Carlson Capital's 132 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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Carlson Capital’s 132 Stock Portfolio: Top 10 Holdings Analyzed


Updated on April 16th, 2021 by Nikolaos Sismanis

Founded in 1993 by Clint Carlson, Carlson Capital, L.P. is an alternative asset management hedge fund based in Dallas, Texas. It currently manages nearly $13 billion, providing its services to pooled investment vehicles and corporations. The firm invests in public equities, fixed income, and uses hedging strategies, mainly in the United States.

Investors following the company’s 13F filings over the last 3 years (from mid-February 2018 through mid-February 2021) would have generated annualized total returns of 8.43%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 12.50% over the same time period.

Note: 13F filing performance is different than fund performance.  See how we calculate 13F filing performance here.

You can download an Excel spreadsheet with metrics that matter of Carlson Capital’s current 13F equity holdings below:

 

Keep reading this article to learn more about Carlson Capital.

Table Of Contents

Carlson Capital’s Investment Philosophy & Structure

Carlson Capital’s management believes that higher risk-adjusted returns can be produced by utilizing careful, targeted hedging investment strategies. These strategies are deployed in a diversified portfolio of securities, while combining the intuition and skills of multiple decision-makers. The last point is especially evident in the firm’s number of employees. The fund currently has 178 employees, 89 of which are investment professionals. The firms want to utilize a variety of investment ideas, necessitating a relatively high number of employees.

Despite hedge funds managing billions in assets, many employ just a handful of people, sometimes less than 10. In that sense, Carlson Capital makes for quite an unusual personnel structure. It’s worth noting that the majority of the firm is employee-owned, while its founder, Clint Carlson, is still active as the firm’s CIO.

Carlson Capital’s Portfolio & Top Holdings

According to its most recent form ADV, the company’s discretionary assets under management (AUM) amount to nearly $13 billion. Its latest 13F filing revealed that around $2.8 billion of the total assets are allocated to public equities. In line with Carlson’s philosophy, no sector occupies more than 18%, with its funds being spread over several industries.

The portfolio consists of 132 individual stocks, with the top 10 making up around 36.7 % of total equity weight, versus 27% during the previous filing. Management has concentrated Carlson’s portfolio since during the previous quarter, likely sticking to its more high-conviction ideas.

Source: 13F filings, Author

The company’s top 10 holdings are below:

Source: 13F filings, Author

SWK Holdings (SWKH) 

SWKH is a complex business. The company is a specialty finance whose expertise is small pharmaceutical and health care financing. An example of operations includes a small biotech company licensing its drug candidate to a larger pharmaceutical company, which pays them royalties based on sales.

The small biotech is then able to receive immediate cash by selling all or part of its royalty right back to SWKH. Hence, the majority of revenues hit the bottom line, as the only expenses are mostly attributed to paying the management team.

Being an underwriter of royalties in this niche market gives the company a great moat, while most of its revenues flow through to the bottom line. For context, the $208 million company only employs 34 people. At the same, there are multiple risks involved as royalties have expiration dates, while new pharmaceuticals pop up by the day, potentially threatening SWKH’s cash flows.

Carlson’s stake remained constant during the quarter, with shares accounting for around 5% of its total holdings. It’s currently the fund’s largest holding.

Grubhub (GRUB)

Grubhub climbed quickly to Carlson’s second-largest position, as the fund purchasing more shares during the previous quarter. Based on the price levels Carlson bought, the fund could be sitting on paper gains of as much as 50%. With strong demand for restaurant pick-up services due to the staying-at-home economy, the company has reported record LTM (Last Twelve Month) revenues of $1.82 billion, revitalizing investor interest for the stock.

However, even with growing revenues, net losses have been widening as well. The company managed to keep its gross margins at 30%, but there is little room to incur additional capital expenditure and financing costs without losing money.

GrubHub accounts for 4.7% of Carlson’s portfolio.

Varian Medical Systems (VAR)

Varian Medical is currently Carlson’s third-largest position. The company initiated its position in Q3 which is now worth around $120 million after a slight trim this quarter. Siemens Healthiness agreed to buy the company for $16.4 billion. Carlson play is most likely a way to acquire some low-risk returns, waiting for the acquisition to close.

Inphi Corporation (IPHI) & Xilinx (XLNX)

These two semiconductor stocks are Carlson’s fourth and five-largest positions. They account for around 8.6% of Carlson’s holdings. As COVID-19 has greatly increased the demand for electronics and data centers, the semiconductor industry is benefiting. It seems that Carlson is capitalizing on the industry’s bullish outlook through these two stocks.

However, it’s worth noting that both Inhpi’s and Xilinx’s valuations have greatly risen. Semiconductor companies have a cyclical nature and most of the time experience fluctuating market conditions. Hence, while the future outlook remains bright, it’s likely that current investors are overpaying near these price levels.

