Stanley Druckenmiller (Trades, Portfolio), manager of Duquesne Capital Management LLC, managed George Soros (Trades, Portfolio)’s Quantum Fund in the late 1980s. In 1981, Druckenmiller founded Duquesne Capital, which has over $10 billion in assets according to reports.
During the third quarter, the investor eliminated his stake in Halliburton Co. (HAL, Financial) and invested in 22 new companies. His top buys include Alibaba Group Holding Co. (BABA, Financial), Merck & Co. Inc. (MRK, Financial), Broadcom Ltd. (AVGO, Financial), Activision Blizzard Inc. (ATVI, Financial) and Bank of America Corp. (BAC, Financial).
Halliburton
Druckenmiller eliminated his position in Halliburton after investing in 2,177,600 shares in the prior quarter. The oil and gas services company averaged $41.13 per share during the second quarter and $43.66 per share during the third quarter.
Halliburton has a weak financial outlook as of Nov. 17. The energy company’s financial strength ranks a poor 4 out of 10, and its Piotroski F-score is a severely low 2 out of 9. Although the company’s profitability ranks 6 out of 10, Halliburton exhibits negative operating margins. Additionally, the company’s return on equity underperforms 82% of its competitors, and its per-share revenue and gross margin have contracted during the past three years.
The energy services company reported third-quarter diluted earnings per share of 1 cent and flat revenues of $3.8 billion. While the company exhibited strong performance in North America, Halliburton produced weak sales performance internationally. Latin America revenue and operating income declined primarily due to decreased activity in Mexico, Argentina and Venezuela, restricted customer budgets and poor rig counts. Lower rig counts also contributed to a 4% decrease in drilling and evaluation revenue from the second quarter to the third quarter.
As the company’s fourth-quarter outlook is expected to remain flat compared to the third quarter, Druckenmiller likely sold out of Halliburton to limit capital loss. Several gurus, including Glenn Greenberg, axed their positions because the company exhibits downside potential.
Alibaba
Druckenmiller purchased 470,600 shares of Alibaba at an average price of $92.68, his largest buy in the third quarter based on portfolio impact. The manager increased his portfolio by 4.4% with this transaction.
Alibaba exhibits strong financial strength and profitability, the latter ranking 8 out of 10. Even though it is near a 10-year low of 25.04%, the Chinese online retail company’s operating margin outperforms 97% of competitors. Alibaba also has strong returns on assets, three-year revenue growth and three-year EBITDA growth relative to other global specialty retail companies.
As discussed in a previous article, Alibaba reported strong earnings performance for the quarter ending Sept. 30. CEO Maggie Wu acclaimed the company’s “highly profitable” core-commerce business, which likely contributed to 55% revenue growth during the quarter and strong growth in each of its four segments. Mobile active users reached 450 million in September as Taobao and Tmall are leading service providers to Alibaba customers.
As the company presents long-term value to customers and shareholders, several gurus purchased shares in Alibaba. Based on consensus picks data, Alibaba had 16 guru buys during the past three months. The following table summarizes Alibaba’s top five guru buys based on portfolio impact.
| Top Third-Quarter Guru Buys in Alibaba | ||
| Guru Name | # of Shares Purchased | Portfolio Impact |
| Chase Coleman (Trades, Portfolio) | 5,373,553 | 8.19% |
| Stan Druckenmiller | 470,600 | 4.40% |
| Steve Mandel (Trades, Portfolio) | 5,151,461 | 2.43% |
| Daniel Loeb (Trades, Portfolio) | 2,600,000 | 2.39% |
| Howard Marks (Trades, Portfolio) | 560,148 | 1.34% |
Likely due to a strong third-quarter earnings performance and high guru buys, Alibaba’s stock price increased 1% during the past 36 hours. The stock trades at $93.83 per share.
Merck & Co.
The Duquesne Capital manager purchased 683,800 shares of Merck at an average price of $61.28, expanding his portfolio 3.77%.
