Top 10 Stock Picks of Scott Ferguson’s Sachem Head Capital

Published on November 17, 2021 at 5:25 am by Burha Kabbir in Hedge Funds, News

In this article, we discuss the top 10 stock picks of Scott Ferguson’s Sachem Head Capital.

Scott Ferguson, a value-oriented investor, has become one of the most famous finance personalities on the internet in the past few years due to his investment style and philanthropic nature. He is acclaimed for being one of the few hedge fund managers who have strategically perfected the art of using value-oriented investments to reap substantial returns. The investor founded Sachem Head Capital Management in 2012 and is currently the fund’s managing partner and portfolio manager. Before founding Sachem Head, he worked for nine years at Pershing Square Capital Management.

Ferguson earned an MBA degree from Harvard Business School in 2003. He also served as Vice President at American Industrial Partners from 1999 to 2001. He started his career in finance as an analyst at McKinsey & Company after graduating from Stanford University.

Drawing from over two decades of experience, Ferguson crafts customized investment strategies. His top holdings are concentrated in the materials, healthcare and information technology sectors. According to the 13F filings from the end of the second quarter, his hedge fund had a portfolio value of $3.86 billion. The fund made new purchases in 4 stocks between June and September, sold out of 5 stocks, made additional purchases in 4 stocks, and reduced holdings in 4 stocks. The turnover percentage at the end of June 2021 was 48.00%.

According to Nasdaq, Sachem Head Capital Management’s staggering returns of 45.6% in 2020 put Ferguson among the best-performing investors of the year.

Some of the top stock picks of Scott Ferguson presently include Facebook, Inc. (NASDAQ:FB), Olin Corporation (NYSE:OLN), and US Foods Holding Corp. (NYSE:USFD), among others discussed in detail below.

Scott Ferguson Sachem Head Capital

Our Methodology

Here is our list of the top 10 stock picks of Scott Ferguson’s Sachem Head Capital.

We picked these stocks from the Q2 portfolio of Sachem Head.

Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox

10. Constellium SE (NYSE:CSTM)

Value of Sachem Head Capital’s Stake : $71.3 million

Percentage of Sachem Head Capital’s 13F Portfolio: 1.84%

No. of Hedge Fund Holders: 28

Constellium SE (NYSE:CSTM) manufactures high-value-added aluminum products and solutions. According to the 13F filings from the end of June, Sachem Head Capital owns 3.7 million shares worth more than $71 million in Constellium SE (NYSE:CSTM).

At the end of the second quarter of 2021, 28 hedge funds in the database of Insider Monkey held stakes worth more than $365 million in Constellium SE (NYSE:CSTM), down from 36 the preceding quarter.

Goldman Sachs analyst Emily Chieng, on September 9, initiated coverage of Constellium SE (NYSE:CSTM) stock with a Buy rating and a price target of $25.

Just like Meta Platforms, Inc. (NASDAQ:FB), Olin Corporation (NYSE:OLN) and US Foods Holding Corp. (NYSE:USFD), Constellium SE (NYSE:CSTM) is also one of the notable stocks in Scott Ferguson’s Sachem Head Capital’s 13F portfolio.

ClearBridge Investments mentioned Constellium SE (NYSE:CSTM) in its Q2 2021 investor letter. Here is what the fund said:

“We continue to find companies we believe fit this description at reasonable prices, such as Constellium, a new position in the second quarter. Constellium is an aluminum processor with a history of excess returns on capital above cost that has lagged during a major capacity increase to serve the auto industry, which should see strong demand given aluminum’s favorable environmental characteristics relative to steel.”

9. LivaNova PLC (NASDAQ:LIVN)

Value of Sachem Head Capital’s Stake: $74.9 million

Percentage of Sachem Head Capital’s 13F Portfolio: 1.93%

No. of Hedge Fund Holders: 36

LivaNova PLC (NASDAQ:LIVN) is a medical technology company. This company develops devices for heart surgery and neuromodulation.

