Billionaire Daniel Sundheim’s Top 10 Stock Picks

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In this article, we presented billionaire Daniel Sundheim's top 10 stock picks. Click to skip ahead and see Billionaire Daniel Sundheim's Top 5 Stock Picks.

Billionaire Daniel Sundheim’s D1 Capital Partners was among the biggest hedge fund gainers of 2020 as the youngest mega hedge fund posted 54% return in one of the most unpredictable years, substantially outperforming the broader market index gains of 14% and NASDAQ rally of 43%. The former chief investment officer at Viking Global Investors launched D1 Capital Partners in July 2018 with a seed capital of $5 billion.

Daniel Sundheim's bets on tech and internet stocks helped in generating massive gains in 2020. Daniel Sundheim has made massive gains from its investments in FAANG stocks over the last two years.

For instance, the billionaire hedge fund manager sold out all of Amazon's (NASDAQ: AMZN) shares during the September quarter of 2020 after initiating a big position in 2018 and adding to that position in 2019. It appears that he has benefited from Amazon's position because shares of the largest e-commerce giant grew more than 70% in 2020 alone.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

He has also slashed its stake in Netflix (NASDAQ: NFLX) by 88% during the third quarter of 2020 to capitalize on the share price gains. Shares of Netflix grew almost 67% in 2020 as the streaming giant benefitted from staying at home policies. Similarly, Daniel Sundheim’s D1 Capital Partner took advantage of the share price rally of other tech and internet stocks, including Alibaba (NYSE: BABA), Anaplan (NYSE: PLAN).

Meanwhile, the New York-based hedge fund has initiated several new positions in tech, finance, and healthcare stocks during 2020. Sundheim's hand-picked stocks helped its hedge fund to rank among the 10 best-performing large hedge funds.

The robust performance from D1 capital and other human stock picker hedge funds like Pershing Square and Coatue Management supported in outperforming the computer-powered quant hedge funds and index funds after several years.

Quantitative hedge funds plunged almost 8.4% this year through October, according to Aurum Funds,

“Quants rely on data from time periods that have no reflection of today’s environment,” said Adam Taback to Bloomberg, a chief investment officer of Wells Fargo Private Wealth Management. “When you have volatility in markets, it makes it extremely difficult for them to catch anything because they get whipsawed back and forth.”

Jim Simons’ Renaissance Technologies is one of the largest quantitative investment management company with a 13F market value of over $100 billion. The quant hedge fund is adhering to statistical and mathematical methods of trading. The world’s largest quant hedge fund Renaissance Technologies saw losses across several of its quant funds in 2020. Its long-biased fund fell 20% through October while its market-neutral fund collapsed 27% and its global-equities fund plunged about 25%. Jim Simons says the losses were due to being under-hedged early this year when markets collapsed and over-hedged when the stocks rebounded from April through June.

Despite the overall poor performance, some quants managed to generate gains in 2020. For instance, D.E. Shaw’s main hedge fund, the Composite Fund, has generated a 15% gain in the first ten months of 2020.

“I don’t think institutions have given up on quant investing or factor investing, but now we have some question marks,” said Morningstar analyst Tayfun Icten. “So the firms that have an operational edge and more sophisticated infrastructure to execute will probably do better than wannabes.”

While Daniel Sundheim's reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, 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 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. 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.

Considering the impressive returns from D1 Capital Partners, we have decided to review the top 10 stock picks of billionaire Daniel Sundheim to see how he is beating the market indices.

10. Facebook (NASDAQ:FB)

The billionaire Daniel Sundheim’s D1 Capital Partner has been showing confidence in the social media giant Facebook (NASDAQ: FB) stock over the last two years. It is currently the tenth largest stock holding of D1’s 13F stock portfolio, accounting for 3.40% of the overall portfolio. The hedge fund has raised its stake in the social media company by 24% in the third quarter of 2020. D1 is currently holding 2.2 million shares of Facebook valued at $580 million.

It appears that the New York-based hedge fund has created substantial value from its Facebook position as shares of the social media company more than doubled since the beginning of 2019.

Other hedge funds are also optimistic about Facebook’s future prospects. The parent company of popular messaging app WhatsApp was in 230 hedge funds’ portfolios in the September quarter of 2020, up significantly from the previous all-time high of 213.

Wedgewood Partners has also presented a bullish thesis on Facebook stock in an investor's letter. Here is what the firm said:

“Facebook reported 32% growth in constant currency ad revenue, along with expectations for 50-55% growth in expenses as the Company continued with their telegraphed plan to accelerate investments in privacy and security across their social platforms. The Federal Trade Commission (FTC) also approved a $5 billion fine for violating a 2012 FTC order by misrepresenting users’ ability to control data privacy. While this removed an overhang dating back to early 2018, continued pressure from politicians and regulators kept Facebook’s earnings multiple in check.”

