In this article, we discuss the top 10 stock picks of the Chinese billionaire Lei Zhang.
Lei Zhang founded Hillhouse Capital Management in 2005, and serves as the chairman and chief executive officer of the investment management firm, overseeing a portfolio valued at $7.64 billion as per the latest 13F filings from September 2021. Zhang is one of the top Asian investors, with a portfolio focused on the media, consumer, industrial and commodity-related sectors. With a top ten holdings concentration of 69.19%, the largest security in Zhang’s Q3 portfolio is BeiGene, Ltd. (NASDAQ:BGNE), which represents 25.98% of the Hillhouse Capital Management’s total investments.
Lei Zhang completed his Bachelor’s degree in economics from Renmin University of China in 1994, and received an MBA from Yale University in 2002. At Hillhouse Capital Management, Zhang manages capital on behalf of global institutions such as non-profit foundations and pension funds. The investment management firm holds stakes in top-notch businesses for the long run, investing across companies offering growth and buyout opportunities.
Lei Zhang of Hillhouse Capital Management
The most notable stocks in Lei Zhang’s investment portfolio as of September this year include Pinduoduo Inc. (NASDAQ:PDD), JD.com, Inc. (NASDAQ:JD), Alibaba Group Holding Limited (NYSE:BABA), and Mondelez International, Inc. (NASDAQ:MDLZ), among others discussed in detail below.
Our Methodology
We used the Q3 portfolio of Lei Zhang’s Hillhouse Capital Management to select the billionaire’s top 10 stocks. To give readers meaningful context regarding each company, we mention the Q3 earnings, analyst ratings, and the hedge fund sentiment surrounding the holdings.
Top Stock Picks of Chinese Billionaire Lei Zhang
10. DoorDash, Inc. (NYSE:DASH)
Hillhouse Capital Management’s Stake Value: $246,414,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 3.22%
Number of Hedge Fund Holders: 42
DoorDash, Inc. (NYSE:DASH) is the largest American food delivery platform from California, operating in the United States, Australia, and Canada. Zhang’s Hillhouse Capital Management holds a $246.4 million stake in DoorDash, Inc. (NYSE:DASH) as of September 2021, which represents 3.22% of the firm’s Q3 investments.
DoorDash, Inc. (NYSE:DASH) posted its Q3 results on November 9. EPS for the quarter equaled $0.43, beating estimates by $0.32. The $1.27 billion revenue also exceeded estimated revenue by $98.79 million. KGI Securities analyst Andrew Cheng on November 22 upgraded DoorDash, Inc. (NYSE:DASH) to Outperform from Neutral with a $270 price target.
As of the third quarter of 2021, 42 hedge funds were bullish on DoorDash, Inc. (NYSE:DASH), down from 45 in the preceding quarter. The total value of these stakes amounted to $9.35 billion. Chase Coleman and Feroz Dewan’s Tiger Global Management LLC is the leading stakeholder in DoorDash, Inc. (NYSE:DASH), with over 11 million shares valued at $2.27 billion.
In addition to Pinduoduo Inc. (NASDAQ:PDD), JD.com, Inc. (NASDAQ:JD), Alibaba Group Holding Limited (NYSE:BABA), and Mondelez International, Inc. (NASDAQ:MDLZ), DoorDash, Inc. (NYSE:DASH) is a notable stock in Zhang’s Q3 portfolio.
9. BridgeBio Pharma, Inc. (NASDAQ:BBIO)
Hillhouse Capital Management’s Stake Value: $251,318,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 3.28%
Number of Hedge Fund Holders: 28
BridgeBio Pharma, Inc. (NASDAQ:BBIO) is a biopharmaceutical company engaged in manufacturing life-changing drugs for genetic diseases and cancers with clear genetic drivers. Lei Zhang owns 5.36 million shares in BridgeBio Pharma, Inc. (NASDAQ:BBIO), worth $251.3 million as of Q3 2021, representing 3.38% of Zhang’s stock portfolio.
Andreas Halvorsen’s Viking Global is the leading BridgeBio Pharma, Inc. (NASDAQ:BBIO) stakeholder as of September, holding a $1.24 billion position in the company. Overall, 28 hedge funds in the database of Insider Monkey’s 867 elite funds were long BridgeBio Pharma, Inc. (NASDAQ:BBIO) in Q3, with a total stake value of $2.1 billion.
BridgeBio Pharma, Inc. (NASDAQ:BBIO) posted its Q3 results on November 4, with EPS for the quarter being -$1.06, missing estimates by -$0.13. The $2.34 million revenue was down 71.16% from the prior-year quarter, missing expected revenue by -$13.78 million.
