In this article, we reviewed billionaire Louis Bacon’s top 10 stock plays. Click to skip ahead and see Billionaire Louis Bacon’s Top 5 Stock Plays.
Billionaire Louis Bacon made big portfolio adjustments in the fourth quarter of 2020 to accelerate the winning momentum into 2021. His investment firm Moore Capital, which is now mainly managing Louis Bacon’s money, generated massive profits in the pandemic year due to bets on US bonds before the pandemic jolted US stock markets and forced investors to flee to safe-haven assets. Additionally, his stakes in high growth tech stocks added to the billionaire’s gains throughout one of the most unpredictable years in the history of financial markets. Moore Capital, however, now turned its focus towards the financial sector in 2021, with billions of dollars of bets on bonds and indices ETFs. The finance sector accounted for about 43% of the overall portfolio of Bacon at the end of Q4 compared to 24% in the previous quarter. Moreover, Bacon’s hedge fund slashed stakes in communications and consumer discretionary stocks that were among the biggest beneficiaries of the pandemic.
The macro hedge fund manager’s strategy of turning Moore Capital Management into a family office business in 2019 has been helping him in making risky moves to generate bigger profits. Moore Capital Management, which Bacon established with an initial capital of $25,000 in 1989, consolidated its three funds into a single fund. Bacon stated in the investors’ letter that he will contribute less to his firm operations. Here’s what he said:
“Dear Investor, as Moore Capital Management (MCM) approaches its 30th year at the end of this decade, the time is propitious to take a step I have eyed for some time and “privatize” our three multi-manager flagship funds– that is to say returning client assets and funding the multi-manager program with private capital from the principals at MCM. These three funds –MGI (Moore Global Investments), RIS (Remington Investment Strategies), and MMM (Moore Macro Advisors)–will (post the return of investor funds) be consolidated into one proprietary fund which will continue to trade and invest with the same line-up of Portfolio Managers, but with less participation from me.”
After completing his MBA degree, Louis Bacon began his career in 1980 by trading currencies. He worked as a runner on the floor of the New York Cotton Exchange. Later, he joined Shearson Lehman Brothers as a broker and trader and eventually joined their futures trading division. He left Shearson Lehman Brothers and founded Remington Trading Partners in 1987 and established Moore Capital Management in 1989 using $25,000 inherited from his family. Bacon is among the prominent investors who made large profits during the 1990 Japanese stock market crash and UK’s pound volatility in 1992.
At the end of the fourth quarter of 2020, billionaire Louis Bacon’s hedge fund held positions in 474 stocks. The firm initiated positions in 303 stocks and added to its 72 existing positions. On the other hand, Moore Capital sold out 162 positions and reduced its stake in 72 stocks. His investment firm seeks to make quick changes in its portfolio to make profits from short-term price movements. The time held for the top ten stocks averages around 0.80 quarters. The market value of Moore Capital’s 13F portfolio stood above $9.1 billion at the end of the fourth quarter, up from $5.2 billion in the previous quarters.
Louis Bacon Moore of Moore Capital
While Louis Bacon’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 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (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 16th. 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.
Let’s start examining billionaire Louis Bacon’s top 10 stock plays for 2021 to see whether the billionaire investor is in a position to beat the market trends.
10. Sunnova Energy International Inc. (NYSE: NOVA)
Moore Capital Management’s strategy of increasing its stake in Sunnova Energy International Inc. (NYSE: NOVA) by 108% in the fourth quarter has not been working according to expectations so far in 2021. Shares of the solar energy provider are down 24% year to date amid investors profit-taking strategy. Despite the latest selloff, shares of Sunnova are still up 33% in the last six months. Bacon’s firm first initiated a position in Sunnova during the third quarter of 2020.
The market analysts are bullish over the future fundamentals of Sunnova Energy. Goldman Sachs has provided a buy rating with a $77 price target, representing a significant upside from the current $33 a share level. Goldman’s analyst Brian Lee claims there are many reasons to remain selectively positive on the solar stocks despite the latest selloff. These reasons include solid fundamentals, a healthy financing backdrop, and the potential for policy catalysts.
