3 stocks that the world’s best investors are buying right now
Looking for some great investment ideas in the midst of the coronavirus liquidation? So why not investigate the stocks that the world’s top investors are already buying?
Recently, three of the most prominent hedge fund managers in the game – David Tepper of Appaloosa Management, Bill Ackman of Pershing Square Holdings (LSE: PSH), and Paul Singer of Elliot Management – all of the recently disclosed purchases they made as the market sold in March. Here are their picks, all of which encompass some of the biggest brands in the world.
Tepper nibbles at his favorite names, the biggest being Alphabet
In an interview with CNBC on March 23, Tepper called The half-time report, telling the show that after the violent sale, he “nibbled” on some of his favorites technological actions. Tepper concentrated its positions in many top tech stocks, and at the end of the fourth quarter its largest stake was Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), to nearly 14.73% of the Appaloosa portfolio.
The alphabet is an interesting choice at the moment. Its advertising revenue, which represented about 82.3% of total revenue in the last quarter, is expected to fall in the first and second quarters. However, fears about Alphabet’s advertising revenue can also be exaggerated. April 7 Barclays (NYSE: BCS) Analyst Ross Sandler predicted that Alphabet’s advertising revenue would remain flat at 10% in the second quarter, much better than the 20% to 30% decline investors predicted for the overall digital advertising market.
Regardless of this focus on the next quarter, Alphabet looks poised for long term gains. The company is still the dominant search engine in the world and has a number of new businesses that may flourish in the future, such as its Google Cloud Platform, its Waymo autonomous car unit, and a host of other companies in hardware, software and AI-enabled applications. Add $ 120 billion in cash to his balance sheet, and it’s no surprise to see Tepper recover some newly discounted stocks.
Bill Ackman buys Starbucks … again
Perhaps no investor anticipated the recent stock market crash better than Bill Ackman. Shortly after the outbreak of the coronavirus in China in January, Ackman hedged his equity portfolio by purchasing credit protection against high-yield, investment-grade bond indices. That $ 27 million coverage turned into $ 2.6 billion as the coronavirus pandemic spread around the world and triggered an economic recession.
Yet recently Ackman closed his covers and is once again very long in the stock market, buying out a number of his favorite names, including a new $ 720 million bet on Starbucks (NASDAQ: SBUX). Ackman had previously invested in Starbucks in the summer of 2018, making a significant profit before fully exiting the position in January.
However, as Starbucks shares tumbled in March to where Ackman first bought the shares in 2018, he decided to repossess a position in the coffee giant. In a recent letter to shareholders, Ackman wrote:
Starbucks’ superb digital offering, contactless delivery and pickup are well suited to meet the global coffee habits of its consumers, especially compared to competitors who have not developed digital and delivery offerings. … While we would expect Chipotle – the restaurant brand concepts of Burger King, Popeye’s and Tim Horton’s – as well as Starbucks to lose a substantial amount of sales during closures, they will likely gain digital market share and delivery during this period, and will thus emerge stronger from the crisis.
Paul Singer takes an activist stake in Twitter
Finally, the Paul Singer-led Elliot leadership, known for taking activist positions and shaking up management teams, revealed a new $ 1 billion 4% stake in Twitter (NYSE: TWTR) March 2. Elliot has apparently challenged CEO Jack Dorsey’s shared duties as CEO of Twitter and Square (NYSE: SQ), as well as its announcement in December to work remotely from Africa.
A week later, Twitter struck a truce with Elliot and private equity firm Silver Lake. Under the cooperation agreement, Silver Lake co-CEO and managing partner Egon Durban and Elliot partner Jesse Cohn would each get a seat on Twitter’s board. In addition, a third independent director will also be chosen in the future. The company also intends to use Silver Lake’s $ 1 billion investment in 2025 convertible notes to help fund a $ 2 billion share buyback program. This equates to roughly 10% of Twitter’s market cap.
Twitter was in a solid investment cycle before Elliot’s investment. In the last quarter, the company increased the number of monetizable daily users by 21% year over year and its revenue increased by 14%. However, due to the company’s heavy investments, operating profit actually fell 24% in the last quarter.
While Elliot may have intended to have the company cut costs and increase profits, Twitter said in the announcement that it intends to increase mDAUs by at least 20% in 2020, which probably means the business will continue in growth mode. Of course, that was the target on March 9, before the worst of the epidemic forced Twitter to withdraw its forecast for 2020 on March 23. It will be interesting to see how Twitter balances growth investments with cost discipline, especially now that it has both an activist investor and a COVID-19 slowdown to contend with.
The best investors in the best companies
You might notice that these hedge fund stars have invested in some of the biggest and most dominant brands. This is no surprise, as the COVID-19 outbreak has destroyed pretty much the entire market, as small businesses face a much more uncertain path through an indefinite economic downturn. Investors should therefore also look to the strongest companies in their respective industries to weather the coronavirus slowdown.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.