In this article, we discuss the top 10 stock picks of billionaire Jorge Paulo Lemann's 3G Capital as of the third quarter of 2021 and assess these stocks based on their performance over the past 12 months. If you want to skip our detailed analysis of these stocks, go directly to the Was Billionaire Jorge Paulo Lemann's 3G Capital Right About These 5 Stocks?.
We prepared the actual contents of this article in November 2021, when we analyzed the Q3 portfolio of billionaire Jorge Paulo Lemann's 3G Capital to discuss the top 10 picks of 3G Capital at that time. We are publishing this article today because it’s always interesting for the readers to analyze how good the so-called “smart money” is when it comes to stock picking. When we look at the stock picks/sells of hedge funds in hindsight, we can better analyze their performance and see whether they were right or wrong.
In this article you will see the top 10 stock picks of billionaire Jorge Paulo Lemann's 3G Capital as of the third quarter of last year.
To assess the performance of these stocks and the hedge fund, we have mentioned their performance over the past 12 months.
At the time of writing we had mentioned analyst ratings for these stocks from famous Wall Street analysts. It’d be interesting for our readers to see how right or wrong were these analysts’ price targets and calls.
However, in 3G Capital's defense, we should add that the 2022 market crash crushed most of these stocks. That doesn't mean the hedge fund was entirely wrong in its approach. As many elite funds have long-term holding periods, it's quite possible that the fund would end up gaining from these investments in the coming months and years, especially as analysts believe the worst is behind us and the markets could actually begin to rebound in 2023.
Before jumping to the actual stock picks of the fund, let's first see our brief primer on Jorge Paulo Lemann we wrote at the time of writing this article.
Jorge Paulo Lemann co-founded 3G Capital in 2004, which is a global investment management firm with offices in New York City and Rio de Janeiro, pursuing long-term value via its strategic investments. 3G Capital has been involved in famous business combinations throughout the years, and the firm’s affiliate partners include Anheuser-Busch InBev SA/NV (NYSE:BUD) since 1989, and Lojas Americanas since 1983. In 2015, 3G Capital, in collaboration with Berkshire Hathaway, helped carry out the merger between H.J. Heinz Company and Kraft Foods Group, forming The Kraft Heinz Company (NASDAQ:KHC). Similarly, in 2014, 3G Capital completed the combination of Burger King and Tim Hortons, forming Restaurant Brands International Inc. (NYSE:QSR).
Jorge Paulo Lemann is a Brazilian billionaire investment banker, who completed his Bachelor’s from Harvard University, and his career has left a significant mark in the corporate governance field. Lemann has served as a board member and director of multiple companies throughout the years, including DaimlerChrysler, Credit Suisse Group AG (NYSE:CS), Swiss Reinsurance, The Gillette Company, and Lojas Americanas.
Before establishing 3G Capital in 2004, Lemann was also the co-founder and partner of GP Investimentos, a Brazilian private equity firm. From 2013 till May 2021, he was a board member of The Kraft Heinz Company (NASDAQ:KHC), and currently, Lemann is a controlling shareholder of Anheuser-Busch InBev SA/NV (NYSE:BUD).
10. Microsoft Corporation (NASDAQ:MSFT)
3G Capital’s Stake Value: $7,048,000
Performance of the stock over the past 12 months as of November 22: -28%
Billionaire Bill Gates’ Microsoft Corporation (NASDAQ:MSFT) posted Q3 results on October 26. EPS in the period totaled $2.27, beating estimates by $0.19. The $45.32 billion revenue was up 21.97% from the previous-year quarter, topping estimates by $1.33 billion.
According to Michael Turrin from Wells Fargo, Microsoft Corporation (NASDAQ:MSFT) has room for growth even after being one of the largest global companies.
Alger mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q3 2021 investor letter. Here is what the firm has to say:
“Microsoft Corporation was among the top contributors to performance during the third quarter. Microsoft is a Positive Dynamic Change beneficiary of corporate America’s transformative digitization. Microsoft’s enterprise cloud product, Azure, is rapidly growing and accruing market share. Microsoft reported that Azure grew 51% in the second quarter. This high unit volume growth is a primary driver of the company’s higher share price, but the company’s strong operating execution has enabled margin expansion that has also helped to increase forward earnings estimates. We believe Microsoft’s subscription-based software offerings and cloud computing services have a durable growth profile because they enhance customers’ growth initiatives and help them to diminish costs. Additionally, investors appreciate Microsoft’s strong free cash flow generation and its return of cash to shareholders in the form of dividends and share repurchases.”
