In today’s piece, we will take a look at the top 10 stocks to invest in according to Alan Fournier’s Pennant Capital.
Alan Fournier is the chief investment officer and founder of Pennant Investors LLC, which is a firm based out of Summit, New Jersey. Pennant Investors, also known as Pennant Capital Management, has a portfolio of holdings that cover a multitude of companies located primarily in the entertainment and technology industry.
Mr. Fournier is the founder and chief investment officer of the firm that he created in 2001. Prior to beginning his journey at Pennant, the hedge fund executive worked in the financial industry for more than 12 years. He began his journey in 1988 when he started to work at Sanford C. Bernstein, a private equity firm founded in 1967. From Bernstein, Mr. Fournier moved on to Appaloosa Management. He has a bachelor’s in engineering from the Wentworth Institute of Technology, and his 20 years of experience at Pennant Capital has seen its share of ups and downs.
While as of the third quarter of this year the hedge fund has a portfolio worth $352 million, a sizeable amount, Mr. Fournier has seen his portfolio grow to nearly $6 billion in the past. As early as 2017 the fund saw its holdings cross $1 billion, but since then, they have been restricted at a fraction of that amount.
Some of Mr. Fournier’s hedge fund’s top holdings are in entertainment provider DISH Network Corporation (NASDAQ:DISH), semiconductor firm Micron Technology, Inc. (NASDAQ:MU) and automobile manufacturer General Motors Company (NYSE:GM).
Alan Fournier of Pennant Capital Management
Our Methodology
In order to understand which stocks and companies are on Mr. Fournier’s mind, we have sifted through Pennant Investor’s 13F-HR filings with the Securities and Exchange Commission (SEC) for the third quarter.
Top 10 Stocks to Invest in According to Alan Fournier’s Pennant Capital
10. Antero Resources Corporation (NYSE:AR)
Mr. Fournier’s Stake Value: $16.9 million
Percentage of Pennant Capital’s 13F Portfolio: 4.8%
Number of Hedge Fund Holders: 33
Antero Resources Corporation (NYSE:AR) is a natural gas site developer and gas producer in the United States. It was founded in 2002 and is headquartered in Delaware, Colorado. The company owns gas pipelines, compressor stations, and land all over America.
Mr. Fournier’s Pennant Capital Management held 900,000 Antero Resources Corporation shares by the end of this year’s third quarter. These were worth $16.9 million and represented 4.8% of the firm’s portfolio. Antero Resources Corporation reported $534 million in revenue and a non-GAAP EPS of $0.19 for its third fiscal quarter, missing analyst estimates on both counts.
Prior to Antero Resources Corporation’s third-quarter earnings release, Raymond James increased the company’s price target to $32, forecasting that the company’s production during the quarter would be in line with analyst estimates. Out of the 873 hedge funds surveyed by Insider Monkey for the second quarter, 33 had held a stake in the company.
Antero Resources Corporation’s largest investor is Mackenzie B. Davis and Kenneth L. Settles Jr’s SailingStone Capital Partners which owns 6 million shares worth $115 million by the end of the 2021 third quarter.
Alongside Micron Technology, Inc., General Motors Company, and DISH Network Corporation, Antero Resources Corporation is one of Mr. Fournier’s top stock picks.
9. Peloton Interactive, Inc. (NASDAQ:PTON)
Mr. Fournier’s Stake Value: $17.3 million
Percentage of Pennant Capital’s 13F Portfolio: 4.91%
Number of Hedge Fund Holders: 67
Peloton Interactive, Inc. (NASDAQ:PTON) is a fitness equipment and services provider headquartered in the United States. It provides products to its customers to enable them to exercise at home. Alongside, it also has a fitness service that streams classes to those interested.
The company earned $805 million in revenue and -$1.25 in GAAP earnings share for its first quarter fiscal 2022, missing analyst estimates on both counts. Peloton Interactive, Inc.’s price target was dramatically reduced to $70 by Roth Capital in a November 2021 analyst note which outlined that while new products at different price points can increase the company’s subscribers, its demand needs to firm up for a healthier outlook.
Mr. Fournier’s investment firm held 199,000 Peloton Interactive, Inc. shares that were worth $17.3 million and represented 4.9% of its portfolio by the end of the third quarter of this year. A survey of 873 hedge funds conducted by Insider Monkey in the prior quarter revealed that 67 had holdings in the company.
Peloton Interactive, Inc.’s the largest investor is Chase Coleman and Feroz Dewan’s Tiger Global Management LLC, which owns 7.1 million shares worth $626 million.