Here is what Baron Opportunity Fund has to say about BridgeBio Pharma, Inc. (NASDAQ:BBIO) in its Q2 2021 investor letter:
“BridgeBio Pharma, Inc. is a biotechnology company developing drugs that address a host of genetic disorders. Shares fell in the quarter given concerns around increasing competition. While we expect positive results from BridgeBio’s Phase 3 trial for its lead program for TTR amyloidosis, a disease in which toxic proteins build up in the heart and nerves, encouraging updates from Alnylam’s competing drug, Vitrusiran, and more recently, Intellia’s gene editing platform, pressured the stock. We exited our position.”
8. Pinduoduo Inc. (NASDAQ:PDD)
Hillhouse Capital Management’s Stake Value: $254,601,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 3.32%
Number of Hedge Fund Holders: 49
Pinduoduo Inc. (NASDAQ:PDD) is an agriculture-focused Chinese technology company, working diligently to connect farmers directly with customers, creating an immersive and straightforward shopping experience. Zhang holds a $254.6 million stake in Pinduoduo Inc. (NASDAQ:PDD), which accounts for 3.32% of his Q3 investments.
At the end of the third quarter of 2021, 49 hedge funds from Insider Monkey’s database reported owning stakes in Pinduoduo Inc. (NASDAQ:PDD), valued at $3.53 billion. This is compared to the same number of hedge funds in the prior quarter, with a total stake value of $5.27 billion. One of the leading stakeholders of the company is Eashwar Krishnan’s Tybourne Capital Management, holding a $317 million stake.
Barclays analyst Jiong Shao initiated coverage of Pinduoduo Inc. (NASDAQ:PDD) with an Equal Weight rating and a $103 price target. The analyst gave a broader comment that China, as the second largest world economy, cannot be ignored as a lucrative investment avenue, rating the Chinese technology sector with a Positive view.
Here is what Baillie Gifford has to say about Pinduoduo Inc. (NASDAQ:PDD) in its Q2 2021 investor letter:
“As many countries enjoy a relaxation of Covid restrictions, Mr Market is focussed on short-term beneficiaries of ‘the pleasure after the plague’. There are interesting parallels with the Roaring 20s here, but to our minds, they extend beyond post-pandemic hedonism. Much of the new wealth created in the 1920s was patchily distributed and accompanied by a pervasive sense that the older generation had let down younger people. In 1920, John F. Carter, an irate 23-year-old wrote “the older generation had certainly pretty well ruined this world before passing it on to us. We have been forced to live in an atmosphere of ‘tomorrow we die,’ and so, naturally, we drank and were merry.”
In a similar vein, some of the greatest Growth opportunities are materialising from the companies that are shifting humankind towards more sustainable ways of consuming by driving efficiencies and eliminating surplus. Pinduoduo’s ‘farm to table’ platform is one example – cutting out huge waste in farm produce and short circuiting layers of infrastructure by matching Chinese food supply and demand through a group buying model. In a similar vein, Meituan is well on the way to developing China’s primary ‘Software as a Service’ ecosystem for food distribution which we believe has a strong chance of replacing wasteful wet markets as the primary channel for transacting in produce.
Pinduoduo’s share price pulled back following news that Chinese regulators are investigating possible anti-competitive activities by the country’s large online companies. However, Pinduoduo appears well placed to navigate such regulatory scrutiny in the long-term, helped in part by its community-buying business model that benefits consumers, manufacturers and farmers alike. Its business fundamentals are stellar– the company remains the largest Chinese e-commerce platform, with over 820 million annual active users (surpassing Alibaba and JD.com), while revenue growth increased by 239% over the previous year.”
7. iQIYI, Inc. (NASDAQ:IQ)
Hillhouse Capital Management’s Stake Value: $310,347,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 4.05%
Number of Hedge Fund Holders: 23
iQIYI, Inc. (NASDAQ:IQ) is an online streaming platform offering Asian TV shows and movies. iQIYI, Inc. (NASDAQ:IQ) represents 4.05% of Lei Zhang’s Q3 portfolio, with the Chinese billionaire holding 38.6 million shares in the company, valued at $310.3 million.
As of Q3 2021, 23 hedge funds were long iQIYI, Inc. (NASDAQ:IQ), down from 27 in the preceding quarter. The total stake value amounted to $476.6 million, with Hillhouse Capital Management being the leading stakeholder.
iQIYI, Inc. (NASDAQ:IQ) announced on November 17 its Q3 earnings. EPS in the quarter totaled -$0.34, beating estimates by $0.01. The $1.19 billion revenue was up 9% year-over-year, exceeding expected revenue by $0.62 million.
