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10 Best Stocks to Buy According to Chris James’ Engine No. 1

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·18 min read
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In this article, we discuss the 10 best stocks to buy according to Chris James' Engine No. 1. If you want to skip our detailed analysis of James' history, and hedge fund performance, go directly to the 5 Best Stocks to Buy According to Chris James' Engine No. 1.

Activist investor Chris James is the founder of Engine No. 1 LLC, a diversified investment firm that focuses on sustainable capitalism. The hedge fund was founded in December 2020 and now manages a portfolio of around $270 billion in assets. Chris James is in the limelight these days after Engine No. 1 won three seats on the board of Exxon Mobil Corporation (NYSE: XOM) in a bid to force the company's leadership to bear the consequence of failing to reconfigure its business strategy to match global efforts to fight climate change.

Chris James started his investing career beginning in 1991 as he worked for a range of investment firms. In 2001, James co-founded Andor Capital Management, L.L.C., an investment management firm in New York, where he oversaw the fund's technology portfolio. The fund was short-lived since it only lasted until the financial crisis of 2008 and investors received their $2 billion in assets under management. In 2004, Chris James set up San Francisco-based Partner Fund Management (PFM), an investment firm focusing on global equities in the health care sector. The fund also invests in industrials, information technology, consumer staples, and transportation sectors. In 2018-2019, the fund managed approximately $6 billion in assets. As of March 31, 2021, Partner Fund Management holds a portfolio value of $3,274,505,000.

Despite the fact that James began his career as an analyst, he evolved into a big-picture investor over time. Engine No. 1 arose from James' attempt to open a new coal mine near Harrisburg, Illinois, in the mid-2000s. With Engine No. 1, James intends to take advantage of institutional investors' emerging focus on funds that seek to have a beneficial impact on the environment. According to a regulatory filing made on May 28, Chris James' Engine No. 1 plans to establish the Transform 500 ETF, a socially conscious exchange-traded fund. The fund will invest in a variety of industries, including consumer goods, energy, financial services, healthcare, technology, and utilities. Chris James' Engine No. 1 currently runs a $272 million portfolio with major stakes in Exxon Mobil Corporation (NYSE: XOM), Deere & Company (NYSE: DE), Square Inc (NYSE: SQ), General Motors Company (NYSE: GM), Shopify Inc (NYSE: SHOP) and Microsoft Corporation (NASDAQ: MSFT).

As of the end of the first quarter, Engine No. 1 LLC has a significant holding in Exxon Mobil Corporation (NYSE: XOM). The hedge fund run by Chris James owns 917,400 shares in the company worth over $51.3 million, representing 18.8% of their investment portfolio. Exxon Mobil Corporation (NYSE: XOM) reported first-quarter revenue of $2.6 billion, up 376% from $536 million in the first quarter of 2020. Exxon Mobil Corporation pays its shareholders an annual dividend of $3.48 per share, with a 5.61% dividend yield. As of June 18, Exxon Mobil Corporation (NYSE: XOM) shares trade at $60.40. The 52-week price range of XOM is $31.11 - $64.80. The stock has returned more than 31% to investors in the past year. On June 15, Credit Suisse maintained a Neutral rating on Exxon Mobil Corporation, with a price target of $72 per share.

Another notable company in the fund's holdings is the farm and heavy equipment manufacturer Deere & Company (NYSE: DE). The fund owns 76,336 shares in the company worth $28.6 million representing 10.48% of the fund's holdings. Agriculture is one of the industries seeing massive growth in 2021 with a 24% increase to $9.4 billion in soybean cash receipts and a 14% increase to $6.7 billion in corn cash receipts in the US, according to the forecast of the Department of Agriculture. Deere & Company (NYSE: DE) plans to take advantage of this industry growth by commercializing digital farm technologies, agricultural equipment, and farming management software. Deere & Company's (NYSE: DE) second-quarter revenue came in at $12.1 billion, an increase of 30% from $9.3 billion in the same period in 2020. The company pays its shareholders an annual dividend of $3.60 per share, with a 1.07% dividend yield. As of June 18, Deere & Company (NYSE: DE) shares traded at $328.97. The 52-week price range of DE is $148.19 - $400.34. The stock has returned more than 112% to investors in the last twelve months. On May 25, Jefferies maintained a Buy rating on Deere & Company, with a price target of $450 per share.