Harris Associates is the most significant stakeholder of LivaNova PLC (NASDAQ:LIVN) as of the second quarter of 2021, with 3.8 million shares worth more than $318 million. At the end of June 2021, 36 funds out of 873 tracked by Insider Monkey had stakes in LivaNova PLC (NASDAQ:LIVN), up from 28 the preceding quarter.

The company beat market expectations on earnings per share in the third fiscal quarter. Analysts are bullish on the firm’s long-term prospects, with investment advisors like Piper Sandler, Needham and Baird raising their price targets on the stock.

LivaNova PLC (NASDAQ:LIVN) is one of the famous companies in Ferguson’s portfolio, like Meta Platforms, Inc. (NASDAQ:FB), Olin Corporation (NYSE:OLN) and US Foods Holding Corp. (NYSE:USFD).

8. Uber Technologies, Inc. (NYSE:UBER)

Value of Sachem Head Capital’s Stake: $77.7 million

Percentage of Sachem Head Capital’s 13F Portfolio: 2.01%

No. of Hedge Fund Holders: 135

Uber Technologies, Inc. (NYSE:UBER) offers ride-hailing services. The firm creates mobile applications for transportation, navigation, ride-sharing, and payment processing.

Uber Technologies, Inc. (NYSE:UBER) is the latest addition to Scott Ferguson’s hedge fund portfolio, with Sachem Head Capital purchasing 1.6 million shares worth $77.7 million. According to data tracked by Insider Monkey, Altimeter Capital Management of Brad Gerstner is also one of the leading shareholders in Uber Technologies, Inc. (NYSE:UBER) as of the end of the second quarter, with more than 24 million shares worth $1.2 billion. Overall, 135 funds were bullish on Uber by the end of the June quarter, compared to 130 in the previous quarter.

Meta Platforms, Inc. (NASDAQ:FB), Olin Corporation (NYSE:OLN) and US Foods Holding Corp. (NYSE:USFD) are some of the significant stocks in Ferguson’s portfolio, just like Uber Technologies, Inc. (NYSE:UBER).

ClearBridge Investments mentioned Uber Technologies, Inc. (NYSE:UBER) in its Q2 2021 investor letter. Here is what the fund said:

“The pandemic has also brought attention to the question of gig worker employment status for companies, including ClearBridge holdings Uber and Lyft. In the U.K., Uber proactively classified its drivers as “workers” ahead of final rulings from the British court system. The worker status in the U.K. is a designation between self-employed and employed status that entitles drivers to minimum wage, holiday pay and in some cases a pension.

ClearBridge has engaged with Uber on labor issues since its IPO, and we have given feedback over that time to the CEO, CFO, Chief Legal Officer and Investor Relations on labor relations as well as strategy and communications. Uber’s agreement on this designation is ahead of other competitors in the market and the legal mandate represents a step forward in the company’s thinking about labor. The agreement represents a short-term hit to earnings, yet in some ways it places Uber ahead of the market in its ability to balance labor and shareholder interests. Workers benefit from improved conditions, with new contributions amounting to roughly 3% of a driver’s earnings, while Uber establishes more certainty on costs and visibility into its regulatory environment and operation conditions in the future.”

7. Carvana Co. (NYSE:CVNA)

Value of Sachem Head Capital’s Stake: $108.7 million

Percentage of Sachem Head Capital’s 13F Portfolio: 2.81%

No. of Hedge Fund Holders: 63

Carvana Co. (NYSE:CVNA) is an e-commerce company. It uses a user-friendly technology platform for marketing second hand vehicles. Sachem Head Capital increased its stake in the firm by 106% in the second quarter of 2021.

In the third fiscal quarter, Carvana Co. (NYSE:CVNA) reported an EPS of -$0.38, missing market estimates by $0.11. The company’s revenue during the period came in at $3.48 billion, beating estimates by $220 million.