Citi analyst Alicia Yap on November 18 lowered the price target on iQIYI, Inc. (NASDAQ:IQ) to $8.80 from $10 and kept a Neutral rating on the shares, following the Q3 results and the lack of a near-term catalyst.
6. salesforce.com, inc. (NYSE:CRM)
Hillhouse Capital Management’s Stake Value: $340,158,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 4.44%
Number of Hedge Fund Holders: 119
Lei Zhang’s Hillhouse Capital Management owns 1.25 million shares in salesforce.com, inc. (NYSE:CRM), as of Q3 2021, worth $340.1 million, representing 4.44% of the firm’s 13F securities. salesforce.com, inc. (NYSE:CRM) is a California-based technology company offering enterprise software for customer relationship management, marketing automation, data analytics, and application development.
Fisher Asset Management is the leading salesforce.com, inc. (NYSE:CRM) stakeholder out of the 119 hedge funds that reported owning stakes in the company as of September this year, with the investment firm holding a $3.77 billion position in salesforce.com, inc. (NYSE:CRM).
salesforce.com, inc. (NYSE:CRM) was awarded an Overweight rating with a $360 price target on November 22 by analyst Peter Sazel from the investment advisory Atlantic Equities. He views salesforce.com, inc. (NYSE:CRM) as a low risk investment in the tech sector, with features that are hard to replicate.
In addition to Pinduoduo Inc. (NASDAQ:PDD), JD.com, Inc. (NASDAQ:JD), Alibaba Group Holding Limited (NYSE:BABA), and Mondelez International, Inc. (NASDAQ:MDLZ), salesforce.com, inc. (NYSE:CRM) is a notable stock in Zhang’s Q3 portfolio.
Here is what Polen Capital has to say about salesforce.com, inc. (NYSE:CRM) in its Q3 2021 investor letter:
“Salesforce came under pressure earlier in the year after agreeing to purchase Slack for about $26 billion. Since then, management has articulated well the strategic rationale and integration of Slack into its other software offerings and has demonstrated continued double-digit organic revenue growth within its legacy product offerings. At its recent investor day, the company also outlined long-term growth plans in line with our estimates but probably above what others may have been expecting, especially on margin expansion.”
5. JD.com, Inc. (NASDAQ:JD)
Hillhouse Capital Management’s Stake Value: $344,390,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 4.50%
Number of Hedge Fund Holders: 66
JD.com, Inc. (NASDAQ:JD), a Chinese ecommerce company, is one of Lei Zhang’s top stock picks of the third quarter. Zhang, via Hillhouse Capital Management, owns 4.76 million shares in JD.com, Inc. (NASDAQ:JD), worth $344.3 million, representing 4.5% of the firm’s Q3 portfolio.
Of the 867 hedge funds tracked by Insider Monkey at the end of September, 66 funds were bullish on JD.com, Inc. (NASDAQ:JD) with stakes valued at over $9 billion. This is compared to 76 funds in the preceding quarter, with a total stake value of $10.6 billion.
One of the leading JD.com, Inc. (NASDAQ:JD) stakeholders as per Insider Monkey’s database is Daniel Sundheim’s D1 Capital Partners, holding 17.78 million shares in the company worth $1.28 billion.
JD.com, Inc. (NASDAQ:JD) posted Q3 earnings on November 18, with EPS for the quarter being $0.49, exceeding estimated EPS by $0.18. The $34.25 billion revenue was up 29.44% from the prior-year quarter, outperforming estimates by $709.63 million.
Following the solid Q3 earnings beat, Benchmark analyst Fawne Jiang on November 19 raised the price target on JD.com, Inc. (NASDAQ:JD) to $117 from $102 and kept a Buy rating on the stock. She stated that the company performed well despite the supply chain challenges.
Here is what Arisaig Partners has to say about JD.com, Inc. (NASDAQ:JD) in its Q2 2021 investor letter:
“JD.com, for example, continues to display impressive operating momentum, with sales on track to grow around 30% this year by our estimates. Looking longer term, this company is making a credible claim to be the dominant player in Chinese grocery ecommerce, an enormous chunk of overall consumption in China, and the last one yet to move online in a big way. We think that JD has a clear advantage over rivals here thanks to its integrated and fully self-managed logistics capabilities. Whereas an offline big box retailer might have 10-20,000 SKUs, JD offers 8 million. 90% of orders fulfilled by JD Logistics can be delivered on the same day or the next day to 500 million customers. The fact that JD has just 30 days of inventory tells us that this is a highly-optimised fulfilment chain. It is very hard to be both fast and efficient, and in order to achieve this it is necessary to know what inventory to hold in which warehouse, and when to hold it (“right place, right time, right person”), a highly information-intensive challenge. The only other retailer that comes close to being able to manage that level of complexity is Amazon, and indeed these are capabilities that are very hard to replicate, taking decades of painstaking investment, trial and error testing, and data accumulation.
