Hedge fund guru Christopher Lord of the $2 billion Criterion Capital Management fund has made some big adjustments to the fund’s portfolio in the last quarter. Most notably, we can see that Lord ramped up the fund’s holding in Tesla Inc (NASDAQ:TSLA), while slashing holdings of both Nvidia Corp (NASDAQ:NVDA) and Facebook Inc (NASDAQ:FB).
Christoper Lord co-founded the fund with a bias towards the technology, media and telecommunications (TMT) sector. Lord developed extensive knowledge of the sector via his role as Director of Research at Pivotal Asset Management, a well-known tech fund. He also worked at Amerindo Investment Advisors and venture capital firm Scudder, Stevens & Clark. Before he turned to investing, Lord graduated with a BA in Religious Studies from Dartmouth College and an MBA from the Harvard Graduate School of Business.
Criterion has a fundamental investing approach based on primary research and proprietary modelling. The funds uses both long-term positions to invest in growth and turnaround stocks, as well as tactical and secular short positions. “We invest with a longer-term time horizon with the belief that over time a company’s stock price will rise or fall to reflect the underlying fundamentals of the company” says Criterion. In contrast, short positions are selected for “declining earnings quality, increasingly competitive landscapes and slowing growth associated with maturing markets.”
Investors follow Lord’s moves closely because of his impressive track record. The tech-focused fund has a 22% annualized average return for the last four years with a portfolio gain of 118.9% since June 2013. Indeed, if we focus in on the fund’s measured performance of 118% we can see that it achieves the double-whammy of beating both the average hedge fund portfolio and the S&P 500.
Now we have ascertained the fund’s credentials let’s see how Lord played these three key stocks in the last quarter:
Boosting Stake in Tesla Inc
Lord is obviously confident that controversial auto stock Tesla can pull off its ambitious electric and self-driving car goals. He ramped up the fund’s Tesla position by a huge 60%. Criterion now hold 48,930 shares in Tesla worth close to $18 million.
And Lord isn’t the only one feeling optimistic. On August 15, top Guggenheim analyst Rob Cihra reiterated his Tesla buy rating with a buy rating and $430 price target (26% upside from current share price.) However, he has trimmed his estimates for full-year 2017 EPS from a $7.27 loss to a $7.47 loss. The cut is a reaction to Tesla’s $1.8 billion bond sale and $3,000 Model X discount- which should improve Model X sales during the production ramp up of Tesla’s Model 3 vehicle.
“While recognizing TSLA remains expensive on near-term metrics, we continue to value it on 2020E numbers, expecting the ramp of its new Model 3 to drive revenue and margin growth for several consecutive quarters, as volumes now leverage off the high fixed-cost structure Tesla has been building,” Cihra told investors. He believes that Tesla will Guggenheim become profitable by 2018, and declare an EPS of about $15 by 2019. For the sceptics out there- note that Cihra has a 100% success rate and 20.3% average return across his Tesla ratings.
TipRanks reveals that overall the stock has a Hold consensus rating from the Street. Analysts are almost evenly divided between buy, hold and sell ratings over the last three months (5, 7 and 5 ratings respectively). Interestingly we can see that analyst price targets on Tesla diverge widely from $464 on the high to just $155 on the low. The average of these price targets works out at $314.08 (-9.6% downside from the current share price).
A Note of Caution on NVIDIA Corporation
Lord dramatically cut the fund’s holding in this fast-growing graphics chip stock. Criterion now holds just 60,167 shares in Nvidia worth about $8.7 million. This is a 29% drop from the fund’s previous Nvidia position.
In contrast to Lord, top Canaccord analyst Matt Ramsay has just reiterated his buy rating following the stock’s better-than-expected second quarter results. His buy rating comes with a very confident $190 price target, up from $180 previously. This translates into $30 upside from the current share price. According to Ramsay, the quarter was “very strong” and shows that “growth drivers are still intact”. For those concerned about slightly weaker data center sales (2% growth from previous quarter), Ramsay believes that a rebound is on the horizon.
He says: “we anticipate a strong sales ramp for Volta- based datacenter cards with more application-specific AI features and tensor cores for AI workloads. While sustaining 3X Y/Y growth was never realistic, we believe NVIDIA’s datacenter business has the potential to near triple from F’18 to F’21 toward $5B+ in revenue.”
Five-star Ramsay has a very impressive rating on TipRanks where he is ranked #48 out of 4,610 analysts. On NVDA stock specifically he boasts an incredible track record of 88% success rate and 131% average return across his 17 NVDA ratings.
Overall, Nvidia has a cautiously optimistic Moderate Buy analyst consensus rating. The stock has received 15 buy, 6 hold and 3 sell ratings over the last three months. However, with prices spiking, the average analyst price target of $154 stands at a downside from the current share price (of about -4.5%).
Dumping Facebook Inc
In the second quarter, Lord revealed a surprise bearish attitude to social media giant Facebook. He slashed the fund’s FB holding by just over 39% to 916,597 shares. These shares have an approximate value of $138.4 million. However, the stock remains the second biggest holding for the fund, at approximately 6.67% of the total portfolio.
While Lord may not be bullish on FB, the stock certainly gets the Street’s seal of approval. Analysts are encouraged by the fact that the social media ‘king’ is constantly exploring new avenues and platforms to keep its leadership position secure. As well as investing in videos and online TV-like content, FB is also pushing its virtual reality Oculus Rift headset.
And now a patent filing has revealed that FB is working on a pair of augmented reality glasses. The glasses can superimpose virtual images onto the real world and are described in the application as a “waveguide display with two-dimensional scanner”. The glasses would be based on the same waveguide technology as Microsoft’s award-winning Hololens headset. The Hololens, a $3,000 mixed reality headset, projects holograms onto physical objects and has yet to find a serious competitor.
TipRanks reveals that the stock has a Strong Buy analyst consensus rating. This breaks down into 30 buy, 2 hold and 2 sell ratings in the last three months. Meanwhile, the average analyst price target of $192.79 translates into 15% upside from the current share price.
Disclosure: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. The article should also not be interpreted as a public offering by Criterion Capital Management. Moreover, the author has no relationship with Criterion.