As of the end of the second quarter of 2021, 63 hedge funds tracked by Insider Monkey reported owning stakes in Carvana Co. (NYSE:CVNA). The total worth of these stakes is $8.9 billion. This is compared to 64 hedge funds in the previous quarter with a total stake value of $7.5 billion.

Carvana Co. (NYSE:CVNA) is one of the prominent companies in Ferguson’s portfolio, like Meta Platforms, Inc. (NASDAQ:FB), Olin Corporation (NYSE:OLN) and US Foods Holding Corp. (NYSE:USFD).

6. Flex Ltd. (NASDAQ:FLEX)

Value of Sachem Head Capital’s Stake: $181.2 million

Percentage of Sachem Head Capital’s 13F Portfolio: 4.69%

No. of Hedge Fund Holders: 43

Flex Ltd. (NASDAQ:FLEX) provides electronics manufacturing services.

At the end of the second quarter of 2021, Sachem Head Capital held more than 10 million shares of Flex Ltd. (NASDAQ:FLEX) worth $ 181.2 million, representing 4.69% of the hedge fund’s 13F portfolio.

At the end of June 2021, 43 funds out of 873 tracked by Inside Monkey held stakes in the company, down from 48 in the previous quarter.

Sound Shore Management mentioned Flex Ltd. (NASDAQ:FLEX) in their Q4 2020 investor letter. Here is what the fund said:

“Our third quarter addition of contract manufacturer Flex provides a great example. Originally an electronics-focused outsource manufacturer with highly cyclical cash flows and short product lifecycles, the company has evolved its customer base toward the capital goods, automotive and healthcare industries. Having successfully recast itself as a longer-cycle, “new industrial,” Flex’s stock is benefitting from more stable and diversified cash flows and more consistent revenue growth. CEO Revathi Advaithi joined in early 2019 and she has refocused the company by accelerating the transition to these longer-cycle businesses. Moreover, the company has been shareholder oriented, using the company’s ample free cash to reduce shares outstanding by 35% in the last decade. Lastly, Flex’s Nextracker division should provide nice upside. The solar tracking company manufactures motors, software and systems for utility-scale power generation projects and business is growing quickly as the shift toward sustainable energy sources hastens. We believe Nextracker is underappreciated and could represent a significant amount of hidden value. At 13 times earnings Flex is a very attractive risk reward opportunity.”

5. Meta Platforms, Inc. (NASDAQ:FB)

Value of Sachem Head Capital’s Stake: $208.6 million

Percentage of Sachem Head Capital’s 13F Portfolio: 5.4%

No. of Hedge Fund Holders: 266

Meta Platforms, Inc. (NASDAQ:FB) is a technology company. It allows users to communicate and exchange information using mobile devices and PCs. The company’s main products are Facebook, Instagram, Messenger, WhatsApp, and Facebook Reality Labs.

Sachem Head Capital allocated 5.4% of its 13F portfolio to Meta Platforms, Inc. (NASDAQ:FB), based on the Q2 filings of the fund.

Polen Capital mentioned Meta Platforms, Inc. (NASDAQ:FB) in its Q3 2021 investor letter. Here is what the fund said:

“Facebook’s stock was pressured on concerns about regulation in the quarter. We are constantly monitoring the potential regulatory risks to Facebook (and all of our holdings). At this point, we see very little chance that regulation changes Facebook’s business model in a meaningful and adverse way. Regarding the recent data shared by a former Facebook employee and the company itself on some of the unfortunate negative consequences of social media, we recognize these types of issues will inevitably linger in different forms and fashions well into the future. We have been focused on the ability of
Facebook to identify and mitigate these negative consequences while amplifying the value users typically cite for its apps across a long list of use cases. We continuously monitor the vibrance of the user base on Facebook’s apps to confirm that value.”