Investment management firm Carillon Tower Advisers in its second-quarter 2021 investor letter mentioned Peloton Interactive, Inc. and outlined that:
“Peloton Interactive operates a connected fitness platform offering live and on-demand classes allowing users to exercise at home. The firm’s shares were pressured in the quarter after Peloton announced a voluntary recall for both its legacy treadmill (Peloton Tread+) and its newly-launched base model treadmill (Peloton Tread). The issue surrounding the latter is somewhat troubling, as it appears it may be the result of an engineering flaw. This new treadmill offering was expected to be a key growth driver in the second half of 2021, and this development reduces our confidence in Peloton’s product pipeline. Therefore, we sold the stock.”
8. TransDigm Group Incorporated (NYSE:TDG)
Mr. Fournier’s Stake Value: $17.5 million
Percentage of Pennant Capital’s 13F Portfolio: 4.98%
Number of Hedge Fund Holders: 57
TransDigm Group Incorporated (NYSE:TDG) is an American designer and seller of components used in aircraft subsystems. The company’s offerings cover a wide variety of such systems, such as the cockpit, cargo loading, airframes, and seating. It also has a non-aviation segment that serves companies in the satellite and oil and gas markets.
TransDigm Group Incorporated’s price target was raised to $708 by Susquehanna in a November 2021 analyst note that saw the research firm worry about supply chain constraints and uncertain demand recovery for the company. TransDigm Group Incorporated earned $1.28 billion in revenue and $4.25 in non-GAAP EPS for its fourth quarter of fiscal 2021, beating analyst estimates for EPS and missing them for revenue.
Mr. Fournier’s Pennant Capital held 28,094 TransDigm Group Incorporated shares by the end of Q3 2021. These were worth $17.5 million and represented 4.98% of the firm’s portfolio. By second quarter end, 57 of the 873 hedge funds polled by Insider Monkey had holdings in the company.
TransDigm Group Incorporated’s largest shareholder is Chase Coleman and Feroz Dewan’s Tiger Global Management LLC, which owns a stake of a whopping $1 billion through 1.7 million shares.
Vulcan Value Partners, an investment firm, mentioned TransDigm Group Incorporated during its second-quarter 2021 investor letter which stated that:
“TransDigm Group Inc., another material contributor during the quarter, is an aerospace manufacturer providing highly engineered, niche components for use on commercial and military aircraft. The vast majority of the company’s profits come from aftermarket sales. Its business was impacted by the global pandemic; however, the company has been able to maintain margins despite strong revenue headwinds, and it continues to generate strong free cash flow.”
TransDigm Group Incorporated is on the list of Mr. Fournier’s pick of hot stocks, alongside DISH Network Corporation, Micron Technology, Inc., and General Motors Company.
7. Alphabet Inc. (NASDAQ:GOOG)
Mr. Fournier’s Stake Value: $19.7 million
Percentage of Pennant Capital’s 13F Portfolio: 5.6%
Number of Hedge Fund Holders: 155
Alphabet Inc. (NASDAQ:GOOG) is known for its ownership of the world’s largest search engine Google, which has become synonymous with the modern-day internet. It is an iconic American silicon valley brand that was founded during the late 1990s and is headquartered in Mountain View, California.
Mr. Fournier held 7,400 shares of Alphabet Inc. by the end of the third quarter. These were worth more than $19 million and represented 5.6% of his firm’s portfolio. Mizuho increased its price target to $3,100 in an October 2021 analyst note sharing optimism for search spending and the upcoming holiday season.
Alphabet Inc. earned $65.12 billion in revenue and $27.99 in GAAP EPS, beating analyst estimates on both counts during its third quarter of the fiscal year 2021. During the prior quarter, 155 out of the 873 hedge funds surveyed by Insider Monkey held a stake in the company.
Alphabet Inc.’s largest investor is Chris Hohn’s TCI Fund Management who owns a staggering 2.9 million shares worth $7.8 billion.
In its third-quarter 2021 investor letter, Madison Funds mentioned Alphabet Inc.. Here is what the fund said:
“We are also enjoying results from portfolio companies that are benefitting in the current environment. Our largest holding, Alphabet, is experiencing vigorous growth as digital advertising is very strong in the current environment. Google Search and YouTube revenues were $50 billion last quarter, up 69% year-over-year, and up 25% compounded annually over the two-year period since to 2019. We believe these results are driven by robust consumer on-line activity and strong advertising spending from retailers, brand advertisers, travel and financial service companies, and media and entertainment companies. More advertisers are also shifting their spending from traditional TV to YouTube, and this trend should continue as people spend massive hours consuming content there. Last quarter Alphabet management said YouTube has 2 billion monthly active users consuming over a billion hours of video content every day. An equally striking statistic, according to Google Senior Vice President Phillip Schindler, is that 70% of YouTube’s reach was to an audience not reached by advertisers’ traditional TV media. YouTube’s advertising business is accelerating with scale, which adds diversity to Alphabet’s advertising revenue streams.”
