Does Billionaire Ken Griffin Know Something Wall Street Doesn’t? The Citadel Chief Sold 91% of His Stake in Palantir and Is Piling Into This Stock-Split Stock Instead.
Billionaire Ken Griffin has made an indelible mark on Wall Street and has been cited as one of the most successful investors of all time. He famously predicted the 1987 stock market crash, known as “Black Monday,” shorting stocks ahead of the decline and making a veritable fortune. His hedge fund, Citadel Advisors, generated gains of 15% last year, turning a profit of $7 billion and outperforming many of his peers. This came on the heels of his blockbuster performance in 2022, when Citadel was named “the most successful hedge fund ever,” according to CNN, with a profit of $16 billion, the “largest annual windfall on record,” according to the report.
Griffin is also a big proponent when it comes to the potential of generative artificial intelligence (AI). “This branch of AI will be game-changing for the economy because it will take an enormous amount of work that’s done today by people and do it in a distinctly different, highly automated, highly efficient way,” Griffin said.
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With that as a backdrop, it’s notable that Griffin sold an eye-catching 91% of Citadel’s stake in AI specialist Palantir Technologies(NASDAQ: PLTR) and is piling into a high-profile stock-split stock instead.
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Palantir has more than two decades of experience in the field of AI, and it moved quickly when generative AI went viral early last year. The company developed its Artificial Intelligence Platform (AIP), a cutting-edge AI tool that helps businesses solve real-world problems using company-specific data. However, Palantir’s biggest coup was developing hands-on sessions called boot camps, which pair customers with Palantir engineers to create these AI-fueled solutions.
That strategy has been wildly successful. Palantir’s U.S. commercial revenue, which includes AIP, jumped 54% year over year and 13% sequentially in the third quarter, while customers in the segment soared 77%. Furthermore, the segment’s remaining deal value jumped 73%, suggesting its growth streak will continue.
The results help illustrate why Palantir stock is up 295% over the past year and more than 1,000% since the start of 2023 (as of this writing). It also didn’t hurt that Palantir was admitted to the S&P 500 on Sept. 23.
In light of the company’s ongoing winning streak and impressive stock price gains, it might seem surprising that Griffin went on a selling spree, dumping more than 5 million shares of Palantir stock and reducing his position by roughly 91%. However, the soaring stock price brought with it a commensurate increase in the valuation and Palantir closed out the third quarter selling for 98 times forward earnings. With a valuation of that magnitude, it isn’t surprising that Griffin went bargain hunting.
What’s intriguing is that Citadel piled into Chipotle Mexican Grill(NYSE: CMG) stock.
There’s little doubt Griffin believed Chipotle represented a compelling 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 holding thousands of stocks, Chipotle is Griffin’s 12th-largest individual stock holding.
Chipotle has long been a pioneer in the fast-casual industry, bringing “food with integrity” to the mainstream. The company has employed a number of successful strategies to fuel 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 hasn’t all been smooth sailing, as the company was hit with a couple of troubling developments in the third quarter. In early July, Chipotle announced the pending retirement of CFO Jack Hartung in 2025. Just weeks later, the company got a second helping of bad news. Celebrated CEO Brian Niccol, who was credited with successfully reinvigorating the brand, was poached by Starbucks. The double dose of uncertainty sent fair-weather investors in search of greener pastures, sending the stock plunging.
However, this news didn’t have any impact on Chipotle’s financial results. For the third quarter, revenue of $2.8 billion climbed 13%, while its diluted earnings per share (EPS) of $0.28 increased 22%. It’s typically a good sign when profit grows faster than sales, as this suggests a level of spending discipline. Furthermore, Chipotle’s comparable store sales increased 6%, fueled by both an increase in transactions and a higher average check.
The company’s consistently strong results help explain why Chipotle stock is up 46% over the past year and 103% over the past three years — despite the economic headwinds. It also led to a 50-for-1 stock split earlier this year, which was completed on June 26, introducing a whole new generation of investors to the stock.
We don’t know for certain when during the third quarter that Griffin added to his stake in Chipotle, but we can make an educated guess by reviewing the stock chart. When excitement surrounding the stock split reached a fever pitch, Chipotle roared to a new all-time high, but the loss of two C-suite executives brought it back to earth. During a five-week period between June and July, the stock lost roughly 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 fire sale.
In hindsight, it seems clear Griffin didn’t know something that Wall Street doesn’t. He was simply reacting to what he viewed as a clear opportunity. Should investors follow suit?
Chipotle stock has rarely been cheap and currently sells for 58 times forward earnings, which might be off-putting for some investors. However, at the time of Chipotle’s recent slump, the stock was trading for 45 times forward earnings, just below its five-year average multiple of 46, likely prompting Griffin’s interest.
Looking ahead to 2025, Wall Street expects Chipotle to generate EPS of $1.32, which works out to 48 times forward 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 (as of this writing), more than 3 times the 96% gains of the broader market.
That helps illustrate why Chipotle stock is worthy of a premium and why it remains a buy.
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Danny Vena has positions in Chipotle Mexican Grill, Palantir Technologies, and Starbucks. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Palantir Technologies, and Starbucks. The Motley Fool recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
