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Echo Street Capital Management: Greg Poole’s Top 10 Stock Picks

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·12 min read
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In this article, we discuss Greg Poole’s Echo Street Capital Management's top 10 stock picks. You can skip our detailed analysis of Echo Street Capital's history, investment philosophy, and hedge fund performance, go directly to Echo Street Capital Management: Greg Poole's Top 5 Stock Picks.

In 2002, Greg Poole founded Echo Street Capital Management in New York. As of the 13F filings for the second quarter, the investment firm handles over $12.98 billion in managed securities, with assets under management worth more than $13 billion. The largest holding of Echo Street Capital Management is Microsoft Corporation (NASDAQ:MSFT), which represents 4.18% of the firm’s portfolio for the second quarter.

The top ten holdings concentration at Echo Street Capital Management is 20.74%, with investments concentrated in the healthcare, communications, information technology, finance, consumer discretionary, and real estate sectors.

As of June this year, Echo Street Capital Management made new purchases in 250 stocks, bought additional stakes in 171 equities, sold out of 175 securities, and reduced holdings in 125 stocks. The hedge fund’s top buys for Q2 were Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Procore Technologies, Inc. (NYSE:PCOR), and Anaplan, Inc. (NYSE:PLAN). Whereas, the top sales for the second quarter included Arch Capital Group Ltd. (NASDAQ:ACGL), Church & Dwight Co., Inc. (NYSE:CHD), and SPDR S&P 500 ETF Trust (NYSE:SPY).

The most notable stock picks of Greg Poole’s Echo Street Capital Management are Microsoft Corporation (NASDAQ:MSFT), PayPal Holdings, Inc. (NASDAQ:PYPL), Alphabet Inc. (NASDAQ:GOOG), and Visa Inc. (NYSE:V), among others discussed in detail below.

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Our Methodology

Let’s take a look at Greg Poole’s Echo Street Capital Management's top 10 stock picks. This list is ranked according to the value of each holding in Greg Poole’s Q2 portfolio. We have also mentioned the hedge fund sentiment around each stock, latest earnings, and analyst ratings to give potential investors a deeper insight into these companies.

Echo Street Capital Management: Greg Poole's Top Stock Picks

10. S&P Global Inc. (NYSE:SPGI)

Echo Street Capital’s Stake Value: $188,954,000

Percentage of Echo Street Capital’s 13F Portfolio: 1.45%

Number of Hedge Fund Holders: 71

S&P Global Inc. (NYSE:SPGI), a top stock pick of Greg Poole, is an American corporation engaged in financial information and data analytics. Echo Street Capital Management owns 460,357 shares in S&P Global Inc. (NYSE:SPGI), as of June this year, worth $188.95 million, representing 1.45% of the firm’s investment portfolio. In addition to financial information and analytics, S&P Global Inc. (NYSE:SPGI) also owns S&P Global Ratings, which is a credit rating agency, and is the majority owner of the S&P Dow Jones Indices.

S&P Global Inc. (NYSE:SPGI) announced on October 26 earnings for the third quarter. The Q3 EPS came in at $3.54, beating estimates by $0.39. S&P Global Inc. (NYSE:SPGI)’s revenue also exceeded analysts’ estimates by $101.65 million at $2.09 billion.

S&P Global Inc. (NYSE:SPGI) is set to merge with the London-based information provider, IHS Markit Ltd. (NYSE:INFO), as reports on October 22 suggest that the European Commission approved phase 1 of the $44 billion merger. The merger is expected to reach fruition by 2022, which will increase the free cash flow of the combined firm to almost $3.7 billion.

As of the second quarter of 2021, 71 hedge funds tracked by Insider Monkey were long S&P Global Inc. (NYSE:SPGI), up from 66 in the preceding quarter.

Here is what Baron FinTech Fund has to say about S&P Global Inc. (NYSE:SPGI) in its Q1 2021 investor letter:

“S&P Global Inc. provides credit ratings, indexes, data, and analytics to the financial and commodities markets. Shares increased on strong fourth quarter results and 2021 guidance that exceeded Street expectations. Although bond issuance is expected to moderate after two years of exceptional growth, management still expects revenue to grow mid-single-digits this year. Also, shareholders overwhelmingly voted to approve the merger with IHS Markit. We continue to own the stock as we see a long runway for growth and significant competitive advantages for the company.”

