Rob Citrone is the fund manager behind the $4.12 billion Discovery Capital Management fund. In Q2 Citrone ramped up holdings in key portfolio stocks including Advanced Micro Devices, Inc (NASDAQ:AMD), Micron Technology Inc (NASDAQ:MU) and Alibaba Group Holding Ltd (NYSE:BABA).
Citrone, like other big-name fund managers including Steve Mandel and Lee Ainslie is nicknamed ‘Tiger Cub’. This is the name given to an elite group of fund managers who worked in Julian Robertson’s legendary Tiger Management fund. Citrone worked at the Tiger fund before founding Discovery in 1999. However, the fund has suffered due to his preference for macro bets and emerging markets. Indeed, the fund actually lost money in both 2014 and 2015- although the fund bounced back the following year with a 9% return in just two months. This meant that the fund recorded an 11% gain in 2016.
Nonetheless, we can see that the fund’s measured performance (19%) continues to undercut both the average hedge fund (51%) and the S&P 500 (93%). TipRanks shows that the fund has an annualized average return over the last three years of just 3.58%. Citrone, who has a $1.1 billion personal wealth, predicted that the end of 2016 would bring the biggest market correction since 2008. So far this correction has failed to materialize. The fund has also struggled this year due to a washout in its Brazilian assets- following a scandal involving Brazilian President Temer. Bloomberg has now reported that people familiar with the matter claim the fund is on track for a 12% loss this year.
Now let’s explore these three big Q2 moves:
Advanced Micro Devices, Inc.
Rob Citrone showed that he is optimistic about the outlook for AMD in Q2, increasing the fund’s AMD position by a whopping 8,176,875 shares (about 73%). The fund now owns a total of 19,491,865 AMD shares worth $243.26 million. This is almost 6% of the total portfolio- making AMD the fund’s no. 1 stock.
And Citrone isn’t the only one bullish on AMD: top Merill Lynch analyst Vivek Arya has just reiterated his buy rating on the stock with an $18 price target. This works out at a massive 49% upside from the current share price. The stock has already gained an incredible 85% in the year-to-date.
Arya likes the fact that AMD’s Ryzen processors are proving popular even in the face of competition from larger rival Intel. He places this success down to the fact that the Ryzen processors, launched in March, have double the number of processor cores. This gives the processors more advanced multi-tasking capability. Encouragingly, he believes sales will further accelerate throughout the rest of the year due to increasing PC original equipment manufacturer placement.
“Our industry checks show improving mindshare/shelf-space for AMD’s new Ryzen desktop-PC processors, incl. 30-50% share at prominent e-tailors, well ahead of AMD’s 11% current desktop unit share,” says Arya. He sums up: “The key conclusion is that AMD has momentum which should gradually translate to share gains.”
And Arya believes that the high-end Vega graphic cards, launched on August 14, will also act as a positive catalyst on the stock. The cards are already receiving positive reviews and initial demand appears strong. Indeed, Arya points out that “popular online retail site NewEgg sold out of its initial allotment within 15 minutes.”
AMD has a cautiously optimistic Moderate Buy consensus rating from the Street. This breaks down into 9 buy, 9 hold and 3 sell ratings in the last three months. We can also see from TipRanks that the average analyst price target is $14.37 – 19.25% upside from the current share price.
Micron Technology, Inc.
Citrone ramped up the fund’s position in fast-growing semiconductor stock Micron by 6%. The addition of 250,500 MU shares means the fund now holds a total of 4.76 Micron shares valued at about $142 million. This works out at 3.44% of the total portfolio value.
Following the Flash Memory Summit 2017, Morgan Stanley’s Joseph Moore reiterated his MU buy rating with a $36 price target (22% upside from the current share price). He believes that the stock, currently trading at $29 has the power to rise to the mid $30s. Moore shows a more relaxed attitude compared to the Street’s ‘wall of worry’ over memory chip fundamentals. He says: “we don’t dismiss either [easing of memory chip supply shortage or an increase in capital expenditure], but still think stocks can strengthen into yearend as prices firm and 2018 capital spending plans start to form.”
At the same time, Moore praised MU’s leadership position in the NAND flash memory space with its 64-layer NAND product. Micron has previously stated that the market can expect “meaningful output” of the 64L product by the end of their fiscal year (December 2017). Moore has a top ranking on TipRanks and a strong track record on MU stock specifically. Across his 12 Micron ratings he has a success rate of 83% and a very high average return of 80.7%.
Overall MU has a Strong Buy analyst consensus rating. In the last three months, the stock has received 17 buy ratings, 2 hold ratings and only 1 sell rating. The average analyst price target of $41.47 translates into serious upside potential for MU of over 40% from the current share price.
Alibaba Group Holding Ltd
In the second quarter, Citrone initiated a brand-new position in Alibaba. The fund now has 528,900 BABA shares valued at approximately $74.5 million. This is equivalent to about 1.8% of the total portfolio.
Following very strong fiscal Q1 earnings results on August 17, Barclays analyst Ross Sandler says that BABA can hit $200. The stock is currently trading at just $169. His new $200 price target, up from $180 previously, comes in at a 25% upside from the current share price. Sandler says the results “blew away” Street estimates after revenue came in at 5% above consensus. The easy beat is largely due to increased customer management (marketing) services.
According to Moore “Cutting-edge Personalization technology continues to improve user targeting and drive click volumes. Physical goods GMV [gross merchandise volume] growth accelerated to 49% y/y, demonstrating the platforms’ marketing capability and the effectiveness of new promotion initiatives on Tmall.” However he notes that management plans to keep investing in the second half of the year and that this could drive down the EBITDA margin for the full year.
BABA has one of the best ratings by the Street. TipRanks reveals that Alibaba has a Strong Buy analyst consensus rating with 16 back-to-back buy ratings in the last three months. Meanwhile the average analyst price target of $181.13 suggests the stock still has upside potential of just over 7% from the current share price for the next 12 months.