4. US Foods Holding Corp. (NYSE:USFD)

Value of Sachem Head Capital’s Stake: $215.8 million

Percentage of Sachem Head Capital’s 13F Portfolio: 5.58%

No. of Hedge Fund Holders: 35

US Foods Holding Corp. (NYSE:USFD) is a food distributor. By the end of the second quarter of 2021, 35 hedge funds out of the 873 tracked by Insider Monkey held stakes in US Foods Holding Corp. (NYSE:USFD), worth roughly $1.4 billion. Our data shows that Leonard Green & Partners is the leading shareholder in the company, with 7 million shares worth $268.5 million.

According to the third fiscal quarter results, US Foods Holding Corp. (NYSE:USFD) reported an EPS of $3.22, beating estimates by $0.05. The company’s revenue came in at $29.01 billion, up 21% year-over-year.

3. Olin Corporation (NYSE:OLN)

Value of Sachem Head Capital’s Stake: $691.6 million

Percentage of Sachem Head Capital’s 13F Portfolio: 17.91%

No. of Hedge Fund Holders: 37

Olin Corporation (NYSE:OLN) is a chemical and ammunition maker and distributor. Chlor Alkali Products & Vinyls, Epoxy, and Winchester are the three segments in which the company operates.

Sachem Head Capital Stake owns approximately 15 million shares worth $691.6 million in Olin Corporation (NYSE:OLN), accounting for 17.91% of its total holdings.

At the end of the second quarter of 2021, 37 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in the firm.

Analysts are bullish on Olin Corporation’s (NYSE:OLN) long-term prospects, with investment advisories like Piper Sandler, JPMorgan, Wells Fargo, KeyBanc, and Citi raising their price targets on the stock in October.

2. Elanco Animal Health Incorporated (NYSE:ELAN)

Value of Sachem Head Capital’s Stake: $965.6 million

Percentage of Sachem Head Capital’s 13F Portfolio: 25%

No. of Hedge Fund Holders: 42

Elanco Animal Health Incorporated (NYSE:ELAN) is a pharmaceutical firm that manufactures medicines and vaccines for pets and livestock. Our data shows that Sachem Head Capital is the biggest shareholder of the company with more than 27 million shares worth $965.6 million.

On October 28, investment advisory Stifel downgraded Elanco Animal Health Incorporated (NYSE:ELAN) stock to Hold from Buy and decreased its price target to $34 from $37, stating that the global livestock market is still in a difficult situation.

1. International Flavors & Fragrances Inc. (NYSE:IFF)

Value of Sachem Head Capital’s Stake: $972.5 million

Percentage of Sachem Head Capital’s 13F Portfolio: 25.18%

No. of Hedge Fund Holders: 52

International Flavors & Fragrances Inc. (NYSE:IFF) manufactures and sells flavors, fragrances, and cosmetics worldwide. In October, Christopher Parkinson of Mizuho initiated coverage of International Flavors & Fragrances Inc. (NYSE:IFF) stock with a Neutral rating and $54 price target.

As of the end of the second quarter, 52 hedge funds tracked by Insider Monkey owned stakes in International Flavors & Fragrances Inc. (NYSE:IFF). The total value of these stakes is $3.3 billion. This is compared to 55 hedge funds in the previous quarter with stakes worth $3.6 billion.

Rhizome Partners mentioned International Flavors & Fragrances Inc. (NYSE:IFF) in its Q1 2021 investor letter. Here is what the fund said:

“We are still getting used to the higher multiples that investors will pay for larger market cap and pure play companies such as IFF. We do understand the market’s rationale. IFF’s products account for a small percentage of the customers’ cost while playing critical roles in the products’ performance. With some operating leverage, the company can probably grow FCF at 4-6% a year. This brings the total return close to the long-term return of the S&P 500 index of 10%. Through trial and error, we have come to appreciate how scale, higher market share, route densities, switching costs, and collaborative relationships amongst major industry players can contribute to sustained high returns on invested capital.”

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