Al Gore’s Generation Investment Portfolio: Top 10 Stock Picks

view original post

In this article, we discuss the 10 best stocks according to Al Gore’s Generation Investment Management. You can skip our detailed analysis of Gore’s hedge fund and latest developments, and go directly to read Al Gore’s Generation Investment Portfolio: Top 5 Stock Picks.

Generation Investment Management was founded by the former U.S. vice president Al Gore and famous finance expert David Blood in 2004. Since its inception, the hedge fund focused on environmental, social, and governance (ESG) investing. Al Gore is currently serving as the chairman of the hedge fund. He is also the chairman of The Climate Reality Project, a non-profit organization focusing on the climate crisis.

This October, Generation Investment Management announced the launch of a new climate-focused asset fund, Just Climate, to address the net-zero emissions challenge. The fund is supported by some of the biggest names in the investment world, including Microsoft’s Climate Innovation Fund, Harvard Management Company, and Hall Capital Partners, to name a few. Just Climate comes at a time when nearly one-third of millennials take ESG factors into account while investing in companies, according to a survey conducted by CNBC.

The climate-focused hedge fund managed to generate stable returns since its inception. From 2004 to 2014, the firm’s annual average returns stood at 12.14%. In the next two years, the firm averaged 17% annually.

As of Q3 2021, Generation Investment Management’s 13F portfolio carries a value of over $24 billion. This value has grown from $3 billion over the past ten years. Currently, the hedge fund invests in the tech sector, especially the companies that focus on green technology. Along with this, it also invests in finance, healthcare, and services sectors. Some of the famous holdings of Generation Investment Management are Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), Cisco Systems, Inc. (NASDAQ:CSCO), Intel Corporation (NASDAQ:INTC), and Microsoft Corporation (NASDAQ:MSFT). In this article, we will focus on the top ten holdings of Generation Investment Management.

Al Gore’s Generation Investment Portfolio: Top 10 Stock Picks

David Blood

David Blood of Generation Investment Management

Our Methodology:

For this list, we considered Generation Investment Management’s 13F portfolio as of Q3 and picked the top ten stocks from the portfolio.

Al Gore’s Generation Investment Portfolio: Top 10 Stock Picks

10. Gartner, Inc. (NYSE:IT)

Number of Hedge Fund Holders: 33

Gartner, Inc. (NYSE:IT) is an American technology and consulting company that is mainly famous for its data visualization and analysis tools. In Q3, Generation Investment Management held over 2.8 million shares in the company, valued at roughly $857 million. Gartner, Inc. (NYSE:IT) represented 3.56% of Al Gore’s portfolio.

On November 2, Gartner, Inc. (NYSE:IT) announced its Q3 results, posting an EPS of $2.03, which beat estimates by $0.48. The company’s total contract value experienced a 13.8% year-over-year growth at $4 billion. Appreciating the company’s organic growth and strong financials, recently, Baird lifted its price target on Gartner, Inc. (NYSE:IT) to $375, while maintaining an Outperform rating on the shares.

As per Insider Monkey’s Q3 data, 33 hedge funds held stakes in Gartner, Inc. (NYSE:IT), down from 39 in the previous quarter. The value of these stakes stood at over $2 billion. Harris Associates was one of the most prominent shareholders of the company in Q3, owning over 1.7 million shares.

Like Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), Cisco Systems, Inc. (NASDAQ:CSCO), Intel Corporation (NASDAQ:INTC), and Microsoft Corporation (NASDAQ:MSFT), Gartner, Inc. (NYSE:IT) is also one of the notable stocks in 2021.

Saturna Capital mentioned Gartner, Inc. (NYSE:IT) in its recently-published Q3 2021 investor letter. Here is what the firm has to say:

Gartner has had a tremendous year, appreciating just shy of 90% through the first three quarters. Gartner provides IT research and advisory services, and the resumption of business activity has been a boon to its business. While the Delta variant continues to affect in-person events, investors are looking ahead to a resumption of its conference business as well.”

9. Becton, Dickinson and Company (NYSE:BDX)

Number of Hedge Fund Holders: 51

An American medical technology company, Becton, Dickinson and Company (NYSE:BDX) recently announced to achieve compound annual revenue growth of 5.5% through continuous innovation in the field. Along with this, the company also aims to achieve double-digit EPS growth and a consistent increase in its dividend.

Insider Monkey’s data for Q3 shows a slight decline in the number of hedge funds holding stakes in Becton, Dickinson and Company (NYSE:BDX). 51 hedge funds tracked by Insider Monkey were bullish on the company in Q3, down from 52 in the previous quarter. These stakes hold a value of over $2.33 billion.

This November, Piper Sandler appreciated the execution of Becton, Dickinson and Company (NYSE:BDX), along with its revenue growth. The firm maintained a Buy rating on the shares, with a $285 price target. Generation Investment Management started investing in Becton, Dickinson and Company (NYSE:BDX) during the fourth quarter of 2010, with shares worth over $230.3 million.