9. Equifax Inc. (NYSE:EFX)

Echo Street Capital’s Stake Value: $189,638,000

Percentage of Echo Street Capital’s 13F Portfolio: 1.46%

Number of Hedge Fund Holders: 37

Equifax Inc. (NYSE:EFX) is a top stock in Greg Poole’s portfolio for the second quarter, with Echo Street Capital Management owning 791,774 shares in the consumer credit rating agency, worth $189.63 million, representing 1.46% of the firm’s portfolio. Equifax Inc. (NYSE:EFX) maintains an elaborate database for more than 800 million individuals and 88 million businesses around the world, in addition to providing credit monitoring and fraud prevention services to clients.

On October 20, the Q3 earnings were announced by Equifax Inc. (NYSE:EFX), where the EPS for the quarter came in at $1.85, beating estimates by $0.12. Equifax Inc. (NYSE:EFX)’s revenue beat analysts’ expectations as well, at $1.22 billion by $39.57 million.

David Coleman from the investment advisory Argus, on October 22 upgraded Equifax Inc. (NYSE:EFX) to Buy from Hold with a $285 price target. This was due to the strong Q3 earnings, and the excellent navigation by Equifax Inc. (NYSE:EFX) of the challenges put forward by the COVID-19 pandemic. Coleman raised his 2021 EPS estimate from $7.37 to $7.57, and the 2022 estimate from $8.57 to $8.75.

At the end of June, 37 hedge funds tracked by Insider Monkey were bullish on Equifax Inc. (NYSE:EFX), compared to the same number of funds in the preceding quarter.

Here is what Palm Capital has to say about Equifax Inc. (NYSE:EFX) in its Q2 2021 investor letter:

“We don’t invest in banks. It’s difficult for one established bank to differentiate itself from another. This results in low profit margins. These are not necessarily bad for a defensive business. But for a business such as a bank that has lots of debt, has high fixed costs and is dependent on economic and credit cycles, a small change in interest rates or bad debt has a magnified impact on future profits. The timing and length of these cycles and the bank’s navigation through them are all difficult to predict. There’s therefore high uncertainty around its revenue and profits.

Instead, we do invest in credit data bureaus. Equifax, for example, is a share that we owned for a long time. The data these bureaus have is unique. It takes decades to build up. Their customers can’t make their most important decision – lending – without this data. And the cost of this data is low relative to the value of the loans being made. These factors all result in attractive profit margins and give the bureaus an ability to raise prices above inflation. Furthermore, customers typically get data from more than one bureau to cross check it, so bureaus aren’t incentivized to undercut each other on prices.

Because these businesses are capital light, they need little debt to operate. So, while their revenue is dependent on the economic and credit cycle, low levels of debt, high profit margins and the uniqueness of their business models mean that profits are less easily disrupted and less sensitive than those of banks. Equifax stands apart because it is building up data in other areas such as employment records that reduces its dependence on the credit cycle even further.”

8. Intercontinental Exchange, Inc. (NYSE:ICE)

Echo Street Capital’s Stake Value: $203,500,000

Percentage of Echo Street Capital’s 13F Portfolio: 1.56%

Number of Hedge Fund Holders: 47

Intercontinental Exchange, Inc. (NYSE:ICE), a top stock choice of Echo Street Capital’s Greg Poole, is an American company operating global exchanges, clearing houses, and facilitating customers with mortgage technology. Echo Street Capital Management holds a $203.5 million stake in Intercontinental Exchange, Inc. (NYSE:ICE), which represents 1.56% of the firm’s portfolio as of June 2021. As of the second quarter, 47 hedge funds monitored by Insider Monkey reported owning stakes in Intercontinental Exchange, Inc. (NYSE:ICE), down from 58 in the previous quarter.

The third quarter earnings were reported on October 28 by Intercontinental Exchange, Inc. (NYSE:ICE), and the EPS came in at $1.30, beating estimates by $0.07. The firm’s revenue also beat analysts’ consensus estimates at $1.80 billion by $46.65 million.

On November 2, Piper Sandler analyst Richard Repetto said that the firm’s most worrisome segment, mortgage technology, also performed spectacularly, adding to the Q3 earnings beat. He thought that the positive events were not being included in Intercontinental Exchange, Inc. (NYSE:ICE)’s stock price, and kept an Overweight rating on the shares with a $145 price target.

In addition to Microsoft Corporation (NASDAQ:MSFT), PayPal Holdings, Inc. (NASDAQ:PYPL), Alphabet Inc. (NASDAQ:GOOG), and Visa Inc. (NYSE:V), Intercontinental Exchange, Inc. (NYSE:ICE) is also a notable stock in Greg Poole’s Q2 portfolio.