6. Charter Communications, Inc. (NASDAQ:CHTR)
Mr. Fournier’s Stake Value: $24.3 million
Percentage of Pennant Capital’s 13F Portfolio: 6.92%
Number of Hedge Fund Holders: 75
Charter Communications, Inc. (NASDAQ:CHTR) is a broadband connectivity and cable services provider. It is headquartered in Stamford, Connecticut and was founded in 1993. The company offers internet connections and connectivity equipment.
Mr. Fournier held 33,500 Charter Communications, Inc. shares by the end of Q3 this year. These were worth $24.3 million and represented 6.92% of Pennant Capital’s portfolio. Additionally, 75 of the 873 hedge funds polled by Insider Monkey during the second quarter held a stake in Charter Communications, Inc..
In a November 2021 analyst note, Wells Fargo lowered Charter Communications, Inc.’s price target to $603, sharing worries about the broadband sector that carry the risk of lowering future demand. The company reported $13 billion in revenue and $6.50 in GAAP EPS for its third quarter, beating analyst estimates on both counts.
Along with DISH Network Corporation, Micron Technology, Inc. and General Motors Company, Charter Communications, Inc. is one of Mr. Fournier’s favorite companies.
Charter Communications, Inc.’s largest stakeholder is Chris Hohn’s TCI Fund Management, which owns 10 million shares for a staggering stake of $7.5 billion.
In its first-quarter investor letter, ClearBridge Investments had the following to say about Charter Communications, Inc.:
“The portfolio’s quality bias and valuation discipline have generated compelling returns over time with typically strong relative results in more challenging environments as it did through the first three quarters of 2020. However, that same quality bias tends to create a more challenging relative performance environment for the Strategy during periods of sharp economic acceleration, which tend to benefit stocks that are more commodity linked or of lower quality. This has been the case during the vaccine- and stimulus-driven rally experienced late last year and during the most recent quarter. Sectors that lagged in the quarter included communication services, where Charter trailed after generating robust returns earlier in the recovery.”
5. Amazon.com, Inc. (NASDAQ:AMZN)
Mr. Fournier’s Stake Value: $26.6 million
Percentage of Pennant Capital’s 13F Portfolio: 7.55%
Number of Hedge Fund Holders: 271
Amazon.com, Inc. (NASDAQ:AMZN) is one of the world’s largest online retailers that not only functions in the electronic commerce arena but also targets other technology segments such as cloud computing.
Mr. Fournier’s Pennant Capital owns 8,100 Amazon.com, Inc. shares that represent 7.5% of its portfolio and were worth $26.6 million as of the end of this year’s third quarter. Credit Suisse reduced the company’s price target to $4,200 in an October 2021 note, sharing concerns about increasing costs.
Amazon.com, Inc. missed both revenue and GAAP EPS analyst estimates during its Q3, by posting $110 billion in revenue and $6.12 in earnings per share. 271 out of the 873 hedge funds polled by Insider Monkey held a stake in the company during the second quarter.
Amazon.com, Inc. largest shareholder is Ken Fisher’s Fisher Asset Management who owned 1.9 million shares worth $6.3 billion by the end of this year’s third quarter.
In its third-quarter 2021 investor letter, Madison Funds had the following to say about Amazon.com, Inc.:
“We did add a modest new position weight to the portfolio in the quarter in Amazon.com, Inc. stock (AMZN). We acknowledge that many aspects of Amazon’s merit as an investment are well appreciated. However, our work leads us to conclude that shares are attractive. Leadership positions in both e-commerce and cloud computing provide the company with significant durable competitive advantages in industries that we think can produce above average growth over the next decade. Over the past year, AMZN shares have trailed the market as investors debate near-term growth prospects following the pandemic-induced e-commerce demand. Additionally, margins have been depressed due to Amazon’s unprecedented increases in spending to build out fulfillment and in-house logistics capabilities – Amazon will build out more square footage this year and last than it did cumulatively over the previous 10 years, more than doubling its in-house delivery capacity. We like the investments Amazon is making and believe they will further advantage the company relative to other retailers, making it nearly impossible for competitors to match the same level of delivery speed and convenience. With its large and frequently engaged customer base, Amazon has multiple mechanisms to make money, including selling advertising and enhanced subscription services. Within the cloud business, we forecast Amazon Web Services (AWS) leveraging its strengths in Infrastructure-as-a-service (IaaS) to move into higher value segments of cloud computing (such as platform-as-a-service: PaaS), allowing the company to continue outgrowing the overall IT sector with strong profitability. While Amazon shares have performed extremely well over the long-term, we think near-term concerns about whether Amazon will earn a return on its accelerated investments provide an opportunity now for investors willing to look through the investment period. Our view is that the investments likely earn strong returns and extend Amazon’s competitive advantages and above average growth.”