Moreover, far from being some sort of ‘victim’, this company is most likely a beneficiary of tighter regulation in this sector. A recurrent message running through JD’s recent investor day was that of “deep purpose”, the objective being to create shared value for a broader ecosystem of customers, merchants and employees. As we describe in the next section on “Navigating China”, this form of alignment with the strategic objectives of the government is a very China-specific way of conceptualising ESG, and essential for all businesses that operate in this country to get right.
It has taken us many years to build up confidence on this name, and this was not a straightforward process for us. We began our due diligence on JD back in 2016 before investing in 2018. Speaking candidly, the next two years were very challenging from a behavioural investing standpoint. The stock price gyrated as the market fixated on quarterly results prints which, at face value, were mixed. Whilst the company was growing revenues and was operating cash flow positive over this period, it was also generally loss-making at a net level, having made the decision to re-invest aggressively in order to build scale and develop the world-leading logistics capabilities we mentioned above.
The fruits of these initiatives are only now becoming apparent. Despite continuing aggressive reinvestment, the power of scale leverage has been such that the company is now comfortably profitable, with operating profit of USD1.8bn over the last twelve months (a margin of 1.5%). Although hindsight is a wonderful thing, and we obviously could not be certain that today’s reality would be the eventual outcome for JD when we were assessing this a couple of years ago, we nonetheless felt that this was the most probable long-term destiny for the company. Meanwhile, the market was focussed on quarterly earnings versus ‘street’ expectations as opposed to thinking about the far greater long term intrinsic value that would result from JD’s dogged commitment to reinvest. For this reason, we topped up our position in the company back in late 2018. As fundamentals strengthened over the course of 2019 and 2020, so followed the share price.
Fast forward to the present day, and we see once again a share price decline which appears divorced from the fundamentals. JD’s shares are down 19% year-to-date from not particularly lofty valuations. Today our in-house DCF tool, the Arisaig “Crystal Ball”, projects around 14% long-term (20-year) returns. On a shorter-term view, the stock is trading at 15x FY23 EV/EBITDA. Both the Asia and the Global Funds have taken this opportunity to further increase our positions.
Again, returning to what is ‘knowable’ – there are close to a billion internet users in China. On average they spend c.4 hours per day online; 25% of retail spending is already online (it seems entirely plausible that the majority will be in the not-too-distant future); and China is re-inventing itself as a domestically-focussed consumer economy with innovation and digitisation acting as catalysts (this is not speculation, it is explicit government policy). This points to a very strong likelihood that the theme of digital consumption will be one of the defining features of China’s economic development over the coming decades. The logical follow-on is that owning the best-quality, highest-growth operators in this space (in our view: JD.com, Meituan and Alibaba) absolutely must be a keystone element in our investment strategy. This is about as close as we can come in the field of investment to what is truly ‘knowable’. This seems far more relevant than any discussions on short-term factor rotations or trying to catch some fleeting bounce in beaten down old economy stocks!
All of the above is to say that for long-term investors such as us, periods such as the past six months – lagging share-prices combined with ever-strengthening fundamentals – are times of opportunity. This focus on strategy not tactics, and a capacity to suffer through share price volatility, is the essence of a behavioural discipline which we term ‘Endurance Investing’. Whilst the notions of behavioural edge and time-horizon arbitrage are quite widely known, we believe that surprisingly few investors can follow through on this approach, mainly because incentive structures and performance measurement in our industry are so skewed towards the short-term. As we learned with JD in 2018, and as we are being reminded today, holding one’s nerve, shutting out the noise, and continuing to behave rationally during rough markets is not easy, but is precisely what we are paid to do. We are privileged to have a base of end investors who understand all of this, and have been rock solid over the course of this year. Indeed, we have enjoyed positive inflows across all three of our strategies. This alignment with our clients is ultimately what gives us the psychological comfort that makes endurance investing possible.”
4. On Holding AG (NYSE:ONON)
Hillhouse Capital Management’s Stake Value: $481,289,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 6.29%
Number of Hedge Fund Holders: 30
On Holding AG (NYSE:ONON) is a Zurich-based holding company that operates via its subsidiaries, offering athletic apparel and footwear. Zhang’s Hillhouse Capital Management holds a $481.2 million stake in On Holding AG (NYSE:ONON), representing 6.29% of the firm’s Q3 portfolio.