Here is what Oakmark Funds has to say about Intercontinental Exchange, Inc. (NYSE:ICE) in its Q2 2021 investor letter:

“Intercontinental Exchange is one of the largest and, in our view, most successful financial exchange operators in the world. The company was created through a series of shrewd acquisitions executed by their founder and CEO Jeff Sprecher. Sprecher is one of the more capable CEOs we’ve evaluated, having demonstrated a long history of astute capital allocation and a willingness to act and adapt rapidly to new opportunities and competitive threats. Today, Intercontinental Exchange competes in three primary business segments: exchanges, fixed income/data services and mortgage technology. We believe each of these businesses exhibits attractive economic characteristics and that each should grow earnings well in excess of GDP over the long term. Despite this favorable long-term outlook, the company currently trades at a P/E ratio that is roughly in line with the S&P 500. We believe a business with Intercontinental Exchange’s strong competitive position, excellent management team and attractive growth outlook deserves to trade well above a market multiple. We like buying great businesses at average prices and believe Intercontinental Exchange represents a compelling opportunity to do just that.”

7. Sun Communities, Inc. (NYSE:SUI)

Echo Street Capital’s Stake Value: $204,180,000

Percentage of Echo Street Capital’s 13F Portfolio: 1.57%

Number of Hedge Fund Holders: 30

A real estate investment trust from Michigan, Sun Communities, Inc. (NYSE:SUI) is particularly focused on manufactured housing communities, marinas, and RV resorts. Greg Poole’s Echo Street Capital Management owns 1.19 million shares in Sun Communities, Inc. (NYSE:SUI), valued at $204.18 million, representing 1.57% of the firm’s Q2 portfolio. Sun Communities, Inc. (NYSE:SUI) operates across the United States and Ontario, Canada.

The Q3 earnings were reported on October 25 by Sun Communities, Inc. (NYSE:SUI), and the EPS for the quarter beat estimates by $0.08 at $2.11. The revenue also surpassed expectations at $684.29 million by $137.49 million.

At the end of the second quarter of 2021, 30 hedge funds reported owning stakes in Sun Communities, Inc. (NYSE:SUI), worth $821.6 million. This is compared to 35 hedge funds in the preceding quarter, with an approximate stake value of over $1 billion.

6. Intuit Inc. (NASDAQ:INTU)

Echo Street Capital’s Stake Value: $212,168,000

Percentage of Echo Street Capital’s 13F Portfolio: 1.63%

Number of Hedge Fund Holders: 66

Intuit Inc. (NASDAQ:INTU) is an American company providing financial software for tax, accounting, payroll, and credit management. Intuit Inc. (NASDAQ:INTU)’s products include TurboTax, QuickBooks, Credit Karma, and Mint. Echo Street Capital Management owns a $212.16 million stake in Intuit Inc. (NASDAQ:INTU), as of June this year, representing 1.63% of the firm’s investment portfolio.

Deutsche Bank analyst Brad Zelnick on November 1 initiated coverage of Intuit Inc. (NASDAQ:INTU) with a Buy rating and a $700 price target. According to Zelnick, Intuit Inc. (NASDAQ:INTU)’s shift from product to platform, continuing innovation, and growing market opportunities will result in revenue growth for the years to come.

At the end of the second quarter of 2021, 66 hedge funds in the database of Insider Monkey were bullish on Intuit Inc. (NASDAQ:INTU), down from 68 in the preceding quarter.

Like Microsoft Corporation (NASDAQ:MSFT), PayPal Holdings, Inc. (NASDAQ:PYPL), Alphabet Inc. (NASDAQ:GOOG), and Visa Inc. (NYSE:V), Intuit Inc. (NASDAQ:INTU) is a top stock in Greg Poole’s Q2 portfolio.

Here is what Cooper Investors has to say about Intuit Inc. (NASDAQ:INTU) in its Q3 2021 investor letter:

“The other meaningful deal during the quarter was Intuit’s acquisition of Mailchimp for $12bn. Intuit has reinvented itself over the last decade and thrived with a leadership position in QuickBooks Online, the financial accounting software for small businesses (effectively the ‘Xero of the US’). We originally invested in Intuit in February 2020, excited by the QuickBooks prospects.

Management has executed exceptionally well on the opportunity set which has seen the shares double since our initial purchase. However, the company has now conducted two meaningful deals in Mailchimp and Credit Karma worth a combined US$20bn over the last 12 months. The investment proposition has shifted from a focus on QuickBooks to now being a financial and small business software conglomerate. We continue to very much admire the company, but with Intuit now trading on 50x forward earnings we no longer see such attractive latency on offer, nor the rewards for the level of execution risk and thus we have exited the position.”

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Disclosure: None. Echo Street Capital Management: Greg Poole's Top 10 Stock Picks is originally published on Insider Monkey.