Returns as of 03/12/2022
Returns as of 03/12/2022
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The past couple of weeks have featured an information overload for Wall Street and investors. Critical economic data, Fed speak, and geopolitical instability have taken the spotlight and moved the stock market in a big way.
But what you might not realize is that one of the most important data releases of the first quarter occurred less than three weeks ago.
February 15 marked the filing deadline for Form 13F with the Securities and Exchange Commission (SEC). A 13F is a required filing for fund managers with at least $100 million in assets under management. It provides a snapshot of what the brightest minds on Wall Street were busy buying and selling in the most-recent quarter. Even though the information is dated (as of Dec. 31), it can still offer clues as to what trends and stocks are in focus.
Image source: Getty Images.
Based on the latest round of 13F filings, it’s pretty clear that billionaires couldn’t stop buying the following trio of supercharged growth stocks during the fourth quarter (Q4).
The first fast-paced company that reeled in billionaire buyers in Q4 is graphics and networking giant Nvidia ( NVDA -2.46% ).
Four high-profile fund managers added to their positions last quarter, including Israel Englander’s Millennium Management, Philippe Laffont’s Coatue Management, Ken Griffin’s Citadel Advisors, and John Overdeck and David Siegel’s Two Sigma Investments. These billionaires respectively bought around 2.81 million shares, more than 854,000 shares, over 788,000 shares, and nearly 765,000 shares.
The answer to “Why Nvidia?” is pretty straightforward: Virtually every aspect of its business is growing faster than anyone had expected — including Nvidia’s management team. Gaming sales jumped 37% in the fourth quarter, with data center revenue up an even more impressive 71%.
Pretty much the only flaw in Nvidia’s fourth-quarter operating results was a 14% decline in automotive revenue. However, this sales drop-off has more to do with supply-chain issues impacting the entire auto industry than Nvidia doing anything wrong.
Looking ahead, Nvidia’s data center segment will likely be its cash cow. As businesses move their data and that of their customers into the cloud in the wake of the pandemic, demand for Nvidia’s cloud-based solutions should steadily increase.
There’s also a lot of excitement regarding the company’s future role in the metaverse. In simple terms, the metaverse represents the next iteration of the internet, which will allow users to interact with their surroundings and other people in 3D virtual worlds. Not surprisingly, Nvidia’s professional-visualization revenue more than doubled in the fourth quarter. The metaverse will take a long time to develop, but it sports multitrillion-dollar potential.
If Nvidia keeps handily outpacing Wall Street’s expectations, the sky could be the limit.
Image source: Block.
A second company with supercharged growth prospects that billionaires piled into during the fourth quarter is Block ( SQ -6.38% ), the fintech stock formerly known as Square.
Four billionaires couldn’t stop buying into Block during Q4. Those fund managers are Jim Simons of Renaissance Technologies, Ken Griffin of Citadel Advisors, Chase Coleman of Tiger Global Management, and Ole Andreas Halvorsen of Viking Global Investors. In the order listed, these billionaires respectively acquired approximately 1.63 million shares, almost 865,000 shares, close to 470,000 shares, and nearly 455,000 shares.
Although Block has a number of moving parts, its growth story breaks down to two key drivers. For more than a decade, the company’s seller ecosystem has been and should continue to remain a core catalyst. This is the segment that provides point-of-sale solutions, analytics, and loans to merchants to help them grow their business.
What’s noteworthy about the Square seller ecosystem is that it’s become widely adopted by bigger merchants. In the fourth quarter of 2019, roughly 56% of all gross payment volume (GPV) was derived from businesses with at least $125,000 in annualized GPV. By Q4 2021, this had risen to 66% of GPV. Since merchant fees primarily drive this segment, bigger merchants often mean more gross profit for Block.
The other key catalyst is digital peer-to-peer platform Cash App. Over the past four years, Cash App’s monthly-active-user count has ballooned from 7 million to more than 44 million. What’s more, Block is recognizing $47 in gross profit per monthly transacting user (MTU) on Cash App, as of Q4, compared to only $10 in costs to acquire each new MTU.
With Block recently completing its acquisition of buy now, pay later company Afterpay, it now has the ability to create a closed-payment ecosystem between Cash App and its seller ecosystem. In other words, Block still looks to be in the early innings of its growth.
A Tesla Model S recharging. Image source: Tesla Motors.
The third and final supercharged stock that billionaire money managers couldn’t stop buying in the fourth quarter is electric-vehicle (EV) kingpin Tesla Motors ( TSLA -5.12% ). In particular, Israel Englander’s Millennium Management more than quintupled its stake to about 1.11 million shares, while Philippe Laffont’s Coatue Management boosted its position by more than 352,000 shares to roughly 1.48 million.
The buzz surrounding Tesla has to do with the multidecade opportunity at its doorstep. Most major global economies are pushing for policies that’ll reduce carbon emissions in an effort to curb the effects of climate change. One of the easiest ways to do this is to encourage consumers and businesses to purchase EVs. This vehicle-replacement cycle won’t happen overnight, which presumably gives Tesla a long runway to grow its sales and profits.
For the time being, Tesla also has clear-cut competitive advantages. Last year, the company delivered more than 936,000 EVs, which was well above the roughly 750,000 EVs Wall Street anticipated being delivered at the beginning of the year. Further, the power, range, and capacity of the company’s batteries gives Tesla’s EV lineup an edge over its competition.
However, there are reasons to believe Tesla’s shares could significantly decline, too. For instance, even though CEO Elon Musk is a visionary, he’s also proved to be a liability.
Musk has drawn the ire of the SEC on more than one occasion, and he’s made a habit of overpromising and underdelivering on new EVs and software updates. Examples includes the Cybertruck rolling off production lines at least two years later than expected, as well as full self-driving still not at a level that was initially promised by Musk years ago.
Its valuation is concerning, as well. Tesla has consistently sported a trailing-12-month price-to-earnings (P/E) ratio of more than 100 in an industry where P/E ratios are commonly below 10. With nearly every major automaker spending billions on EV and battery research, it seems unlikely that Tesla will maintain its competitive edge for much longer. That may put its valuation premium at risk.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 03/12/2022.
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Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns as of January 1, 2021.
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