Sometimes, we can turn a hobby into a career. Israel ‘Izzy’ Englander was always interested in the financial markets, and as far back as high school he started trading stocks. He formed his first brokerage house in 1977, at age 30, and in 1988, with $35 million in seed money, he opened Millennium Management where he continues to serve as CEO. In the 31 years since, his fund has grown that original seed more than 1,000-fold and now holds over $39 billion in assets under management.
Millennium’s success has brought Englander wealth and reputation – he holds a personal net worth of $6.6 billion, and his investment services are highly sought after.
Englander’s move up the ladder is truly the accomplishment of a self-made man; his parents emigrated to the US after WWII after getting out of Soviet labor camps. Rising to the top from such humble beginnings is no mean feat. England managed it with a combination of intelligence, grit, and steadfast adherence to three basic trading principles: Put a tight control on risk; use non-directional trading strategies; and maintain the discipline to stick to the first two rules. Keeping to those simple principles has helped this quiet-mannered man make Millennium Management one of the best hedge funds around.
We’ve opened up the TipRanks Stock Screener tool to narrow down 3 “strong buy” stocks that Millennium placed its bets on in Q3. The fund giant spent almost $600 million to stake or increase positions in these three interesting names. It also doesn’t hurt that each one has over 15% upside potential, according to top analysts. Let’s take a closer look to find out why Izzy Englander and the Street found them so compelling.
First on the list is industrial gas company Linde. In the chemical business since 1879, Linde is the dominate player in the industrial gas niche, holding the largest market share and bringing in the largest revenues. The company’s gas operations provide a full range of industrial gasses to a wide variety of sectors: heavy industry, medical providers, and HVAC applications among others. Products include elemental gasses such as oxygen, nitrogen, hydrogen, and argon, and compounds like carbon monoxide and refrigerants.
Linde consolidated its leading position in the gas industry through a merger. The company announced in October 2018 that it would join with its competitor Praxair in a merger of equals. Linde chairman Dr. Wolfgang Reitzle, who heads the board of the combined entity described the move as a “compelling and transformative combination.”
The company has seen quarterly EPS rise through 2019, and in the recent Q3 report saw revenues more than double year-over-year, from $3.01 billion in Q3 2018 to $7 billion now. The massive increase eased any worries over the revenue number coming in just under the forecast. Quarterly EPS did not give even that limited disappointment. Earnings were reported at $1.94 per share, clobbering the forecast by 9%, and growing 26% from the year-ago quarter. LIN is up 33% so far in 2019, beating out the S&P’s gains of 24%.
Steady appreciation and strong profit growth were the attractors here for Englander’s hedge fund – the Q3 earnings numbers simply justified his purchase decision after the fact. During Q3, Millennium purchased 492,006 shares, more than doubling the firm’s holding. Millennium now controls more than 729,000 shares in LIN, worth over $142.4 million.
Wall Street’s analysts like what they see in LIN. Writing from SunTrust Robinson, James Sheehan says, “We believe the merger of Praxair and Linde will be highly accretive in the coming years… We believe strong organic growth trends are sustainable, and expect the stock to benefit from its relative earnings stability late in the economic cycle.” Sheehan rates the stock a Buy, while raising his price target to $235, which implies about 15% upside from yesterday’s closing price. (To watch Sheehan’s track record, click here)
Laurence Alexander, a 5-star analyst with Jefferies, concurs that the future looks good for LIN. He describes a “base case” of 8% sales through the end of 2024, and sees two important positive points for the stock: “Pricing environment should continue to improve as utilization rates rise [and] industrial capex should rise, which is positive for industrial gas project backlogs…” Alexander $241 price target indicates a decidedly bullish 19% upside to go with his Buy rating. (To watch Alexander’s track record, click here)
Overall, LIN shares get a Strong Buy from the analyst consensus. The stock has 6 recent reviews, with 5 of those being buy-side – giving the bulls a strong advantage over the lone cautious Hold. Shares in LIN are selling for $205, and the $233.24 average price target suggests an upside potential of nearly 15%. (See Linde’s price targets and analyst ratings on TipRanks).
