Top 10 Stock Picks of Mick Hellman’s HMI Capital

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In this article, we will discuss the top 10 stock picks of Mick Hellman’s HMI Capital. If you want to skip our detailed analysis of Hellman’s history, investment philosophy, and hedge fund performance, you can go directly to the Top 5 Stock Picks of Mick Hellman’s HMI Capital.

Mick Hellman founded HMI Capital in 2008 and currently is the Managing Partner, co-CIO, and one of the members of the Investment and Management Committees at the hedge fund. He is the son of legendary financier Warren Hellman, who led the leveraged buyout of Levi Strauss by raising $25 billion in capital and the rest through debt in 1985. Mick’s grandfather, Marco Hellman, was also a renowned investment banker.

Mick Hellman’s father led the leveraged buyout of Levi Strauss only a year after forming his hedge fund Hellman & Friedman LLC on the West Coast. Mick joined his father’s hedge fund in 1987 and worked through the ranks to become the Managing Partner and part of the Investment and Management Committees. Before joining his father’s business, Mick Hellman completed his Bachelor’s in Economics with High Distinction from the University of California, Berkeley, in 1983. Soon after, he completed his MBA with Distinction from Harvard Business School in 1987.

HMI Capital invests in businesses that offer high growth and generate strong free cash flow with an investment time horizon of 5 to 10 years. The hedge fund tries to find corporations with a free cash flow or return on a capital growth trajectory that is least impacted by competition or substitution. HMI’s investment strategy is focused on three primary sectors: internet and media, software, and fintech/financial services. The hedge fund claims to be market-cap agnostic and invests in both private and public limited companies to form a concentrated portfolio. It aims to generate high risk-adjusted real returns by minimizing the possibility of persistent loss of capital.

HMI Capital Partners, L.P. fund generated returns of 6.04% and 10.91% in 2015 and 2016, respectively, while in 2017, the returns rose to 24.81%. As of Q3 2021, HMI Capital has a portfolio value of over $3 billion and has a 96.2% top 10 holdings concentration. According to the latest 13F filings, the hedge fund added two new stocks to the portfolio, sold out of four stocks, and reduced holdings in one stock in the third quarter. Some of the top holdings in Mick Hellman’s Q3 portfolio are Ares Management Corporation (NYSE:ARES), New Relic, Inc. (NYSE:NEWR), and Dynatrace, Inc. (NYSE:DT).

Our Methodology

In this article, we will be taking a look at the top 10 stock picks of Mick Hellman’s HMI Capital. These stocks have been picked from the Q3 portfolio of HMI Capital. The hedge fund data discussed is based on the 867 hedge funds being tracked by Insider Monkey as of Q3 2021.

Top 10 Stock Picks of Mick Hellman’s HMI Capital

10. Alibaba Group Holding Limited (NYSE:BABA)

Mick Hellman’s HMI Capital’s Stake Value: $143,979,000

Percentage of Mick Hellman’s HMI Capital’s 13F Portfolio: 4.31%

Stock Price as of December 29: $114.80

Alibaba Group Holding Limited (NYSE:BABA) is a Chinese e-commerce and technology company founded by Jack Ma in 1999. The Hangzhou, Zhejiang-based entity provides various selling models through its web properties along with payment solutions and cloud computing services. Alibaba Group Holding Limited (NYSE:BABA) had a gross merchandise value of nearly $1.24 trillion (RMB 8.12 trillion) during FY21 through its Chinese and international marketplaces and reached 1.24 billion consumers across the globe.

Elinor Leung at CLSA maintained an Outperform rating on Alibaba Group Holding Limited (NYSE:BABA) stock with a target price of $250 after its Sixth Annual two-day Investor Day. The analyst thinks that the stock is presently undervalued. The company’s strategy is focused on three fronts, namely Chinese consumption, globalization, and technology, according to its CEO Daniel Zhang. The analyst anticipates consumption in China to increase despite near-term weakness.