As of Q3 2021, the fund held a $932.8 million worth of stake in the company, which represented 3.87% of Al Gore’s portfolio. In fiscal Q4 2021, Becton, Dickinson and Company (NYSE:BDX) earned $5.14 billion in revenues, presenting a 7.5% growth from the prior-year quarter.

Madison Funds mentioned Becton, Dickinson and Company (NYSE:BDX) in its Q2 2021 investor letter. Here is what the firm has to say:

Becton, Dickinson and Company (“BD”) is one of the world’s largest medical supply, devices, laboratory equipment, and diagnostic products manufacturers. We like BD because it is a leader in the medical and life science industries with a durable mid-single digit growth profile and attractive returns on capital. They generate about 85% of revenue from consumables and 15% from equipment, and each year, they manufacture billions of needles, syringes, catheters, tubes, and medical devices which results in significant economies of scale that can be matched by few competitors. Their Life Sciences segment produces products that provide diversity in the steadily growing diagnostic testing and life sciences research fields.

Regarding the short-term issues, it’s been a challenging past 18 months for the company. In February 2020, they announced the FDA required an updated 510(k) clearance for their Alaris infusion pump. As a result, BD had to suspend selling new pumps until the updated regulatory filing received FDA clearance. In addition to the regulatory headwind, BD’s business was negatively impacted by the COVID-19 pandemic as individuals postponed doctor office visits and hospitals deferred non-emergency medical procedures. We believe these postponements are just now normalizing. Lastly, while BD’s Life Sciences business swiftly brought COVID-19 tests to market, there is uncertainty over the magnitude and duration of these revenues.

We believe these negative dynamics will be resolved over time, and meanwhile, base business growth and managerial actions should move per share earnings power higher. First, BD’s management is confident that the Alaris infusion pump has maintained its market share over the last 18 months and many hospitals have even added to their fleet of pumps with BD shipping them under medical necessity provisions. The new 510(k) filing was submitted in April 2021 and is expected to receive approval sometime in the next year, which will fully alleviate the concern. Second, we believe that hospital utilization and diagnostic testing volumes will return towards normal levels as vaccination rates increase and global economies reopen (the U.S. is reportedly currently at 95% and 100% utilization for inpatient and outpatient volumes, respectively). While COVID testing revenues (about 10% of 2021 BD revenue) are expected to decline, management’s choice to accelerate the depreciation of those production assets and to spend a portion of the excess 2021 profits will dampen the earnings cyclicality. Base diagnostic testing revenue will otherwise recover with patient volumes, and combination flu-COVID tests will help maintain some COVID testing revenues into the future. Third, BD’s balance sheet has improved markedly over the past year, and we expect them to reinitiate share repurchases at a meaningful level. This will lead to the first material share count reductions since 2014.

At today’s share price, we deem this to be value-creative capital allocation. Fourth, BD recently announced its intention to spin off its slower-growing diabetes business in 2022; our observations in recent years suggest that separations such as this have been value-creative for health care investors. Fifth, this year’s earnings quality is high by dint of management underutilizing its production assets to lean out inventories and to accelerate its R&D programs, both which positively impact future cash earnings power. Thus, while there is near-term uncertainty regarding the resolution of the issues mentioned, we think they’ll resolve. We believe that management’s actions and the resumption of base demand leave BD positioned to return to a good long-term growth profile.

The stock trades at less than 19x Wall Street’s consensus earnings estimate for 2022, which is approximately 90% of the earnings multiple of the S&P 500 and an even steeper discount to BD’s medical technology peer group. We think the stock is attractively priced and a good value for a leader in the growing medical technology and life science industries.”

8. The Charles Schwab Corporation (NYSE:SCHW)

Number of Hedge Fund Holders: 59

The Charles Schwab Corporation (NYSE:SCHW) is an American financial services company that also offers banking services and electronic trading platforms to its consumers. Since the start of 2021, the stock is up 57.22%, as of the close of December 18.

As of Q3 2021, Generation Investment Management holds roughly 13 million shares in The Charles Schwab Corporation (NYSE:SCHW), worth over $940.4 million. The company constituted 3.9% of Al Gore’s portfolio. This October, The Charles Schwab Corporation (NYSE:SCHW) reported client assets worth $7.98 trillion, growing 5% from September and 36% from the same period last year. Recently, Deutsche Bank lifted its price target on The Charles Schwab Corporation (NYSE:SCHW) to $120, with a Buy rating on the shares, expecting a constructive business in 2022 as well.

The number of hedge funds tracked by Insider Monkey having stakes in The Charles Schwab Corporation (NYSE:SCHW) declined to 59 in Q3, from 72 in the previous quarter. These stakes hold a value of over $4.5 billion. Among these hedge funds, Egerton Capital Management held the largest stake in the company in Q3, worth over $1 billion.