Chris James' Engine No. 1 LLC owns 71,177 shares of Microsoft Corporation (NASDAQ: MSFT) worth $16.8 million, representing 6.16% of its investment portfolio. The hedge fund trimmed its stake in MSFT by 26% in the first quarter of 2021. Revenue for the fiscal third quarter of 2021 was $41.7 billion, up 19% from $35.02 billion the previous year. Microsoft Corporation (NASDAQ: MSFT) currently pays an annual dividend of $2.24 per share with a 0.86% dividend yield. MSFT stock has offered more than 33% returns to investors in the past twelve months. As of June 18, Microsoft Corporation (NASDAQ: MSFT) shares traded at $259.43 and have a P/E ratio of 35.35. The 52-week price range of MSFT is $193.55 - $263.19. KGI Securities initiated coverage on Microsoft Corporation on June 2 with an Outperform rating and a $300 per share price target.

Chris James is an exception in an industry reeling from losses. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26, 2021, our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017, and they lost 13% through November 16. That’s why we believe hedge fund sentiment is a handy indication that investors should consider. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Best Stocks to Buy According to Chris James' Engine No. 1
Best Stocks to Buy According to Chris James' Engine No. 1

With this background in mind, let’s start our list of the 10 best stocks to buy according to Chris James' Engine No. 1. We used Engine No. 1 13F portfolio for the first quarter for this analysis. These are the top 10 holdings of the hedge fund. We ranked these stocks based on the number of hedge funds having stakes in each company.

Best Stocks to Buy According to Chris James' Engine No. 1

10. Bunge Limited (NYSE: BG)

James' Stake Value: $18,271,000 Percentage of Chris James' 13F Portfolio: 6.7% Number of Hedge Fund Holders: 44

We start our list of 10 best stocks to buy according to Chris James' Engine No. 1 with Bunge Limited (NYSE: BG). The Missouri-based agri-food company produces and distributes agricultural commodities, edible oil, wheat flours, and bakery mixes, sugar, and fertilizer products. Bunge Limited pays its shareholders an annual dividend of $2.10 per share and yields at 2.61%. Bunge Limited (NYSE: BG) has returned more than 90% to investors in the past twelve months.

Bunge Limited (NYSE: BG) and TARGET, a technology consulting business, teamed together to commercialize the Vector app, a standalone truck freight contracting platform aimed at digitizing truck freight hiring and other services in Brazil. With the app's success since its launch last year, Bunge Limited (NYSE: BG) and TARGET decided to expand the tech innovation by providing logistics services to other businesses, resulting in the formation of a separate logistics firm named Vector.

Bunge Limited (NYSE: BG) has a market cap of nearly $11 billion. The company's first-quarter net revenue came in at $12.9 billion, up 40% from $9.2 billion in the same period in 2020. As of June 18, Bunge Limited's (NYSE: BG) shares traded at $77.20 and have a P/E ratio of 5.35. The 52-week price range of BG is $38.00 - $92.38. On May 10, Morgan Stanley maintained an Equal-Weight rating on Bunge Limited and raised its price target to $92 per share.

The hedge fund Engine No. 1 owns 230,494 shares in the company worth over $18.3 million. At the end of the first quarter of 2021, 44 hedge funds in the database of Insider Monkey held stakes worth $653 million in Bunge Limited (NYSE: BG), down from 51 the preceding quarter worth $937 million.

Like Exxon Mobil Corporation (NYSE: XOM), NXP Semiconductors N.V. (NASDAQ: NXPI), Square Inc (NYSE: SQ), General Motors Company (NYSE: GM), Shopify Inc (NYSE: SHOP) and Microsoft Corporation (NASDAQ: MSFT), Bunge Limited (NYSE: BG) is one of the best stocks to buy based on Chris James' Engine No. 1.s portfolio.