The New Jersey drug manufacturing company has a satisfactory financial outlook: Merck’s financial strength and profitability both rank 6 out of 10. Despite this, the company has strong F and Z scores, the former ranking 7 out of 9. Merck’s return on invested capital outperforms its WACC, suggesting good value creation.
Merck reported a 5% increase in worldwide net sales and diluted earnings per share of 78 cents based on generally accepted accounting principles (GAAP). Additionally, Merck expects to realize full-year diluted EPS of about $2.05. The drug manufacturing company benefited from $150 million sales in Japan and the approval of KEYTRUDA, a therapy that treats patients whose tumors exhibit high PD-L1 levels. Merck’s operating margin outperformed 80% of competitors as of Nov. 17 and has generally expanded during the past five years.
Broadcom
Druckenmiller purchased 201,900 shares of Broadcom, the successor of Avago Technologies Ltd. The company averaged $167.25 per share, and the investor increased his portfolio 3.08% with this transaction.
Although the company has high profitability, Broadcom has poor financial strength and a weak Piotroski F-score. Additionally, the company exhibits moderate financial distress based on its Altman Z-score and likely manipulated its earnings based on its Beneish M-score. Broadcom reported a diluted loss per share of 75 cents based on GAAP. Even though the company realized a net loss, Broadcom’s third-quarter earnings improved from second-quarter earnings by about $2.25 per share. Additionally, the company increased its net revenues by 7% and gross margin by about $900 million from third-quarter 2015 values.
Broadcom expects its fourth-quarter performance to outperform its third-quarter performance; net revenues are expected to range between $4.015 billion and $4.165 billion while gross margin is expected to reach 52.25%. Likely due to the positive fourth-quarter outlook, Broadcom expects to realize high value potential in the short term.
Activision Blizzard
The Duquesne manager invested 748,700 shares of Activision Blizzard, an electronic gaming company originally based in California. Activision averaged $41.89 per share during the quarter, and Druckenmiller increased his portfolio 2.89% with the transaction.
The online gaming company has a relatively strong financial outlook. Its financial strength, profitability and predictability rank 6 out of 10, 8 out of 10 and 3.5 out of 5. Activision’s operating margin and net margin outperforms 86% and 82% of global electronic gaming and multimedia companies.
Activision reported a third-quarter record $1.57 billion in net revenues during third-quarter 2016, outperforming third-quarter 2015 net revenues by 58%. GAAP net revenues for their digital channels increased 18% quarter over quarter and reached an all-time quarterly record of $1.34 billion. CEO Bobby Kotick cherished the wide enthusiasm of global audiences for their franchise games, including Call of Duty and Candy Crush. Overwatch, Activision’s newest franchise game, reached 20 million active users in just four months. Strong customer enthusiasm likely contributed to expanding operating margins and consistent per-share revenue growth, resulting in high and sustainable profitability.
As the company presents high growth and value potential to shareholders and investors, Mandel expanded his Activision position 67.97%. The Lone Pine Capital manager owns 17,289,564 shares of Activision Blizzard, the largest stake among guru owners.
Bank of America
Druckenmiller purchased 1,579,700 shares of Bank of America, one of the most popular global banks. Bank of America averaged $14.89 per share during the third quarter, and Druckenmiller increased his portfolio 2.19% with the transaction.
As discussed in a previous article, Bank of America reported higher net interest income and total revenue during the third quarter compared to the prior quarter. The global bank also increased its tangible book value per share by 11%. As the bank presents good upside potential, David Tepper (Trades, Portfolio) and several others invested in Bank of America. The Appaloosa Capital manager purchased 4,135,303 shares, the third-largest new buy among the gurus. Andreas Halvorsen (Trades, Portfolio) purchased over 25.11 million shares, the largest new purchase of the quarter.
See also
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Disclosure: The author has no position in the stocks mentioned in this article.
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