In this article, we will discuss the Top 10 Stock Picks of Charles Clough’s Clough Capital Partners.
Charles Clough is the chairman and co-chief investment officer at Clough Capital Partners. He graduated from Boston College with a major in History and a minor in Economics and subsequently earned his MBA from the University of Chicago. He then went on to pursue the CFA charter and has been a charter holder since 1979. Charles now has an industry experience of around 50 years, and over the course of his career, he has served in many prestigious positions, including being the Director of Research and a Portfolio Manager at the Boston Company, and has served on the boards and investment committees of several educational, financial and charitable institutions. Prior to founding Clough Capital Partners, Charles Clough worked as the Chief Global Investment Strategist at Merrill Lynch, where he made strategic decisions for several portfolios of Merrill’s advisors.
As per its last reported 13F filing for Q2 2022, the company had a portfolio value of over $805 million. Raytheon Technologies Corporation (NYSE:RTX) is the biggest holding of Clough. Some of its other top picks include Microsoft Corporation (NASDAQ:MSFT), Northrop Grumman Corporation (NYSE:NOC), and Cheniere Energy, Inc. (NYSE:LNG).
Charles Clough of Clough Capital Partners
Our Methodology
We picked top 10 stocks from Clough Capital Partners’ portfolio as of its Q2 2022 filing.
Top 10 Stock Picks of Charles Clough’s Clough Capital Partners
10. Alphabet Inc. (NASDAQ:GOOG)
Clough Capital Partners Stake: $24,948,000
Percentage of Clough Capital Partners’ Portfolio: 3.09%
Number of Hedge Fund Holders: 153
Alphabet Inc. (NASDAQ:GOOG) is a holding company having Google as its completely owned subsidiary. Clough Capital Partners added on its investment in Alphabet Inc., as it increased its stake in the company by 86% during Q2 2022. The total investment value of the fund in Alphabet Inc. amounts to approximately $25 million as of its last reported filing for the second quarter.
Alphabet Inc. did not have a particularly good Q2 2022, as the company reported revenue of $69.69 billion for the quarter, up 12.6% YoY but missing the market estimate by $110 million. Similarly, the normalized EPS of $1.21 for the quarter missed the market estimate by $0.06.
On October 4, 2022, Justin Post, an analyst at Bank of America, reduced his price target on Alphabet Inc. from $114 to $125. The analyst believes that although the company’s cost-cutting measures will likely support earnings in 2023, the global economic turndown will likely impact the profitability of the company as advertising budgets decline.
In addition to Alphabet Inc., Clough Capital Partners had investments in Starwood Property Trust, Inc. (NYSE:STWD), Visa Inc. (NYSE:V), and Raytheon Technologies Corporation.
Here is what Lakehouse Capital had to say about Alphabet Inc. in its second-quarter 2022 investor letter:
Alphabet Inc. reported another strong quarterly result despite the tough macroeconomic conditions. Revenue increased by 13% as Search proved resilient, primarily led by strength in the travel and retail verticals. YouTube advertising growth was lighter and moderated due to a tough comparison period and a general softening in brand advertising spend. That said, YouTube’s user engagement and time spent still continues to grow which bodes well for future monetisation opportunities. Google Cloud outpaced the company’s overall growth with revenue increasing by 36% and while it has yet to show any signs of profitability, we remain supportive of Alphabet continuing to reinvest in its cloud business given the size of the market opportunity ahead. On the cost front, the company added another 10,000 employees during the quarter, but notably, the CFO mentioned that hiring will likely slow down over the next twelve months as the company focuses on greater operating efficiency. Overall, we’re pleased with how the company has performed and are confident that management will be able to control costs, if or when the economic environment becomes more challenging.
9. Palo Alto Networks, Inc. (NASDAQ:PANW)
Clough Capital Partners Stake: $25,416,000
Percentage of Clough Capital Partners’ Portfolio: 3.15%
Number of Hedge Fund Holders: 90
Based out of California, Palo Alto Networks, Inc. (NASDAQ:PANW) operates as a cybersecurity firm selling internet security-related applications and products. During Q2 2022, Clough Capital Partners increased its stake in Palo Alto Networks, Inc. by 18%. The fund currently holds 51,455 shares of the company as per its last filing.