9. Aptiv PLC (NYSE: APTV)

James' Stake Value: $20,794,000 Percentage of Chris James' 13F Portfolio: 7.63% Number of Hedge Fund Holders: 50

Aptiv PLC (NYSE: APTV) ranks 9th on the list of 10 best stocks to buy according to Chris James' Engine No. 1. The Dublin-based auto parts manufacturer designs and assembles a vehicle's electrical component from wiring and cable management systems. Aptiv PLC (NYSE: APTV) also creates system integration and software for self-driving cars. Aptiv PLC (NYSE: APTV) was founded in 2011 and was formerly known as Delphi Automotive PLC. APTV stock has returned more than 89% to investors in the past twelve months.

Aptiv PLC (NYSE: APTV) has a market cap of $39.8 billion. The company's first-quarter revenue grew 25% to $4.2 billion, up from $3.2 billion in the same quarter in 2020. As of March 31, 2021, the company has total assets amounting to $17.5 billion versus total liabilities of $9.2 billion. As of June 18, Aptiv PLC (NYSE: APTV) shares traded at $147.27 and have a P/E ratio of 82.64. The 52-week price range of APTV is $73.36 - $160.14. On May 13, Morgan Stanley maintained an Overweight rating on Aptiv PLC and raised its price target to $205 per share.

Engine No. 1 holds 150,794 shares in the company worth $21 million, representing 7.63% of the fund's portfolio. Out of the hedge funds being tracked by Insider Monkey, Impax Asset Management is a leading shareholder in Aptiv PLC (NYSE: APTV) with 2.91 million shares worth more than $402 million.

Like Exxon Mobil Corporation (NYSE: XOM), NXP Semiconductors N.V. (NASDAQ: NXPI), Square Inc (NYSE: SQ), General Motors Company (NYSE: GM), Shopify Inc (NYSE: SHOP) and Microsoft Corporation (NASDAQ: MSFT), Aptiv PLC (NYSE: APTV) is one of the best stocks to buy based on Chris James' Engine No. 1.s portfolio.

In its Q4 2020 investor letter, Sound Shore Management, an investment management firm, mentioned Aptiv PLC (NYSE: APTV) and emphasized their views on the company. Here is what the fund said:

“As mentioned earlier, periods of uncertainty often create the best opportunities for our strategy. Sound Shore’s ability to remain nimble while preserving a long-term view is a definitive competitive advantage, and increasingly rare in the investment industry. Though we reduced our portfolio’s exposure to original equipment auto manufacturers (OEM) during the selloff in March, we pivoted to opportunities our team identified in the speciality suppliers to the OEMs. One such company is Aptiv, our strongest contributor for the year. Formerly Delphi Automotive, Aptiv is a global technology and parts supplier to the transportation industry that makes electrical and active safety solutions for legacy vehicles as well as for the electric and automated cars of the future. We initiated our position in Aptiv during the market sell-off in March 2020 when the stock pulled back more than 60%. Our investment team has been following the company for a number of years and, given the opportunity to add the name at less than ten times normalized earnings, we acted quickly. Aptiv is a technology-driven business with excellent growth prospects. As global auto demand recovers, Aptiv’s content per vehicle will continue to increase and its business will benefit from the evolution of the automotive industry.”

8. Deere & Company (NYSE: DE)

James' Stake Value: $28,560,000 Percentage of Chris James' 13F Portfolio: 10.48% Number of Hedge Fund Holders: 51

Deere & Company (NYSE: DE) ranks 8th on the list of 10 best stocks to buy according to Chris James's Engine No. 1. The Illinois-based farming and heavy equipment company manufacture and sells everything from farm tractors to dump trucks, excavators, and surface miners. The company also owns a financing division that helps customers buy or lease agricultural and construction equipment. Deere & Company (NYSE: DE) pays its shareholders an annual dividend of $3.60 per share, with a 1.07% dividend yield. DE stock has returned more than 112% to investors in the past twelve months.