Alibaba Group Holding Limited (NYSE:BABA) is spending aggressively in the highly competitive Chinese e-commerce environment to maintain its market dominance despite the number of new players emerging. During investor day, the company also announced its intent to achieve carbon neutrality by 2030. Out of the 867 hedge funds tracked by Insider Monkey at the end of Q3, 115 held a cumulative stake of over $10.2 billion in Alibaba Group Holding Limited (NYSE:BABA).

Apart from Alibaba Group Holding Limited (NYSE:BABA), Mick Hellman also has a stake in companies like Ares Management Corporation (NYSE:ARES), New Relic, Inc. (NYSE:NEWR), and Dynatrace, Inc. (NYSE:DT), as of Q3 2021.

Davis Funds mentioned Alibaba Group Holding Limited (NYSE:BABA) in its Q3 2021 investor letter. Here’s what the investment management firm said:

“The Chinese government has also clearly communicated what its long-term goals are. In 2015, the government proclaimed the Made in China 2025 strategy, which was a policy roadmap to transform the Chinese economy from a powerhouse in labor-intensive industries into a powerhouse of technology-intensive products and services. Industries specifically targeted for leadership positions include information technology, artificial intelligence, robotics, new materials, biotechnology, aerospace and renewable energy. Many of our holdings, including Alibaba Group are leaders in many of these fields and are key to achieving China’s goal of becoming a modern 21st century economy. Their entrepreneurial management teams and talented workforce are driven by the profit motives of private enterprise, and these knowledge-intensive industries are key to their companies’ success. As such, we believe the ongoing technology industry antitrust review is designed to strengthen the industry, rather than weaken or nationalize it.

Alibaba Group was the first company to undergo the antitrust review and after a three-month investigation, was fined $2.8 billion to punish it for non-competitive behavior. The government specifically mentioned its exclusive supplier contracts colloquially known as “choose one from two” as behavior harming customers and competitors. It is our expectation that Alibaba Group will be the most heavily fined company, given it had the most aggressive business tactics. While $2.8 billion, equivalent to 4% of Alibaba Group’s 2019 domestic revenues, is almost three times the previous record $975 million antimonopoly fine levied against Qualcomm in 2015, it is also much lower than the legal 10% of revenues that could have been assessed. $2.8 billion is also an amount that the company can easily weather, given it is also only 4% of the cash on Alibaba Group’s balance sheet. While the government clearly wanted to punish the company for noncompetitive behavior, it also seems that its goal was not to permanently damage the company, but rather set clear standardized regulations for the entire industry.”

9. Roblox Corporation (NYSE:RBLX)

Mick Hellman’s HMI Capital’s Stake Value: $144,882,000

Percentage of Mick Hellman’s HMI Capital’s 13F Portfolio: 4.34%

Stock Price as of December 29: $98.64

Roblox Corporation (NYSE:RBLX) is a developer of an online video games platform and video games creation system. The San Mateo, California-based company, claims to have 9.5 million developers on its platforms.

On December 17, Bernie McTernan at Needham started coverage on Roblox Corporation (NYSE:RBLX) with a Buy rating and a price target of $136. The analyst ponders that the entity is in the early stage of penetrating the gaming industry. Although the pandemic has increased the pace of growth and evolution of the gaming industry, McTernan still sees annual booking growth of over 20% until FY25, along with a continuous rise in daily active users (DAUs). The analyst also sees the rise of the metaverse platform by companies like Meta Platforms, Inc. (NASDAQ:FB) to be a growth catalyst in the future that needs to be unlocked.

Out of the 867 hedge funds in Insider Monkey’s exclusive database, 50 hedge funds held a cumulative stake worth more than $3.57 billion in Roblox Corporation (NYSE:RBLX) at the end of Q3. In 2021, the stock price of Roblox Corporation (NYSE:RBLX) has increased by over 40% YTD and has outperformed the S&P 500 Index, which has experienced an increase of around 23% during the same period.