4. Intel Corporation (NASDAQ:INTC)
Mr. Fournier’s Stake Value: $29.7 million
Percentage of Pennant Capital’s 13F Portfolio: 8.43%
Number of Hedge Fund Holders: 78
Intel Corporation (NASDAQ:INTC) is one of the oldest semiconductor manufacturers in the world and it is the only American company capable of manufacturing chips with advanced manufacturing processes. It is known for its central computing units (CPUs) that have allowed it to become a household name.
Mr. Fournier’s Pennant Capital held 557,672 shares of Intel Corporation by the end of the third quarter. These were worth $29.7 million and represented 8.43% of the firm’s portfolio. Susquehanna increased its price target to $55 in an October 2021 analyst note, expressing approval for Intel’s execution and future market opportunities.
Intel Corporation earned $18.1 billion in non-GAAP revenue and $1.71 in non-GAAP EPS, beating analyst estimates for the EPS during its third quarter. During the previous quarter, 78 out of the 873 hedge funds surveyed by Insider Monkey held a stake in the company.
Intel Corporation’s largest investor is Ken Fisher’s Fisher Asset Management who owns a whopping 32 million shares worth $1.7 billion.
In its first-quarter 2021 investor letter, Alger mentioned Intel Corporation. Here is what the fund said:
“Short exposure to Intel also detracted from performance. Intel designs and manufactures semiconductors for the computing and communications industries. Intel’s proprietary intellectual strength and manufacturing prowess versus the competition is deteriorating, which is causing the company to lose market share and profit opportunities. The short position detracted from portfolio returns as the share price reacted positively to the announcement of Pat Gelsinger being hired as chief executive officer, a stronger-than-anticipated quarterly earnings report driven by unusually robust PC sales that we believe are unsustainable and the unveiling of “Intel Unleashed,” a new long-term program to help improve manufacturing and spur innovation. This program involves opening two fabrication plants in Arizona, which confirms Intel’s commitment to continue as an integrated design manufacturer. Importantly, Intel continues to experience issues with its next generation server chips which are disadvantaging Intel versus the competition.”
3. General Motors Company (NYSE:GM)
Mr. Fournier’s Stake Value: $30.5 million
Percentage of Pennant Capital’s 13F Portfolio: 8.66%
Number of Hedge Fund Holders: 86
General Motors Company is an iconic American automotive brand that is also one of the oldest companies in the world. It is more than a century old, after being founded in 1908 and is currently headquartered in Detroit, Michigan.
The company earned $26.7 billion in revenue and $1.52 in non-GAAP earnings share for its third quarter, missing analyst estimates for revenue. General Motors Company’s price target was lowered to $78 by Morgan Stanley in a November 2021 analyst note following the earnings report, outlining that the company has tough times ahead due to higher investor and consumer interest in electric vehicles.
Mr. Fournier’s investment firm held 579,000 General Motors Company shares that were worth $30.5 million and represented 8.6% of its portfolio by the end of the third quarter of this year. A survey of 873 hedge funds conducted by Insider Monkey in the prior quarter revealed that 86 had holdings in the company.
General Motors Company’s largest investor is Warren Buffett’s Berkshire Hathaway, which owns 60 million shares worth $3 billion.
Investment management firm Miller Value Partners in its third quarter 2021 investor letter mentioned General Motors Company and outlined that:
“Another name we’ve recently purchased and have grown incredibly excited about: General Motors (GM). GM is interesting on many levels. We see it as an attractive investment opportunity and it might be a microcosm of current markets, both past and prospective.
Tesla trounced GM over the last decade. Tesla rose 15,797% crushing GM’s 238% increase, which lagged the S&P 500’s 365%. Tesla came out of nowhere creating what many said was the best car ever made. A decade ago, no one saw that coming, including GM. GM’s historical strength led to arrogance. It completely dismissed the threat of any newcomer…” (Click here to see the full text)
2. Micron Technology, Inc. (NASDAQ:MU)
Mr. Fournier’s Stake Value: $46.2 million
Percentage of Pennant Capital’s 13F Portfolio: 13.1%
Number of Hedge Fund Holders: 87
Micron Technology, Inc. is an American computing firm that sells its memory and storage products for different computing devices all over the world. It was founded in 1978 in an era of growing semiconductor firms in the U.S. and it is headquartered in Boise, Idaho.