The company has a market cap of $103 billion. Deere & Company's (NYSE: DE) fiscal second-quarter revenue came in at $12.1 billion, an increase of 30% from $9.3 billion in the same period in 2020. Deere & Company recorded a net income of $1.8 billion, up 169% from $666 million in the second quarter of 2020. As of June 18, Deere & Company (NYSE: DE) shares traded at $328.97. The 52-week price range of DE is $148.19 - $400.34. The stock has returned more than 112% to investors in the last twelve months. On May 25, Jefferies maintained a Buy rating on Deere & Company, with a price target of $450 per share.

Chris James' Engine No. 1 owns 76,336 shares in the company worth $28.6 million, representing 10.48% of the fund's holdings. At the end of the first quarter of 2021, 51 hedge funds in the database of Insider Monkey held stakes worth $2.05 billion in Deere & Company (NYSE: DE), down from 54 the preceding quarter worth $1.8 billion.

ClearBridge Investments, in its Q1 2021 investor letter, mentioned Deere & Company (NYSE: DE) and shared their insights on the company. Here is what the fund said:

“Lead performers in the portfolio included Deere, which delivered a phenomenal first fiscal quarter ended in January and revealed impressive and previously undisclosed margins in its large equipment segment. Investors also welcomed Deere’s strong pricing power and technology leadership, particularly in precision agriculture, where it has separated itself from competitors.”

7. NXP Semiconductors N.V. (NASDAQ: NXPI)

James' Stake Value: $29,170,000 Percentage of Chris James' 13F Portfolio: 10.71% Number of Hedge Fund Holders: 53

NXP Semiconductors N.V. (NASDAQ: NXPI) ranks 7th on the list of 10 best stocks to buy according to Chris James' Engine No. 1. The Dutch semiconductor manufacturer designs and sells microcontrollers, radio frequency amplifiers, and different kinds of sensors. The company was founded in 2006 and was formerly known as KASLION Acquisition B.V. NXP Semiconductors N.V. (NASDAQ: NXPI) pays its shareholders an annual dividend of $2.25 per share, with a 1.12% dividend yield. NXPI stock has returned more than 65% to investors in the past twelve months.

NXP Semiconductors N.V. (NASDAQ: NXPI) has a market cap of $53 billion. The company's first-quarter revenue grew 27% to $2.6 billion, up from $2.02 billion in the same quarter in 2020. As of June 18, NXP Semiconductors N.V. (NASDAQ: NXPI) shares traded at $193.10 and have a P/E ratio of 128.56. The 52-week price range of NXPI is $106.75 - $216.43. On April 28, Jefferies maintained a Buy rating on NXP Semiconductors N.V., with a price target of $235 per share.

Engine No. 1 owns 144,881 NXP Semiconductors N.V. (NASDAQ: NXPI) shares worth $29 million, representing 10.71% of the fund's holdings. At the end of the first quarter of 2021, 53 hedge funds in the database of Insider Monkey held stakes worth $1.72 billion in NXP Semiconductors N.V. (NASDAQ: NXPI), down from 66 the preceding quarter worth $2.26 billion.

Like Exxon Mobil Corporation (NYSE: XOM), Square Inc (NYSE: SQ), General Motors Company (NYSE: GM), Shopify Inc (NYSE: SHOP) and Microsoft Corporation (NASDAQ: MSFT), NXP Semiconductors N.V. (NASDAQ: NXPI) is one of the best stocks to buy based on Chris James' Engine No. 1.s portfolio.