L3Harris Technologies (LHX)
The next stock on our list is from the defense industry. L3Harris produces a wide variety of equipment, including command and control systems, tactical radios and other wireless equipment, avionics and electronics, and night vision systems.
Like LIN above, LHX has conducted a recent merger. Earlier this year, L3Harris was formed as a new entity through the combination of L3 Technologies and Harris Corporation. The parent companies converted their stock to the new ticker, LHX, which started trading on July 1. After accounting for 1H19’s separate income streams, the combined company, L3Harris, is estimated to show $17 billion in 2019 revenues.
At the end of October, LHX reported Q3 earnings – an important release, as it was the company’s first quarter of operations as a combined entity. The quarterly report did not disappoint. At $2.58, EPS was 8% better than the $2.39 estimate, while the $4.43 billion in revenue was in-line with the $4.45 billion forecast. The company reported just over $1 billion in cash on hand, even after the quarter’s return of $922 million to shareholders through buybacks and dividends.
Of the stocks in this list, LHX is Millennium’s new position. Considering the size of the company by revenue, it’s strong position in the defense contractor field, and its prospects for the near-term, it’s now wonder that Englander bought into it. His fund shelled out over $260 million for 1,378,220 shares in LHX.
Writing from Barclays, David Strauss describes L3Harris as a “Top Pick.” He is particularly impressed by the company’s cash position, and writes, “Our adjusted EPS estimates and FCF forecasts remain ahead of consensus. We forecast LHX achieving $3B in FCF a year early in 2021… we estimate that LHX trades at a 6.8% FCF yield (2021), which equates to a >20% discount to its defense peer group.”
Strauss, a 4-star analyst, gives this stock a Buy rating with a $270 price target, suggesting an impressive 40% upside potential. (To watch Strauss’s track record, click here.)
Like LIN above, LHX has one recent hold rating. That cautious missive is outweighed by 6 Buy reviews, however, giving the stock a Strong Buy consensus view. LHX’s $245.43 average price target implies an upside of 27% from the current share price of $194. (See L3Harris stock analysis on TipRanks)
The third and final stock on our list needs less of an introduction. Alibaba is China’s answer to Amazon – an e-commerce giant serving the world’s most populous nation. Even with China’s lower rates of internet penetration, Alibaba can rely on a domestic customer base some 800 million strong. One measure of the company’s firm foundation came from this year’s Singles Day numbers, when it racked up 25% year-over-year sales growth on China’s largest online shopping day. The final total, $38.4 billion, was a new Singles Day sales record – the third year in a row.
It’s hard not to like BABA as an investment, and Englander has moved into it in a big way. His fund increased its holding in the stock by 179%, adding 636,892 shares to the 356,270 that were already in Millennium’s portfolio. The brought the total stake Alibaba to $192.3 million.
In the recent earnings season, BABA reported fiscal Q2 earnings – and the results are consonant with the stock’s strong performance. The $1.83 EPS whomped the $1.50 estimate by 22%. On the top line, quarterly revenues of $16.65 billion beat the forecast by $180 million. The company saw 785 million monthly active users on mobile apps in September, an increase of 30 million just since this past June.
Alex Yao, 4-star analyst with JPMorgan, is optimistic that Alibaba can continue its strong growth trends. He wrote, “We believe financial outlook for the next12-18 months is turning clearer and stronger due to 1) resilient revenue growth outlook of core-core commerce with proven operating leverage 2) increasing financial discipline in… We expect these trends to continue in the coming quarters, leading to 44% Non-GAAP EPS growth in 2HFY20.”
With a growth forecast like that, Yao rates this stock a Buy. He bumped his price target up slightly, to $235, indicating confidence in a 21% upside for BABA shares. (To watch Yao’s track record, click here)
Wall Street is clear in its opinion of BABA, as the stock boasts another Strong Buy from the analyst consensus, based on an impressively unanimous 19 Buy ratings given in recent weeks. The average price target is in-line with Yao’s, at $235, and suggests a 17% upside from the current trading price of $200. (See Alibaba stock analysis on TipRanks)