In addition to SCHW, major companies like Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) have been increasing their ESG spending over the last few years.

Ariel Investments mentioned The Charles Schwab Corporation (NYSE:SCHW) in its Q3 2021 investor letter. Here is what the firm has to say:

“Additionally, financial services provider Charles Schwab Corporation (SCHW) was another strong performer in the period. Management has made progress increasing new and existing customer engagement through its multichannel approach and low-cost, high value product offerings—bolstering the company’s competitive positioning. Elevated interest rate expectations have been another driver of performance as SCHW reinvests deposits in securities and earns a spread. In our view, SCHW has the ability to weather various macro-economic and competitive pressures by flexing its scale and customercentric focus in support of the company’s industry leading cost advantage. We also believe the TD Ameritrade acquisition will create incremental value and further enhance SCHW’s market place standing and long-term growth trajectory.”

7. Thermo Fisher Scientific Inc. (NYSE:TMO)

Number of Hedge Fund Holders: 94

Thermo Fisher Scientific Inc. (NYSE:TMO) develops and sells a range of scientific instruments and also offers related services to its consumers. In Q3 2021, the company experienced a positive hedge fund sentiment, as 94 hedge funds tracked by Insider Monkey reported owning stakes in the company, up from 87 in the previous quarter. These stakes are worth over $8.2 billion, compared with $7.3 billion in Q2.

Generation Investment Management made its first investment of $129.4 million in Thermo Fisher Scientific Inc. (NYSE:TMO) during the third quarter of 2016. In Q3 2021, the company accounted for 4% of Al Gore’s portfolio. With the recent threats of the Omicron variant, KeyBanc listed Thermo Fisher Scientific Inc. (NYSE:TMO) as one of the stocks that could benefit from renewed demand for PCR tests and vaccines. Recently, Wells Fargo raised its price target on Thermo Fisher Scientific Inc. (NYSE:TMO) to $700, while maintaining an Equal Weight rating on the shares.

In its Q3 results, Thermo Fisher Scientific Inc. (NYSE:TMO) posted an EPS of $5.76, beating estimates by $1.06. Since the beginning of the year, Thermo Fisher Scientific Inc. (NYSE:TMO) delivered a 37.9% return to shareholders, while its 12-month returns came in at 40.66%.

L1 Capital mentioned Thermo Fisher Scientific Inc. (NYSE:TMO) in its Q3 2021 investor letter. Here is what the investment management firm has to say:

“Included in these adjustments, in early July 2021, we divested our remaining small investment in Thermo Fisher Scientific (Thermo Fisher), the world leader in the provision of equipment, consumables, and services to the Life Sciences industry. Thermo Fisher has benefited from elevated demand for its products and services associated with COVID-19 and we sold our residual investment at a gain of more than 70% compared to our average investment cost. Thermo Fisher subsequently held an Investor Day and positively surprised many people, including us, with very strong medium-term growth targets, notwithstanding a headwind from normalisation of COVID-19-related business. Thermo Fisher is a high-quality business and remains on our ‘Bench’ for potential reinvestment.”

6. Henry Schein, Inc. (NASDAQ:HSIC)

Number of Hedge Fund Holders: 31

Henry Schein, Inc. (NASDAQ:HSIC) is an American healthcare solutions company that provides related products and services worldwide. Over the last two years, the company has beaten EPS estimates 100% of the time. Following in the trend, in Q3, Henry Schein, Inc. (NASDAQ:HSIC) beat EPS estimates by $0.14 at $1.10.

As of Q3 2021, Generation Investment Management holds a $1 billion worth of stake in Henry Schein, Inc. (NASDAQ:HSIC). The company constituted 4.18% of Al Gore’s portfolio. Baird’s analyst Jeff Johnson appreciated the company’s improving margins and organic growth, and lifted his price target on Henry Schein, Inc. (NASDAQ:HSIC) to $98 while maintaining an Outperform rating on the shares.

Along with Al Gore’s hedge fund, D E Shaw was one of the major shareholders of Henry Schein, Inc. (NASDAQ:HSIC) in Q3, holding over 1.2 million shares. Overall, 31 hedge funds tracked by Insider Monkey held stakes in the company in Q3, down from 39 in the preceding quarter. The total value of these stakes is over $1.48 billion.

Henry Schein, Inc. (NASDAQ:HSIC) is also gaining ground among investors like prominent stocks, such as Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), Cisco Systems, Inc. (NASDAQ:CSCO), Intel Corporation (NASDAQ:INTC), and Microsoft Corporation (NASDAQ:MSFT).

Click to continue reading and see Al Gore’s Generation Investment Portfolio: Top 5 Stock Picks.

Suggested articles:

Disclosure. None. Al Gore’s Generation Investment Portfolio: Top 10 Stock Picks is originally published on Insider Monkey.