ClearBridge Investments, in its Q1 2021 investor letter, mentioned NXP Semiconductors N.V. (NASDAQ: NXPI) and shared their insights on the company. Here is what the fund said:

“Within IT, we have also increased exposure to a cyclical semiconductor industry currently working through a severe supply shortage due to several years of capacity reductions, COVID-19 shutdowns, and one-off production delays as well as demand resilience in areas like autos and smartphones. Two recent additions, specialty semiconductor maker (including) NXP Semiconductors, were among the portfolio’s leading contributors in the first quarter. NXP rose as auto production ramped up and electric vehicle sales continued to expand.”

6. DexCom, Inc. (NASDAQ: DXCM)

James' Stake Value: $11,572,000 Percentage of Chris James' 13F Portfolio: 4.24% Number of Hedge Fund Holders: 56

DexCom, Inc. (NASDAQ: DXCM) ranks 6th on the list of 10 best stocks to buy according to Chris James' Engine No. 1. The San Diego-based medical device company commercializes continuous glucose monitoring using a wearable sensor that feeds glucose readings to a smartphone or smartwatch. DXCM stock has returned more than 17% to investors in the past month.

DexCom, Inc. (NASDAQ: DXCM) has a market cap of $40 billion. In the first quarter of 2021, the medical device company reported revenue of $505 million, up 25% year over year. In the same quarter, the firm earned $40.3 million, or $0.41 per diluted share, compared to $19.9 million, or $0.21 per diluted share, in the previous year. The company increased its revenue growth expectation for the year to between 17% and 22%, or $2.26 billion and $2.36 billion. As of June 18, DexCom, Inc. (NASDAQ: DXCM) shares traded at $418.29 and have a P/E ratio of 80.36. The 52-week price range of NXPI is $305.63 - $456.23. On May 28, Wells Fargo upgraded DexCom, Inc. with an Equal-Weight rating and a price target of $380 per share.

Engine No. 1 owns 32,200 shares in the company worth $11.6 million, representing 4.24% of the fund's investment. At the end of the first quarter of 2021, 56 hedge funds in the database of Insider Monkey held stakes worth $1.68 billion in DexCom Inc (NASDAQ: DXCM), up from 52 the preceding quarter worth $1.66 billion.

Like Exxon Mobil Corporation (NYSE: XOM), NXP Semiconductors N.V. (NASDAQ: NXPI), Square Inc (NYSE: SQ), General Motors Company (NYSE: GM), Shopify Inc (NYSE: SHOP) and Microsoft Corporation (NASDAQ: MSFT), DexCom, Inc. (NASDAQ: DXCM) is one of the best stocks to buy based on Chris James' Engine No. 1.s portfolio.

In the Q4 2020 Investor Letter, RiverPark Advisors, LLC highlighted a few stocks, and DexCom Inc (NASDAQ: DXCM) is one of them. Here is what the fund said:

“DXCM shares were our final top detractor for the quarter. The company reported solid third-quarter results that comfortably exceeded expectations at 26% revenue growth, its highest quarterly gross margin in two years at 68%, and $147 million of EBITDA (29% margin), 50% above expectations. However, revenue growth slowed during the quarter (from pricing headwinds) as new patient growth shifted toward the lower-priced pharmacy and Medicare channels. We have expected these headwinds and believe that pricing is simply tracking more quickly towards a broad equilibrium ahead of its new product launch.

DexCom is the leading manufacturer of continuous glucose monitoring (CGM) systems for diabetes, with the most accurate CGM device on the market, as well as a significant new product in development–the G7, which is smaller than a quarter, longer wear, and lower cost than its current G6 monitor. Dexcom’s CGM is a platform technology addressing multiple diabetes populations and providers, and eventually other uses for its sensor technology, providing the company with a long runway for growth (we expect greater than 20% annual revenue growth for years to come). We also believe that the business will be extremely profitable at scale driving its adjusted EBITDA margin from 15% last year to 25% for 2023. We expect the company to generate 40% annual EPS growth over the next few years, while also generating sizable excess free cash flow.”

Click to continue reading and see the 5 best stocks to buy according to Chris James' Engine No. 1.

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Disclosure: None. 10 Best Stocks to Buy According to Chris James' Engine No. 1 is originally published on Insider Monkey.