9. Futu Holdings Limited (NASDAQ:FUTU)
3G Capital’s Stake Value: $11,378,000
Performance of the stock over the past 12 months as of November 22: -2.3%
Futu Holdings Limited (NASDAQ:FUTU), a Chinese tech company offering a digital wealth management and brokerage platform, is one of Lemann’s top stock picks from the third quarter. 3G Capital holds 125,000 shares in Futu Holdings Limited (NASDAQ:FUTU), worth $11.37 million, representing 2.47% of the firm’s Q3 portfolio.
Bocom analyst Jingyi Zhang on November 1 downgraded Futu Holdings Limited (NASDAQ:FUTU) to Neutral from Buy with a $53.30 price target.
Here is what Tao Value has to say about Futu Holdings Limited (NASDAQ:FUTU) in their Q1 2021 investor letter:
“Futu is a new “Opportunistic” position. It is an HK based online brokerage & wealth management platform with deep roots in technology. Futu sits in the confluence of 3 strong favorable forces of Meteorology, Topography & Commander, yet was underpriced at the time of our entry. In terms of Meteorology, there is a huge addressable market of Chinese domestic middle to upper classes’ wealth being deployed to overseas assets allocation in the next decade. Additionally, the incumbents being disrupted are extremely weak in their digital transformation. On Topography, Futu’s user-centric product design built an intuitive front end and great user experience, while the digital native development framework built a solid & reliable back end (including a self-developed order routing & execution system for the HK market). This is a rare combination compared to both offline incumbents (who lack flashy front end & UX) & other new online disrupters (who lack solid infrastructure). On Commander factor, founder CEO Li Hua was a Tencent engineer in its early days with deep knowledge in product design and development. Li is said to be a fanatic product manager, to this day still at the front-line, alpha testing any new features. Based on analyses of these factors, I think Futu could compound its revenue at a very high rate with very high certainty and with strong operating leverage, putting our entry price very attractive compared to earning power in 3-5 years. Yet just as we finished building a small position, the price started to take off and more than tripled in a month. When such price action happens, it is obvious that Mr. Market has turned very euphoric to this name. I decided to trim but kept a reasonable position given its growth certainty.”
8. Block (NYSE:SQ)
3G Capital’s Stake Value: $21,586,000
Performance of the stock over the past 12 months as of November 22: -70%
UBS analyst Rayna Kumar initiated coverage of Block (NYSE:SQ), a California-based financial services and digital payments company, with a Buy rating and a $322 price target on November 17. The analyst expects the company to exceed short-term gross profit estimates, and according to Kumar, acquisition of the financial technology company, Afterpay Limited (OTC:AFTPY) will prove extremely beneficial for Square, Inc. (NYSE:SQ).
According to the database of elite hedge funds maintained by Insider Monkey, 98 funds were bullish on Square, Inc. (NYSE:SQ) as of Q3, with a total stake value of $8.88 billion. The leading stakeholder in the company is Catherine Wood’s ARK Investment Management, holding a $1.46 billion position in Square, Inc. (NYSE:SQ).
Here is what RiverPark Large Growth Fund has to say about Square, Inc. (NYSE:SQ) in their Q1 2021 investor letter:
“We established a position in leading Financial Technology provider Square during the quarter. Through one integrated system, SQ is a hybrid of two businesses: its Seller Business (charging small and medium-sized businesses about 3% for transaction payment processing, plus other services such as instant funds access, and software for everything from customer engagement to payroll), and its Cash App (originally for person-to-person cash transfers and now a growing digital financial services provider for consumers).
The combined business has grown gross profit at a 37% CAGR over the past five years to $2.7 billion (due to pass through costs, gross profit is more reflective of top-line growth) and we believe that the company has an enormous long-term runway, as it has less than a 2% share of a more than $160 billion market. It is our view that the company’s Cash App (which has grown from nothing in 2015 to $1.2 billion gross profit last year) has a particularly large opportunity with its powerful ecosystem of digital financial services including digital wallets, direct deposits, stock trading, bitcoin trading, and business and tax services, which are all relatively new. The vast majority of Cash App’s more than 36 million users are younger and, importantly, are willing to replace their bank and other financial services accounts with the app.