Jefferies Group shared its stance on Roblox Corporation (NYSE:RBLX) in its Q3 2021 investor letter. Here’s what the firm said:

“If we look at the Metaverse concept with more lenient guidelines for interoperability, then it becomes easier to see why certain companies are being referred to as Metaverse. On the virtual side, we’d point to companies like Epic Games, TakeTwo and Roblox. In augmented reality, it would be Niantic and SNAP. These are the large capitalized players in the space but albeit, not the only ones. We expect new mulit-billion dollar companies will rise as the Metaverse becomes more mature.

Roblox is a good example. The content is almost entirely user generated, the engine that powers the developer studio is provided by Roblox and developers/creators share in almost all the money that users spend on the platform. In addition, many of the items that you purchase in the avatar marketplace, or even a branded experience like Vans World, can be taken across experiences. Roblox talks a lot about platform extension, which would move the platform beyond just gaming/leisure experiences and into education and workplace offerings. The developer community has the capability to build tools for other developers, there are professional studios being built on the platform and many consumer-facing brands/content are partnering with Roblox to ensure a virtual presence. Roblox actually has a lot of the pieces for our utopian definition of Metaverse, but things like technology, interoperability with outside platforms and a dynamic, two-way economy are what’s missing. However, given our thesis that full interoperability is somewhat unrealistic, it’s easy to see how Roblox fits the definition…” (Click here to see the full text)

8. Block, Inc. (NYSE:SQ)

Mick Hellman’s HMI Capital’s Stake Value: $312,649,000

Percentage of Mick Hellman’s HMI Capital’s 13F Portfolio: 9.37%

Stock Price as of December 29: $162.98

Block, Inc. (NYSE:SQ), previously known as Square, Inc., is a provider of mobile payment solutions through Square, Cash App, Spiral, Tidal, and TBD54566975.

In a research report released on December 14, Dan Dolev at Mizuho gave Block, Inc. (NYSE:SQ) a target price of $285 with a Buy rating. This translates into a potential upside of nearly 70% from the current stock price. The analyst highlights the buy now pay later aspect of the business as a growth driver, which will increase Block, Inc.’s (NYSE:SQ) footprint in the US going forward. However, the business model has a downside in the form of delinquencies and a higher focus of consumers towards staples instead of discretionary spending.

RiverPark Funds discussed its stance on Block, Inc. (NYSE:SQ) in its Q1 2021 investor letter. Here’s what the asset management firm said:

“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 grownfrom 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. Alphabet Inc. (NASDAQ:GOOG)

Mick Hellman’s HMI Capital’s Stake Value: $337,873,000

Percentage of Mick Hellman’s HMI Capital’s 13F Portfolio: 10.13%

Stock Price as of December 29: $2,934.99

Alphabet Inc. (NASDAQ:GOOG) is the parent company of Google and various other subsidiaries that are involved in artificial intelligence, autonomous driving, cloud computing, robotics, etc. The parent company was created in October 2015 to provide more control and autonomy to the subsidiaries. The Mountain View, California-based company, is the third-largest technology company in terms of revenue. In terms of market capitalization, Alphabet Inc. (NASDAQ:GOOG) is the third biggest entity in the world, behind Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT).

According to Insider Monkey’s proprietary database of 867 hedge funds, Alphabet Inc. (NASDAQ:GOOG) is the fifth most owned stock amongst hedge funds as of Q3 2021. Overall, 156 hedge funds have a stake worth over $34.9 billion in Alphabet Inc. (NASDAQ:GOOG).

On December 3, Ivan Feinseth, an analyst at Tigress Financial, reiterated a Buy rating on Alphabet Inc. (NASDAQ:GOOG) with a raised price target of $3540. The analyst thinks that the increased focus on artificial intelligence enhances the functionality of its products and provides significant growth opportunities. This is seen in the improvement in the search service and the Pixel 6 phone.