On September 16, 2022, Catharine Trebnick, an analyst at MKM Partners, started coverage of Palo Alto Networks, Inc. with a target price of $250. The analyst is bulling on the company as she believes that Palo Alto’s large revenue contribution from subscription services (75%) is going to bode well for the firm in the future compared to its peers.
At the end of the second quarter ending in June, Generation Investment Management was the leading shareholder of Palo Alto Networks, Inc., with a total investment value of approximately $363 million. As per Insider’s Monkey database, 90 hedge funds owned stakes in Palo Alto Networks, Inc. at the end of Q2 2022.
In its Q1 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Palo Alto Networks, Inc. was one of them. Here is what the fund said:
The portfolio also saw solid performance from cybersecurity names Palo Alto Networks, Inc. which is gaining prominence as the risk of global cyber attacks increases as part of the Russian offensive. On an individual stock basis, leading contributors to absolute returns in the first quarter included positions in Palo Alto Networks.
8. Cheniere Energy, Inc. (NYSE:LNG)
Clough Capital Partners Stake: $26,982,000
Percentage of Clough Capital Partners’ Portfolio: 3.34%
Number of Hedge Fund Holders: 65
Cheniere Energy, Inc. operates an LNG terminal located at Sabine Pass. Charles Clough continued to buy more shares of Cheniere Energy, Inc. during Q2 2022 as he increased his exposure to the company by 40% during the quarter.
On September 19, 2022, Benjamin Nolan, an analyst at Stifel, increased his price target on Cheniere Energy, Inc. to $201. The analyst raised his price target after the company increased its 2022 earnings guidance and capacity expansions going forward till 2027.
According to Insider’s Monkey database, 65 hedge funds owned stakes in Cheniere Energy, Inc. in the quarter ending June 2022. Icahn Capital L.P. was the most bullish fund on the company’s stock, with an investment value of over $746 million.
Here is what ClearBridge Global Infrastructure Value Strategy has to say about Cheniere Energy, Inc. in its Q3 2021 investor letter:
Cheniere Energy is an energy infrastructure company that owns and operates U.S. liquefied natural gas (LNG) export facilities. Strong quarterly results and the disclosure of capital allocation policies were positively received by the markets. In addition, continued supply and demand tightness in the LNG market created a favorable commodity price environment.
7. Kinder Morgan, Inc. (NYSE:KMI)
Clough Capital Partners Stake: $28,626,000
Percentage of Clough Capital Partners’ Portfolio: 3.55%
Number of Hedge Fund Holders: 41
Kinder Morgan, Inc. (NYSE:KMI) is a midstream energy firm with a pipeline network of 83 thousand miles and 140 storage terminals. Clough Capital Partners’s exposure in Kinder Morgan, Inc. amounts to a value of over $28 million as of its reported filing for Q2 2022. The fund increased its stake in the company’s shares by 7% during the previous quarter.
Kinder Morgan, Inc. reported solid results for Q2 2022 as the company’s top line grew 63% YoY to $5.15 billion for the quarter. Kinder Morgan, Inc. posted a normalized EPS of $0.27 for Q2 2022, which was in line with the market’s expectations.
At the end of Q2 2022, Orbis Investment Management held the highest stake in Kinder Morgan, Inc. with a holding of 21,675,645 shares, constituting 2.92% of the fund’s portfolio. As per Insider’s Monkey database, 90 hedge funds owned stakes in Kinder Morgan, Inc. at the end of the second quarter.
6. Northrop Grumman Corporation (NYSE:NOC)
Clough Capital Partners Stake: $32,698,000
Percentage of Clough Capital Partners’ Portfolio: 4.05%
Number of Hedge Fund Holders: 45
Northrop Grumman Corporation is a defense contractor manufacturing products related to aeronautics and defense mission systems. Clough Capital Partners continued to add to its investment in Northrop Grumman Corporation during Q2 2022 as the fund increased its holding of the company’s shares by 46%.
On October 4, 2022, Matthew Akers, an analyst at Wells Fargo, increased his target price to $516 while keeping an Equal Weight rating on the company’s shares. The analyst believes that the defense stocks can provide a good return given the current geopolitical tensions and higher military spending across the globe.