We estimate that the company can grow its gross profit more than 30% and EBITDA more than 50% annually for the foreseeable future, and while most of the company’s current profit is from its Seller Business, we believe most of Square’s future value will be from its Cash App business.”
7. Snowflake Inc. (NYSE:SNOW)
3G Capital’s Stake Value: $24,194,000
Performance of the stock over the past 12 months as of November 22: -60%
Snowflake Inc. (NYSE:SNOW) is a company offering data storage and data analytics services by means of a cloud-based software. Lemann owns 80,000 Snowflake Inc. (NYSE:SNOW) shares as of the third quarter, worth $24.1 million, accounting for 5.26% of his Q3 portfolio.
Credit Suisse analyst Phil Winslow on November 16 initiated coverage of Snowflake Inc. (NYSE:SNOW) with an Outperform rating and a $455 price target.
Brad Gerstner’s Altimeter Capital Management is the leading stakeholder in Snowflake Inc. (NYSE:SNOW) as of September, with over 21 million shares worth $6.36 billion. Overall, 73 hedge funds were long Snowflake Inc. (NYSE:SNOW), with the total stake value amounting to $14.56 billion.
Here is what RiverPark Funds has to say about Snowflake Inc. (NYSE:SNOW) in its Q1 2021 investor letter:
“We also established a position in Snowflake during the quarter. Snowflake offers cloud-based data storage and analytics, generally termed “data warehouse-as-a-service.” The data warehousing market—created by the massive, growing amount of user, customer, and account data and the need to search and analyze it—has historically stored its data on physical servers located on-premises. The cloud data platform market—storing data off-premises on cloud servers—is a relatively new $70 billion+ market. Significantly, incremental warehouse data capacity and renewals are expected to be driven by and to the cloud, with more than 75% of databases in the cloud by 2022.
Snowflake requires absolutely no infrastructure management from its users, is fully scalable for each customer, runs on Amazon, Microsoft, or Google cloud platforms, and most critically, Snowflake helps companies analyze their data. The company also has a unique, customer-aligned billing model based on usage. All of which has led to Snowflake being among the leaders of this highly fragmented market, posting 124% revenue growth last year. SNOW’s growth comes from the combination of more customers—which grew 73% last year—and customers buying more services—the company boasts an amazing 150%+ net customer retention. The company’s growing scale has also led to increasing gross margin and operating leverage, up 1,100 basis points and 8,200 basis points, respectively, over the past two years. The company has guided to FCF break-even this year, and with the company’s capital expenditure-light model—Snowflake uses the public cloud for hosting—we expect FCF to grow much faster than revenue growth, which we forecast to grow comfortably more than 50% per year for the next several years. Additionally, we have great confidence in the SNOW management team, which previously had an enormously successful run guiding one of our other core Cloud software holdings ServiceNow.”
6. DoorDash, Inc. (NYSE:DASH)
3G Capital’s Stake Value: $24,718,000
Performance of the stock over the past 12 months as of November 22: -73%
Jorge Paulo Lemann owns 120,000 shares in DoorDash, Inc. (NYSE:DASH), an online food ordering and delivery platform, valued at $24.71 million, representing 5.37% of his Q3 portfolio. One of the leading DoorDash, Inc. (NYSE:DASH) stakeholders as of September is Philippe Laffont’s Coatue Management, with 9.45 million shares worth $1.94 billion.
DoorDash, Inc. (NYSE:DASH) reported Q3 earnings on November 9, with EPS for the quarter being $0.43, beating estimated EPS by $0.33.
As of the third quarter of 2021, 42 hedge funds reported owning stakes in DoorDash, Inc. (NYSE:DASH), worth $9.35 billion. This is compared to 45 funds in the previous quarter, with a total stake value of $8.92 billion.
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Disclosure: None. Was Billionaire Jorge Paulo Lemann's 3G Capital Right About These 10 Stocks? is originally published on Insider Monkey.