In its Q3 2021 investor letter, investment management firm Alger mentioned Alphabet Inc. (NASDAQ:GOOG) and shared its stance on the company. Here’s what the firm said:

“Alphabet Inc. was among the top contributors to performance during the third quarter. Alphabet is a leading internet search provider and is a beneficiary in the share shift of advertising dollars from traditional mediums like television, radio and newspapers to digital platforms. The company is a leader in implementing Al, autonomous vehicles and cloud computing it and owns the highly trafficked YouTube property. Alphabet contributed to performance due to a strong quarterly report highlighted by revenue growth that beat consensus expectations across segments. The company’s core search revenues have increased 10% over the past two years, with cloud computing increasing 8%. Results from YouTube also exceeded expectations. When discussing quarterly results, Alphabet management said retail, entertainment and travel were end markets that were particularly strong. The fixed cost structure of Alphabet’s search service resulted in profitability resulting from the increase in revenues being better than expected.”

6. Meta Platforms, Inc. (NASDAQ:FB)

Mick Hellman’s HMI Capital’s Stake Value: $341,299,000

Percentage of Mick Hellman’s HMI Capital’s 13F Portfolio: 10.23%

Stock Price as of December 29: $344.67

Meta Platforms, Inc. (NASDAQ:FB) is a developer of platforms for computer, in-home devices, mobiles, and virtual reality headsets aiming towards bringing people closer and connecting friends and families. The company operates through two segments, Family of Apps and Facebook Reality Labs. Family of Apps comprises some of the renowned social media and messaging platforms like Facebook, Instagram, and WhatsApp. Meanwhile, the Reality Labs segment is focused on providing consumer products related to augmented and virtual reality. Facebook reported the name change to Meta Platforms, Inc. (NASDAQ:FB) on October 28 as CEO and Founder Mark Zuckerberg announced the focus towards virtual reality with its Oculus headset at the center of its efforts.

Mick Hellman’s HMI Capital held over 1 million shares in Meta Platforms, Inc. (NASDAQ:FB) at the end of Q3, worth over $341 million. The hedge fund has held a stake in Meta Platforms, Inc. (NASDAQ:FB) since Q1 2020. The investment represents 10.23% of Hellman’s overall portfolio.

Oculus headsets are one of the most popular tech gifts during the Holiday season, according to a report in CNBC. Before Christmas, the Oculus app was one of the top 10 applications in the entertainment category only on the iOS store. It then gained momentum to become the top-ranked app across all categories and become a top-five app in the entertainment category in 14 countries globally.

In addition to Meta Platforms, Inc. (NASDAQ:FB), Ares Management Corporation (NYSE:ARES), and New Relic, Inc. (NYSE:NEWR), Dynatrace, Inc. (NYSE:DT) is also amongst the top 10 holdings in Mick Hellman’s Q3 portfolio.

Canterbury Tollgate mentioned Meta Platforms, Inc. (NASDAQ:FB) in its Q3 2021 investor letter. Here’s what the investment management firm said:

“To say traditional media is anti-Facebook would not be an overstatement. An already intense and multi-year critique of (or attack on) Facebook has ratcheted up in recent weeks. Facebook’s research efforts have been reported on, if often derided, for nearly a decade. Going back to 2014, Slate.com called their research practices “unethical” when FB tried to study the impact social posts had on users. Now those efforts have been turned against them for the kill shot.

My job is to observe, assess, and allocate. Not to commentate on all the whims and wishes of media narrative. However, in the case of Facebook I cannot avoid going into some detail re: the onslaught against them, which I find to be most unwarranted and insincere.

Last month the Wall Street Journal ran a five-piece series titled “The Facebook Files” which allegedly shows how toxic Instagram is for teens. The foundation of their argument was a single slide from an internal presentation claiming, based on FB’s own research, that of teens who had a negative self-image, one-third said Instagram “made them feel worse.”iii Somehow the implication here is that this is not an inescapable aspect of either the human psyche and/or society-atlarge, but that it is of Facebook’s doing…” (Click here to see the full text).

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Disclose. None. Top 10 Stock Picks of Mick Hellman’s HMI Capital is originally published on Insider Monkey.