Does billionaire Ken Griffin know something Wall Street doesn’t? The Citadel Chief sold 91% of his stake in Palantir and is piling into these stock splits instead.
Billionaire Ken Griffin has left an indelible mark on Wall Street and has been cited as one of the most successful investors of all time. He famously predicted the stock market crash of 1987, also known as ‘Black Monday’, shorting stocks before the decline and making a fortune. His hedge fund, Citadel Advisors, returned 15% last year, posting $7 billion in profits and outperforming many of its peers. This followed its successful showing in 2022, when Citadel was named “the most successful hedge fund ever,” according to CNN, with $16 billion in profits, the “largest annual windfall ever,” the report said.
Griffin is also a big proponent when it comes to the possibilities of generative artificial intelligence (AI). “This branch of AI will be a game changer for the economy because it will take a huge amount of work done today by humans and do it in a markedly different, highly automated, highly efficient way,” said Griffin.
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With that as a background, it is remarkable that Griffin has sold a whopping 91% of Citadel’s stake in the AI specialist Palantir Technologies(NASDAQ:PLTR) and instead piles into a high-profile stock split.
Image source: Getty Images.
Palantir has more than two decades of experience in AI, which accelerated when generative AI went viral early last year. The company developed its Artificial Intelligence Platform (AIP), an advanced AI tool that helps companies solve real-world problems using company-specific data. Palantir’s biggest act, however, was developing hands-on sessions called boot camps that paired customers with Palantir engineers to create these AI-based solutions.
That strategy has been enormously successful. Palantir’s U.S. commercial revenue, including AIP, rose 54% year over year and 13% in the third quarter, while the segment’s customer base rose 77%. Furthermore, the value of the remaining deals in the segment increased by 73%, indicating that growth will continue.
The results illustrate why Palantir shares are up 295% in the past year and more than 1,000% since the start of 2023 (at time of writing). It also didn’t hurt that Palantir was accepted into the S&P500 on September 23.
In light of the company’s continued winning streak and impressive stock market gains, it may seem surprising that Griffin went on a selloff, dumping more than 5 million shares of Palantir stock and reducing his position by about 91%. However, the rising stock price brought a commensurate increase in valuation, and Palantir ended the third quarter with a sales price of 98 times forward earnings. With a valuation of that magnitude, it’s not surprising that Griffin went on a bargain hunt.
What’s intriguing is that Citadel stacked up Chipotle Mexican Grill(NYSE:CMG) stock.
There’s little doubt that Griffin believed Chipotle presented an attractive opportunity in the third quarter. The billionaire investor increased Citadel’s stake by more than 7 million shares and increased his position by 454%. That brought his total stake to 8.64 million shares worth $552 million. Despite owning thousands of shares, Chipotle is Griffin’s 12th largest individual stock holding.
Chipotle has long been a pioneer in the fast-casual industry, bringing “integrity food” into the mainstream. The company has deployed a number of successful strategies to drive demand, including an industry-leading customer loyalty program, a robust digital strategy and the development of drive-thru ‘Chipotlanes’ for mobile orders, with separate preparation lines to speed throughput.
It wasn’t all plain sailing, as the company was hit by a number of worrying developments in the third quarter. In early July, Chipotle announced the upcoming retirement of CFO Jack Hartung in 2025. Just weeks later, the company received a second dose of bad news. Celebrated CEO Brian Niccol, who was credited with successfully reviving the brand, was poached by him Starbucks. The double dose of uncertainty sent fair-weather investors looking for greener pastures, causing stocks to plummet.
However, this news had no impact on Chipotle’s financial results. For the third quarter, revenue of $2.8 billion rose 13%, while diluted earnings per share (EPS) of $0.28 rose 22%. It’s usually a good sign if profits are growing faster than sales, as this indicates a degree of spending discipline. Additionally, Chipotle’s comparable store sales rose 6%, fueled by both an increase in transactions and a higher average check.
The company’s continued strong results help explain why Chipotle’s shares are up 46% over the past year and 103% over the past three years – despite economic headwinds. It also led to a 50-for-1 stock split earlier this year, which closed on June 26, introducing a whole new generation of investors to the stock.
We don’t know for sure when During the third quarter, Griffin increased his stake in Chipotle, but we can make a good guess by looking at the stock chart. As excitement surrounding the stock split reached a fever pitch, Chipotle roared to a new record, but the loss of two C-suite executives brought it back down to earth. During a five-week period between June and July, the stock lost about 27% of its value. Griffin likely saw a deal that was simply too good to resist and piled into Chipotle stock to take advantage of the sell-off.
In retrospect, it seems obvious to Griffin it didn’t know something that Wall Street doesn’t know. He simply responded to what he saw as a clear opportunity. Should investors follow suit?
Chipotle stock has rarely been cheap and is currently selling for 58 times forward earnings, which could be off-putting for some investors. However, at the time of Chipotle’s recent slump, the stock was trading at 45 times forward earnings, just below its five-year average of 46, which likely piqued Griffin’s interest.
Looking ahead to 2025, Wall Street expects Chipotle to generate earnings per share of $1.32, which equates to 48 times future sales, which isn’t much more than what Griffin paid. To be clear, that’s a premium compared to a multiple of 31 for the S&P 500. That said, Chipotle stock is up more than 300% over the past five years (at the time of writing), more than three times its earnings of 96% of the S&P 500. the broader market.
That illustrates why Chipotle stock is worth a premium and why it remains a buy.
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Danny Vena holds positions at Chipotle Mexican Grill, Palantir Technologies and Starbucks. The Motley Fool holds positions in and recommends Chipotle Mexican Grill, Palantir Technologies, and Starbucks. The Motley Fool recommends the following options: Short December 2024 put $54 on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Does billionaire Ken Griffin know something Wall Street doesn’t? The Citadel Chief sold 91% of his stake in Palantir and is piling into these stock splits instead. was originally published by The Motley Fool