Here is what LRT Capital Management had to say about Northrop Grumman Corporation in its second-quarter 2022 investor letter:
Based in Virginia, Northrop Grumman is one of the world’s largest defense contractors with annual revenue of more than $30 billion. The company operates in a cozy oligopoly, that after decades of consolidation, the U.S. defense market is now controlled by five large companies: The Boeing Company, General Dynamics Corporation, Lockheed Martin Corporation, Northrop Grumman Corporation, and Raytheon Technologies Corporation.
Industry barriers to entry are immense, government procurement cycles are extremely long, and the consolidated industry structure reflects this. This industry structure has allowed Northrop to earn stable mid-teens returns on invested capital (ROIC) and grow earnings per share at a rate of over 13% per year in the past decade, despite a topline that has grown only in-line with inflation. Even after the recent run-up in the stock price, it trades at approximately 15x, next year’s earnings estimates, far below the S&P 500 index, despite being an above average company. While nominally, there are five major defense contractors, the true industry concentration is even higher because not all companies compete in all possible business segments. General Dynamics’ division submarine division, Electric Boat, is the sole supplier of nuclear power submarines in the United States. Lockheed Martin is the sole supplier of the F-35 and F-22. Northrop was the sole bidder on the contract to develop the next generation of intercontinental ballistic missiles, and so on.
The company’s revenue growth over the past decade has been mediocre, but even that has led to impressive shareholder returns that have far outpaced the S&P500. What’s more, we believe that revenue growth may accelerate in the next few years. A lot of ink spilled every year about the “massive” U.S. defense budget7 that critics claim is “out of control” 8. Given this, you might be surprised to hear that U.S. defense spending as a share of GDP is at the lowest level in recorded history,9 at a mere 3.8%. In other words, U.S. military spending could double and not be out of line with historical norms. While we are not calling for a new Cold War, given the global instability we are witnessing, it is not unreasonable to expect defense spending to grow faster than GDP over the next decade.
5. Microsoft Corporation (NASDAQ:MSFT)
Clough Capital Partners Stake: $32,873,000
Percentage of Clough Capital Partners’ Portfolio: 4.07%
Number of Hedge Fund Holders: 258
Microsoft Corporation is one of the biggest technology companies in the world, famous for its Windows operating system and Office products. Amidst a broader market tech sell-off, Charles Clough also reduced his exposure to the I.T company by 44% during Q2 2022. The fund’s investment in Microsoft Corporation at the end of the second quarter amounted to over $32 million.
On October 4, 2022, Timothy Horan, an analyst at Oppenheimer, reduced his price target on Microsoft Corporation to $275. The analyst believes that due to the strengthening of the U.S. dollar, there would be a negative F/X impact on the company’s bottom-line in 2023 and 2024.
As per Insider’s Monkey database, 258 hedge funds were long Microsoft Corporation at the end of Q2 2022. Fisher Asset Management had the highest stake in the company, amounting to a value of over $7 billion. The fund increased its stake during the second quarter by 3%.
Here is what Baron Funds had to say about Microsoft Corporation in its second-quarter 2022 investor letter:
Shares of Microsoft Corporation, a leading global provider of software solutions, declined 16.6% in the quarter along with the broader software group as well as due to growing concerns of a potential macro-driven slowdown. This is despite the company posting strong quarterly financial results and successfully absorbing headwinds from the war in Ukraine. The company had 21% revenue growth, 23% operating income growth, and 35% growth in Microsoft Cloud (all year-over-year in constant currency), which now represents 47% of total revenues.
As discussed above, we continue to believe Microsoft remains a durable and growing business as companies across all industries look to digitally transform, taking advantage of the continuously expanding solution set Microsoft has to offer.
4. Exxon Mobil Corporation (NYSE:XOM)
Clough Capital Partners Stake: $33,614,000
Percentage of Clough Capital Partners’ Portfolio: 4.17%
Number of Hedge Fund Holders: 72
Exxon Mobil Corporation (NYSE:XOM) is an oil and gas firm involved in the exploration and refining of oil across the world. Clough Capital Partners’ stake in Exxon Mobil Corporation stood at over $33 million at the end of Q2 2022. The fund continued to invest in the company as it increased the total stake by 12% during the previous quarter.