Carlson’s position in Inhpi is entirely new. It seems like it’s a high conviction pick considering how quickly it climbed to the fund’s top 10 holdings. The fund increased its position in Xilinx as well by a whopping 52%, sharing similar views.

Slack Technologies, Inc. (WORK)

Carlson’s 6th largest holding, Slack, is to be acquired by Salesforce (CRM) for $27.7 billion. Carlson is most likely holding the stock as a low-risk way to grow its assets once the acquisition closes.

Lowe’s (LOW)

Currently occupying around 3% of the fund’s public-equities portfolio, Lowe’s is Carlson’s seventh-largest position. The position was increased by 61.4% during the quarter, which could be a bet that the company’s market share in the home improvement space will grow against Home Depot (HD). This has been Mr. Ackaman’s firm belief as we had mentioned when covered Pershing Square and its largest stock holdings.

The company has proven resilient, posting growing revenues during the past year, as consumers focus on home improvement amid the stay-at-home economy. Over the past four quarters, the company has generated nearly $90 billion in sales, the highest in its history.

Additionally, Lowe’s net income margins remained robust at around 6.5%, despite most companies seeing increased costs as a result of the pandemic. The company’s margins have never been very high as a retailer, but at such large sales volumes, Lowe’s managed to net $5.81 billion in profits during this period, also the highest in its history.

It’s worth noting that Lowe’s is a Dividend King, counting 57 years of consecutive annual dividend increases. Despite the company’s mature profile, Lowe’s keeps on returning capital to its shareholders very aggressively. Its latest dividend increase was a satisfactory 9%, while the company has been repurchasing its stock very rapidly, retiring more than half of its outstanding shares over the past 15 years.

As a result, Carlson’s stake is likely to keep expanding even if the fund does not grow its position further, as continued buybacks gradually result in the fund owning a larger percentage of the company over time.

Alexion Pharmaceuticals, Inc. (ALXN)

Alexion Pharmaceuticals is Carlon’s eighth-largest position. Similar to its Varian (VAR) and Slack (WORK) positions mentioned earlier, Alexion is set to be acquired by AstraZeneca. Alexion shareholders will receive $60 in cash and 2.1243 AstraZeneca American Depositary Shares (ADSs) with each ADS representing one-half of one (1/2) ordinary share of AstraZeneca. The fund is likely waiting for the acquisition close, which should result in relatively low, but low-risk returns moving into the closing date.

DICK’S Sporting Goods, Inc. (DKS)

DICK’S Sporting Goods operates as a sporting goods retailer, mostly in the eastern United States. The company offers hardlines, including sporting goods equipment, fitness equipment, golf equipment, hunting, and fishing gear products.

While shares nosedived during the initial stages of COVID-19 due to the company’s retail exposure, sellers were proven wrong. Performance remained robust, with demand for outdoor products growing. Revenues and net income hit all-time high levels at $9.58 billion at $530 million, respectively, amid all-time high gross margins.

Similarly to Lowe’s, the company’s stable financials and robust business model have allowed DICK’s to return substantial amounts of cash to its shareholders. The stock currently yields 1.77% despite its over-prolonged rally. The company also bought back and retired around 1/3 of its total shares outstanding since 2013, which is utterly astounding.

 

IHS Markit Ltd. (INFO)

UK-based IHS Markit, provides critical information, analytics, and solutions for various enterprises and industries worldwide. The company’s solutions offer deep insights for customers in business, finance, and government. Revenues have been growing gradually, though with some bumps along the way. Still, IHS achieved all-time high sales during the past year, delivering $6.03 billion.

Still, the company reinvests the majority of its profits, so net income remains a bit compressed for now. The stock currently yields a tiny 0.8% and is valued at a relatively reasonable, for the analytics industry and the company’s current trajectory, multiple. That is around 30 times the stock’s forward net income.

The stock is an entirely new position for Carlson, initiated during Q4.

Final Thoughts

Carlson Capital’s 13F equity holdings have lagged the S&P500 over the last three years. While its concentrated portfolio of equities provides its investors with a well-rounded base of diversified assets, its investment philosophy has largely not paid off. With three acquisition-driven stocks in its top holdings, it looks like the fund is turning to a relatively safe pool of assets, including Dick’s and Lowe’s.

 

Additional Resources:

Lone Pine Capital’s 37 Stock Portfolio: Top 10 Holdings Analyzed

Akre Capital’s 26 Stock Portfolio: Top 10 Holdings Analyzed

Slate Path Capital’s 20 Stock Portfolio: Top 10 Holdings Analyzed

Appaloosa Management’s 35 Stock Portfolio: Top 10 Holdings Analyzed

Viking Global’s 75 Stock Portfolio: Top 10 Holdings Analyzed

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