Dan Loeb’s hedge fund Third Point had a strong start to 2024 after its offshore fund posted returns of 7.8% in the first quarter chugging along with the broader market’s 10.6% gain. AI has been one of his top investing themes for some time now and the activist shareholder maintains his bullish view on the technology. In the first quarter, he initiated a position in Alphabet and also increased his position in Amazon by 22% to about $920 million.
Loeb Thinks This Company’s Capital Allocation Strategy is “Brilliant”
Loeb’s also bullish on the energy transition and one of his favorite stocks that is expected to benefit from the AI-driven electricity demand is Vistra, one of the largest independent power producers and retail electricity providers in the US. Though the power company’s core markets have experienced volatility due to weak domestic electricity demand, its “capital allocation strategy has been brilliant”, he stated in his Q1 2024 letter to shareholders, seen by Insider Monkey. In the weak demand environment for fossil fuels, The Texas-based energy group made smart moves by shutting down its unprofitable coal plants and instead buying back 33% of its shares between 2018 and 2023. Additionally, its acquisition of nuclear generation assets of Ohio-based energy company, Energy Harbor, was right on time as governments are turning to nuclear fuel sources to meet the world’s growing energy demands. Loeb expects Vistra to be a direct beneficiary of AI-driven electricity demand and is bullish on the company’s unique position of holding both renewable and fossil fuel-based assets under its belt.
Loeb’s Bullish on LSEG, and For Good Reason
Another AI play Loeb is increasingly bullish on is UK-based stock exchange and financial data company London Stock Exchange Group. The activist investor likes the company’s unique market position as a data provider that is democratizing and making financial data accessible to consumers without the use of additional third-party software. He sees London Stock Exchange Group benefitting from generative AI as information retrieval systems in financial services become more powerful. He also expects the company to develop “a powerful Research Assistant application” with Microsoft to reduce both human resources and time needed to process financial data. He thinks London Stock Exchange Group is at the forefront of capitalizing on the transition of the financial services industry “from manual data processing via clunky desktop terminals to machine-assisted data processing”.
A close-up of a computer monitor displaying real-time financial data on the stock market.
Our Methodology
We scanned Third Point’s Q1 portfolio and picked growth stocks from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Note: All pricing data is as of June 6.
Is S&P Global Dan Loeb’s Top Growth Stock Pick?
S&P Global Inc. (NYSE:SPGI)
Third Point’s Stake Value: $142,525,750
Number of Hedge Fund Holders: 97
We know Loeb’s bullish on LSEG and his other idea in the financial information and analytics industry is S&P Global Inc. (NYSE:SPGI). Loeb initiated a $142-million position in S&P Global Inc. (NYSE:SPGI) in the first quarter and it’s one of his top growth stocks picks. The company is a top-tier provider of financial information and data services and boasts a solid track record of profitability and delivering returns to shareholders. The company has paid a dividend every year since 1937 and has grown its dividends for at least the past 50 years.
S&P Global Inc. (NYSE:SPGI) enjoys a near-monopoly status. Its ratings arm is one of the Big Three credit ratings agencies in the world. The company is part of a niche industry with high barriers to entry. S&P Global Inc. (NYSE:SPGI) has grown its revenue by a compound annual growth rate of 11% and its net income by 12% over the past 10 years, on a trailing twelve-month basis. Just for context, Moody’s (NYSE:MCO) has grown its revenue by 8% and net income by 7% over the same time period.
S&P Global Inc. (NYSE:SPGI) is guiding to 6% to 8% organic revenue growth and 11% in EPS growth in fiscal 2024. Analysts expect the financial data provider to grow its sales by 7.5% in 2024, and 16% in 2025, from 2023 levels. Currently, S&P Global Inc. (NYSE:SPGI) is trading at 10.7 times its sales, cheaper than Moody’s (NYSE:MCO), which is trading at a P/S multiple of 12x.
On the Street, the stock has a consensus “Buy” rating among analysts, with 1-year price targets ranging from $440 to $542.15 (median is $500). The stock has gained 16% over the past 12 months and the median target implies a further 15% upside, from current levels. The stock was held by 97 hedge funds at the close of Q1 2024, with positions worth $9.57 billion. Ken Griffin’s Citadel boosted its stake in the company by 46% in the quarter to $645.6 million.
New York-based investment firm Baron Funds also talked about why it continues to own SPGI even though it faced a marginal decline in its share price in the quarter. Here’s what the firm said in its Q1 2024 investor letter:
“Shares of rating agency and data provider S&P Global Inc. (NYSE:SPGI) declined 3.1% during the quarter after the company provided financial guidance that missed Street expectations. While S&P guided to solid organic revenue growth of 7% to 9% and EPS growth of 9% to 11%, projected margin expansion fell short of investor estimates, which underestimated the correlation between improving top-line trends and variable employee comp (which is rising as a result). We are not concerned with this short-term dynamic that is the outcome of improving business fundamentals. S&P reported solid results for the most recent quarter, with 11% organic revenue growth, 23% EPS growth, and broad-based strength across the company’s business segments. Ratings growth was especially robust as debt issuance rebounded amid improving market conditions. Positive momentum has continued into 2024, with 66% issuance growth in January and February. We continue to own the stock due to the company’s durable growth characteristics and significant competitive advantages.”
S&P Global Inc. (NYSE:SPGI) has several secular trends that will drive its future growth, one of which is steadily rising global debt. Moreover, with the advent of AI and Retrieval Augmented Generation (RAG) technology, the company can potentially outpace its historic growth rates. In February this year, S&P Global Inc. (NYSE:SPGI) launched AI-enabled search on S&P Global Marketplace to make the search process more efficient and user-friendly. The company launched 25 new products in Q1 2024 and expects to launch 15 more products by the end of 2024, with a particular focus on AI. S&P Global Inc. (NYSE:SPGI) has more than 100,000 customers in over 150 countries. Given its brand status, near-monopoly position, and consistent double digit growth rates, we think SPGI is an idea worth exploring while it trades at P/S multiples close to its 5-year average of 11x.
S&P Global Inc. (NYSE:SPGI) ranks 9th on our list. To discover Dan Loeb’s top growth stock picks, check out our free report on the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb. While we acknowledge the potential of SPGI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.