At the end of the second quarter, GQG Partners was the biggest stakeholder of Exxon Mobil Corporation, with an investment value of approximately $4 billion in the company’s stock. As per Insider’s Monkey database, 72 hedge funds owned stakes in Exxon Mobil Corporation at the end of Q2 2022.
First Eagle Investments mentioned Exxon Mobil Corporation in its second quarter 2022 investor letter. Here’s what it said:
Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the U.S., the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the U.S., which industrywide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.
3. Visa Inc. (NYSE:V)
Clough Capital Partners Stake: $34,365,000
Percentage of Clough Capital Partners’ Portfolio: 4.26%
Number of Hedge Fund Holders: 166
Visa Inc. is the biggest payment processor in the world. Clough Capital Partners stake in the company at the end of the June quarter stood at approximately $34 million. Visa Inc. shares constituted 4.26% of the total value of the fund’s portfolio at the end of Q2 2022.
Visa Inc. had a stellar fiscal Q3 2022 as the company posted a normalized EPS of $1.98, well above the consensus estimate of $1.75.
As per Insider’s Monkey database, 166 hedge funds were bullish on Visa Inc. at the end of the second quarter. TCI Fund Management turned out to be the biggest stakeholder of the company at the end of the second quarter, with a holding of 19,924,121 company shares, amounting to a value of approximately $4 billion.
Here is what Baron Fintech Fund has to say about Visa Inc. in its Q2 2022 investor letter:
The Fund’s holdings in the Payments and Information Services themes also contributed to relative performance. Within Payments, lower exposure to this lagging theme and outperformance of Visa, Inc.. These global payment networks are viewed as safe havens during market downturns but are also benefiting from resilient payment volumes and a sharp rebound in international travel.
2. Starwood Property Trust, Inc. (NYSE:STWD)
Clough Capital Partners Stake: $44,272,000
Percentage of Clough Capital Partners’ Portfolio: 5.49%
Number of Hedge Fund Holders: 13
Starwood Property Trust, Inc. is a real estate investment firm managing and acquiring commercial mortgage loans. Charles Clough continued to raise his exposure to Starwood Property Trust, Inc. during the second quarter. The fund held 2,119,300 at the end of Q2 2022, an increase of 4% from the previous quarter.
On September 6, 2022, Derek Hewett, an analyst at Bank of America, initiated coverage of Starwood Property Trust, Inc. with a price target of $26. The analyst believes that the company’s robust liquidity profile and strong track record position the company to perform well in the future.
According to Insider’s Monkey database, 13 hedge funds were bullish on Starwood Property Trust, Inc. at the end of Q2 2022. Cardinal Capital had the highest stake in the company, with an investment value of approximately $104 million.
1. Raytheon Technologies Corporation (NYSE:RTX)
Clough Capital Partners Stake: $63,043,000
Percentage of Clough Capital Partners’ Portfolio: 7.82%
Number of Hedge Fund Holders: 45
Raytheon Technologies Corporation is a supplier of aerospace and defense equipment. Clough Capital Partners stake in Raytheon Technologies Corporation amounted to over $63 million at the end of Q2 2022. The fund continued to add to its stake during the second quarter, increasing its holding by 44%.
Raytheon Technologies Corporation had a good Q2 2022, reporting revenue of $16.3 billion, up 2.7%, and a normalized EPS of $1.16, beating the market estimate by $0.05. The management noted that inflation, labor shortages, and supply chain constraints pose challenges in the near-term for the company. On October 4, 2022, Raytheon Technologies Corporation entered into a $225 million contract with the Naval Air Systems Command.
Here is what Carillon Tower Advisers had to say about Raytheon Technologies Corporation in its first-quarter 2022 investor letter:
Raytheon outperformed along with other defense contractors on rising geopolitical concerns. Military sales account for more than half of revenue. Key franchise programs include the Patriot Missile and F-35 engine, which have provided visible support through most of the decade.
You can also take a look at 10 American Stocks That Will Benefit from the New Cold War and Long-Term Stock Portfolio: 11 Tech Stocks To Consider.
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This article is originally published at Insider Monkey.