Mr. Fournier’s Pennant Capital Management held 651,400 Micron Technology, Inc. shares by the end of this year’s third quarter. These were worth $46.2 million and represented 13.1% of the firm’s portfolio. Micron Technology, Inc. reported $8.2 billion in revenue and a non-GAAP EPS of $2.42 for its fourth fiscal quarter, beating analyst estimates on both counts.
Investment bank Goldman Sachs lowered Micron Technology, Inc. price target to $88 in October 2021, citing demand and product uncertainty. Out of the 873 hedge funds surveyed by Insider Monkey for the second quarter, 87 had held a stake in Micron Technology, Inc..
In its first quarter 2021 investor letter, Bonsai Partners mentioned Micron Technology, Inc. and said that:
“Micron is a manufacturer of memory semiconductor chips. Micron appreciated 17.3% during the quarter.
With the semiconductor cycle in full swing, sentiment continued to improve for major DRAM and NAND suppliers. Spot pricing for DRAM continues its upward march due to supply shocks across the industry and sustained demand levels that continue to outstrip supply.
As a result, Micron showed improving results for the fiscal first quarter, raised guidance intra-quarter for the fiscal second quarter, and offered strong guidance for the fiscal third quarter in both growth and margins.
While the cyclical nature of DRAM hasn’t changed, the cycles themselves continue to become more benign, leading to long-term economic improvement across these businesses. Micron is now continuously profitable, with industry players in a dramatically stronger position than even just five years ago.
The biggest negative surprise in the quarter came from Micron’s exit from its 3D XPoint hybrid memory business. The company also announced its decision to sell its accompanying Utah fab. Fortunately, this development does not alter the investment thesis much since 3D XPoint was an option ticket for future growth. While it’s unfortunate this product didn’t pan out, now is an excellent time to sell a fab, so perhaps it is a blessing in disguise?”
1. DISH Network Corporation (NASDAQ:DISH)
Mr. Fournier’s Stake Value: $64.8 million
Percentage of Pennant Capital’s 13F Portfolio: 18.39%
Number of Hedge Fund Holders: 51
DISH Network Corporation is an American pay-for-television services provider. It is an iconic brand that is known for its satellite dishes that beam down entertainment to users’ locations from space.
Mr. Fournier’s Pennant Capital held 1.4 million DISH Network Corporation shares by the end of Q3 this year. These were worth $64.8 million and represented 18.39% of Pennant Capital’s portfolio. Additionally, 51 of the 873 hedge funds polled by Insider Monkey during the second quarter held a stake in DISH Network Corporation.
In a November 2021 analyst note, Deutsche Bank lowered DISH Network Corporation’s price target to $71, outlining the company’s assumed $4 billion spectrum purchase as the reason. DISH Network Corporation reported $4.4 billion in revenue and $0.88 in GAAP EPS for its third quarter, beating analyst estimates for none.
DISH Network Corporation’s largest stakeholder is Boykin Curry’s Eagle Capital Management, which owns 18 million shares that are worth $799 million.
In its second quarter 2021 investor letter, ClearBridge Investments had the following to say about DISH Network Corporation:
“Portfolio holdings in the communication services and financials sectors also made strong contributions. Dish Network continues to make progress on the buildout of its greenfield 5G network, with Las Vegas slated to become the first market launched later this year. The company gained credibility, and its stock reacted favorably, after it announced a partnership with Amazon to deploy a 5G cloud-native network using AWS’s cloud infrastructure. While the stock has been volatile in recent quarters, we continue to feel confident in Dish’s long-term prospects, which include competing as a fourth U.S. wireless carrier. Charter Communications has been executing well and benefiting from the growth in residential broadband, which has been accelerated by COVID-19 and should see further support from the Biden Administration’s infrastructure bill, which earmarks $65 billion for broadband buildout. In addition, we expect the company to continue to grow its wireless business, leveraging its mobile virtual network operator (MVNO) relationship with Verizon. The company continues to generate strong and growing free cash flow and deploys it toward consistent and material share buybacks.”
You can also take a peek at the 10 Best Stocks to Buy According to Billionaire Mario Gabelli and 10 Dividend Stocks in Warren Buffett’s Latest Portfolio.
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This article is originally published at Insider Monkey.