On Holding AG (NYSE:ONON) posted its earnings for the third quarter on November 16. EPS in the period came in at $0.08, exceeding estimates by $0.19. The Q3 revenue equaled $234.27 million, beating expected revenue by $35.73 million.
On November 17, Credit Suisse analyst Michael Binetti raised the price target on On Holding AG (NYSE:ONON) to $49 from $38 and kept an Outperform rating on the stock after the strong Q3 earnings results.
As of Q3 2021, 30 hedge funds in the database of Insider Monkey were long On Holding AG (NYSE:ONON), with stakes amounting to $832.5 million.
3. I-Mab (NASDAQ:IMAB)
Hillhouse Capital Management’s Stake Value: $520,685,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 6.80%
Number of Hedge Fund Holders: 18
I-Mab (NASDAQ:IMAB) is a clinical stage biotech company working on developing innovative medication for multiple cancers and autoimmune diseases. Lei Zhang holds a $520.6 million stake in I-Mab (NASDAQ:IMAB) as of the third quarter, which accounts for 6.8% of his total portfolio of investments.
I-Mab (NASDAQ:IMAB) is increasing its market footprint by acquiring biotech companies such as Roche Diagnostics and collaborating with multiple market players including Jumpcan Pharmaceutical and the Sinopharm Group.
As of September this year, 18 hedge funds in Insider Monkey’s database of elite funds were bullish on I-Mab (NASDAQ:IMAB), with a total stake value of $837.7 million. This is compared to the same number of funds in the prior quarter, with stakes amounting to $873.7 million.
2. Legend Biotech Corporation (NASDAQ:LEGN)
Hillhouse Capital Management’s Stake Value: $558,937,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 7.38%
Number of Hedge Fund Holders: 14
Legend Biotech Corporation (NASDAQ:LEGN) is a company specializing in stem cell therapies to transform oncology treatment. As of Q3 2021, Hillhouse Capital Management owns over 11 million shares in Legend Biotech Corporation (NASDAQ:LEGN), worth $558.9 million, representing 7.38% of the firm’s stock portfolio. BTIG analyst Justin Zelin on October 8 raised the price target on Legend Biotech Corporation (NASDAQ:LEGN) to $65 from $55 and kept a Buy rating on the shares.
At the end of the third quarter of 2021, 14 hedge funds in Insider Monkey’s database of elite funds reported owning stakes in Legend Biotech Corporation (NASDAQ:LEGN), valued at $947 million. Sander Gerber’s Hudson Bay Capital Management is one of the leading stakeholders of the company, holding a position valued at approximately $95 million.
On November 16, Legend Biotech Corporation (NASDAQ:LEGN) posted a Q3 EPS of -$0.43, beating estimated EPS by $0.03. Revenue for the quarter totaled $16.88 million, up 43.71% from the previous-year quarter, exceeding estimates by $9.05 million.
1. BeiGene, Ltd. (NASDAQ:BGNE)
Hillhouse Capital Management’s Stake Value: $1,986,430,000
Percentage of Hillhouse Capital Management’s 13F Portfolio: 25.98%
Number of Hedge Fund Holders: 16
BeiGene, Ltd. (NASDAQ:BGNE), a Chinese biotech company developing drugs for cancer treatment, is the largest holding in Lei Zhang’s Q3 portfolio, with the billionaire owning a $1.98 billion position in the company. The stock accounts for 25.98% of Zhang’s total investments as of the third quarter.
BeiGene, Ltd. (NASDAQ:BGNE) posted its Q3 results on November 4. EPS in the quarter came in at -$4.46, beating estimates by $0.11. The $206.44 million revenue was up 126.66% year-over-year, outperforming estimates by $20.18 million.
Bernstein analyst Liang Rebecca on October 18 initiated coverage of BeiGene, Ltd. (NASDAQ:BGNE) with an Outperform rating and a $431 price target, stating that the Chinese biotech and pharmaceutical sector had a global growth potential.
At the end of September this year, Julian Baker and Felix Baker’s Baker Bros. Advisors is the largest stakeholder in BeiGene, Ltd. (NASDAQ:BGNE), with 11.66 million shares amounting to $4.23 billion. Overall, 16 hedge funds were bullish on BeiGene, Ltd. (NASDAQ:BGNE) as of Q3, with a total stake value of $6.4 billion.
You can also take a look at Top 10 Stock Picks of Brian Scudieri’s Kehrs Ridge Capital and 10 New Stock Picks of Billionaire Stanley Druckenmiller.
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Disclosure: None. Top 10 Stock Picks of Chinese Billionaire Lei Zhang is originally published on Insider Monkey.