9. Alphabet Inc (NASDAQ: GOOGL)
Louis Bacon looks bullish over the fundamentals of Alphabet Inc (NASDAQ: GOOGL) as his investment firm raised the stake in the search engine giant by 117% in the fourth quarter. It is ranked ninth in the list of billionaire Louis Bacon’s top 10 stock plays for 2021. Moore Capital first initiated a position in Alphabet in 2013. The shares of Alphabet are beating the broader market returns since the beginning of this year.
Artisan Partners Limited Partnership, a high value-added investment management firm, stated in the fourth quarter investors’ letter that Alphabet has bright future prospects. Here is what Artisan Partners Limited Partnership said:
“At the individual holdings level, top contributor in Q4 included Alphabet. Large-cap tech companies have been resilient through the pandemic—Alphabet among them. Alphabet’s Play Store and Google Cloud are in demand as businesses accelerate online activity which, along with strong YouTube user growth, is helping stabilize temporarily weaker search ad revenue trends. While this holding may strike readers as more befitting a growth or momentum strategy than a value strategy, our benchmark-agnostic, opportunistic value investing style differentiates us. Using the lens of our disciplined bottom-up research process we view Alphabet as one of the best businesses in the world, capable of expanding revenues at a rapid rate for years to come, with a bullet proof balance sheet and an average asking price. It’s a name we’ve owned since 2014 and for which we continue to have high hopes regarding future prospects.”
8. Cerence Inc. (NASDAQ: CRNC)
The information technology company Cerence Inc. (NASDAQ: CRNC) is among the billionaire Louis Bacon’s top 10 stock plays for 2021. The firm initiated a new position in Cerence during the fourth quarter by purchasing 634,191 shares valued at $63.7 million. Shares of CRNC are up more than 430% in the last twelve months despite falling 9% year to date.
Bernzott Capital Advisors, which reported a return of 24.41% for the fourth quarter of 2020, highlighted a few stocks including Cerence in the fourth quarter investors’ letter. Here is what Bernzott Capital Advisors stated:
“Cerence (CRNC): A provider of speech recognition and voice technologies for automotive applications, reported another in a string of strong earnings reports this year. In addition to impressive bottom line results, bookings rose 70%, and its pipeline was up more than 2x compared to last year despite challenging auto market conditions. A promising new product outlook helped support the stock’s advance.”
7. Facebook Inc. (NASDAQ: FB)
The social media giant Facebook Inc (NASDAQ: FB) has been the permanent member of Louis Bacon’s portfolio since 2013. His investment firm raised a position in Facebook by 10% to 0.91% of the overall portfolio. Shares of the social media giant are struggling this year following a stunning performance in 2020.
Kinsman Oak Capital Partners Inc., an independent Toronto-based boutique investment firm, highlighted a few stocks including Facebook in their Q4 investors’ letter. Here’s what Kinsman Oak Capital Partners stated:
“Our view on Facebook (FB) may be somewhat controversial. The bear case for FB boils down to antitrust risk and valuation. Facebook, although to a lesser degree, is a relative value bargain as well. We believe the company possesses an element of platform risk that Alphabet does not but, compared to the rest of the market, the stock still seems undervalued. We compared Facebook to the Russell 2000, an index full of cyclical businesses that are considered no-brainers at the beginning of a recovery and popular re-opening stocks that are poised to go higher after the vaccine is distributed (Appendix E). Facebook is significantly cheaper, growing faster, has a larger economic moat, superior margin profile, and requires less capex.”
6. Sunrun Inc. (NASDAQ: RUN)
The residential solar energy systems provider Sunrun Inc (NASDAQ: RUN) is a newcomer in Louis Bacon’s portfolio. Bacon’s hedge fund initiated a position in Sunrun in Q4 by purchasing 1.5 million shares valued at $105 million. The shares of solar energy systems provider fell 20% so far this year after generating massive gains in 2020.
The number of bullish hedge fund positions in Sunrun improved by 19 in recent months. It was in 48 hedge funds’ portfolios at the end of December compared to the all-time high for this statistic of 29. This means the bullish number of hedge fund positions in this stock currently sits at its all-time high.
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Disclosure: None. Billionaire Louis Bacon’s Top 10 Stock Picks is originally published on Insider Monkey.