9. O'Reilly Automotive, Inc. (NASDAQ:ORLY)

Automotive aftermarket parts retailer O'Reilly Automotive, Inc. (NASDAQ: ORLY) is one of the favorite stock picks of billionaire Daniel Sundheim. Although D1 reduced its stake by 24% in the September quarter of 2020, O'Reilly still accounts for 3.67% of the overall portfolio. It is the nine largest stock holding of its 13F portfolio.

After a stunning performance in 2019, automotive aftermarket parts retailers underperformed in 2020 amid the coronavirus pandemic.

Although O'Reilly Automotive isn’t among the 30 most popular stocks among hedge funds, it was in 58 hedge funds’ portfolios at the end of the September quarter compared to the all-time high of 64.

Qualivian Investment Partners, which topped the S&P 500 in the second quarter of 2020, highlighted few stocks in an investor’s letter, including O’Reilly Automotive. Here’s what Qualivian Investment Partners said:

“We believe ORLY can continue to consistently compound earnings growth at a mid-teens plus level for the foreseeable future, leveraging 7%-8% topline growth into low-to mid-teens growth in after-tax earnings, and using their share repurchase program to ultimately deliver mid-teens plus EPS growth over our investment horizon.”

8. Hilton Worldwide Holdings Inc. (NYSE:HLT)

The New York-based hedge fund first initiated a stake in the hoteling company Hilton Worldwide Holdings Inc. (NYSE: HLT) in the final quarter of 2018. D1 Capital Partners, however, sold 29% of its stake in the September quarter of 2020. Despite that, Hilton Worldwide Holdings accounts for 4% of the overall portfolio.

Although Hilton Worldwide has a strong track record of generating returns for investors, its shares underperformed in 2020 as the hotel industry has been hit harder by the pandemic. The market reports are hinting that Hilton will perform better in the days ahead amid vaccine discovery. Share of Hilton recovered 50% in the last six months. Bill Ackman talked about HLT in detail in his Q2 investor letter. Here is an excerpt:

"...Vacation travel is beginning to recover as perceived and actual pandemic risk fades, and as hotels adopt safety procedures that satisfy their customers concerns. As Hilton management has noted, occupancy has been boosted by increasing demand for limited service hotels and drive-to leisure markets. For example, over the July 4th weekend, approximately 800 of Hilton’s hotels in the U.S. (~16%) experienced greater than 80% occupancy.

Moreover, we believe that the crisis will likely increase Hilton’s market share as independent hotels seek an affiliation with global brands like Hilton – whose safety standards (Hilton recently announced a Mayo Clinic-approved protocol) and reputation for consistency should generate greater consumer confidence than protocols developed by independents. We believe that Hilton is well positioned to succeed because it has the best management team in the industry, a portfolio of great brands, a dominant market position, a capital-light economic model, a deep development pipeline, and a strong balance sheet.

Hilton’s stock has decreased 20% year-to-date. After adjusting Hilton’s intrinsic value for the reduction in its valuation from the crisis’ impact on short, intermediate and long-term revenues and cash flows, we believe that Hilton’s stock remains highly attractive at its current valuation.”

7. JPMorgan Chase & Co. (NYSE: JPM)

The largest US banking giant JPMorgan Chase & Co. (NYSE: JPM) is the seventh-largest stock holding of the D1 Capital Partners 13F portfolio, accounting for 4.27% of the portfolio.

Billionaire Daniel Sundheim has initiated a position in the banking giant during the second quarter of 2020 and added to its position in the third quarter. Shares of JPMorgan Chase were under pressure in the past few quarters, but Sundheim considered it as a great buying opportunity. JPM stock recovered 31% in the last three months.

The global equity investment fund VLTAVA has also expressed confidence in JPMorgan. In an investor’s letter, the investment firm highlighted a few stocks, including JPM. Here’s what VLTAVA stated:

“In the quarter just ended, we bought shares of JPMorgan. In our opinion, among all the world’s large banks, this one is the best managed and financially strongest. It did very well already in the recession of 2008 when it remained profitable and did not require government help. This made it exceptional among large banks, and we may say that this was the year when it stood out most despite the fact that, from the profitability viewpoint, it was the worst year for JP Morgan of the whole previous economic cycle. The worst year of this economic cycle clearly will be 2020. Profits will drop substantially, mainly due to large increases in bad loans. Despite this, JP Morgan should earn a lot of money this year and its strength and quality will again come to the fore. The shares of good banks can be very remunerative long-term “compounders”, and the best time to buy them is usually in times of recession.”

6. U.S. Bancorp (NYSE: USB)

The diversified Bank U.S. Bancorp (NYSE: USB) is one of the favorite stock picks of Billionaire Daniel Sundheim.

The hedge fund first initiated a position in USB during the first quarter of 2020 and added to its existing position in the September quarter. Shares of U.S. Bancorp are down 20% in the last twelve months. Despite share price underperformance, U.S. Bancorp resumed its dividends after Federal Reserve eased capital returns limits.

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Disclosure: No position. The article billionaire Daniel Sundheim's top 10 stock picks originally published on Insider Monkey.