Founded by John Griffin in 1996, Blue Ridge Capital is a New York based hedge fund management firm. The firm manages the Blue Ridge Capital, L.P.
Investment strategy: Blue Ridge Capital primarily invests in domestic companies, using a long/short growth-oriented approach that focuses on mid- and large-caps. The firm utilizes a combination of bottom-up and fundamental research approach in selecting investments. Blue Ridge generally maintains a long-term investment time horizon, seeking to purchase securities of businesses and sells short the stock of companies with fundamental problems.
In this article, I will be discussing five attractive long opportunities from the top buys of Blue Ridge Capital (Source:13F filing).
SIRIUS XM Radio Inc (SIRI): Blue Ridge Capital bought 55,374,141 shares of Sirus XM last quarter. Sirius XM Radio Inc. provides satellite radio services in the United States and Canada. The company broadcasts approximately 135 channels, including music, sports, entertainment, comedy, talk, news, traffic, and weather channels on a subscription fee basis through two satellite radio systems.
Sirius offers a differentiated consumer value proposition based on a broad and unique content line-up, seamless integration into cars and ease of use, and ubiquitous network coverage. I believe this will drive continued growth. Sirius' business model is characterized by low capital intensity, high operating leverage and incremental margins, pricing power, and lack of substitute products. All these factors serve make its business attractive.
Sirius has not seen any increase in churn rates, which remain stable at 1.9%, despite its recent price hike. This pricing power will be an important driver of SIRI's valuation going forward. According to U.S SAAR numbers, auto sales for February have exceeded the expectations. This is also positive news for Sirius as the majority of its subscriber base is derived from auto sales. In addition, there is a lot to watch for in 2012 and beyond, with further contributions from used cars, roll out of the Sirius 2.0, and the launch of internet-based on-demand services.
Baidu.com Inc. (BIDU): Blue Ridge Capital bought 567,500 shares of Baidu last quarter. Baidu is the #1 internet search provider in China, with a focus on Chinese web pages. The company generates the majority of its revenue through pay-per-click advertising and customized search solutions.
Baidu is still in the early stages of the online advertising boom in China and is expected to benefit from the increased online ad budget allocated by traditional advertisers. Many large customers now see Baidu's search marketing platform as a more effective brand-building medium. With new investments in technology, contextual ad network is expected to pick up momentum. Despite slowdown in SME demand, strength in large advertisers will be the major growth driver for 2012.
Further, Baidu's strategy for mobiles, indicates growing opportunity in this space. This will be more of a long-term catalyst, with Baidu currently focusing more on increasing its user base by enhancing user experience. New product offerings in this space include Baidu Yi and Baidu maps. Baidu is expected to partner with handsets companies to pre-install Baidu Yi, a mobile OS. Also, with Baidu maps-users on mobile increasing by 10-fold in 2011, Baidu is set to capture market share and hold a dominant position similar to its position in the PCs market.
I believe that Baidu continues to enjoy superior pricing power against its peers, due to its dominant market share and keyword bidding model. With a shift in large advertisers ad spend and Baidu's focus on monetization of social, mobile and other vertical search offerings, revenue growth outlook for both the near term and the long term is expected to be solid.
Google Inc. (GOOG): Blue Ridge Capital bought 29,500 shares of Google last quarter. Google is a defensive stock with a high growth rate. The company's leadership position in its core search business is what makes it a defensive stock. Its main competitors, Bing and Yahoo Search, have been unable to pose any meaningful threat to Google - despite burning a good amount of cash. From a growth perspective, Google is likely to post a double-digit growth rate for the next several years as the secular shift of advertisers from traditional media to online media continues. Its mobile business is likely to be another major growth driver.
Google is trading at a forward PE of just 12x, despite the expected 20% top- and bottom-line growth next year. Although some investors are worried about the increasing dominance of Facebook (FB), I think it's too premature to say that Facebook can adversely affect Google's core search and advertising business. I find the risk-reward profile of Google very attractive at these levels.
Citigroup Inc. (C): Blue Ridge Capital bought 1,260,000 shares of Citigroup last quarter. Citigroup is a good long, particularly for aggressive traders. Citigroup is trading at 0.6x tangible book value. I like the company because of its emerging market exposure and ongoing liquidation of Citi Holdings, which will help in reducing earnings and ROE drag. Citi will see better-than-average loan growth in the longer term when run-off balances at Holdings decline and Citi's emerging market loan growth becomes increasingly visible. In the near term, Citi is all set to benefit from reduced competition in emerging markets, as its European peers retrench. As the situation in the eurozone improves and risk on trade continues, I see good potential upside for Citigroup's shares.
Monsanto Company (MON): Blue Ridge Capital bought 1,200,000 shares of Monsanto last quarter. Monsanto is a good buy, given the defensive nature of seeds, prospects for double-digit earnings growth, and the company's reasonable valuation. Monsanto is trading at 17.5x Forward PE and has a dividend yield of 1.7%. I see limited downside risk to earnings, given the growth prospects in biotech seeds and low sensitivity to the economic cycle. Also, I am quite bullish on commodity prices, given the excess amount of money supply that has entered the system, thanks to bailouts, quantitative easing, and stimulus packages. In particular, when we talk of food grains where demand is inelastic, the trend is likely headed up in the mid-to-long term, even if we consider a prolonged recession scenario. This translates into higher farm income and an improved value proposition for Monsanto's customers, which should support the price/mix.