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The Official Blog of WhaleWisdom.com

Berkshire Hathaway Inc.’s latest 13F filing for the third quarter didn’t reveal many surprises, except for one. The firm is run by legendary investor Warren Buffett, who is known for taking big stakes in companies like Apple Inc. (AAPL), Bank of America Corp. (BAC), and Coca-Cola Co. (KO). However, the latest filing reveals a new surprise showing the purchase of RH (RH).

RH is a distributor of products such as home furnishing, lighting, and bathware. The surprise filing by Berkshire sent RH’s stock soaring by as much as 8% on November 15, when it was revealed that the investment firm had taken a stake.

Moving into RH

The investment was small, valued at about $205 million, ranking it at 41 by market value in Berkshire’s portfolio, which holds 48 equity positions.  However, it does make Berkshire a top 10 shareholder in RH, with an ownership stake of greater than 6%.

Big Gains

RH’s stock has risen by around 54% in 2019, more than double that of the S&P 500 gain of 24%. Still, the big gains of 2019 did not stop Berkshire from throwing its hat into the ring and getting involved with the company. It has been a volatile year for RH, with the stock plunging by over 25% through May, followed by a rapid rise starting in June.

Big Growth Ahead?

Analysts are projecting big growth for RH through fiscal 2022, with earnings climbing to $13.74 per share. That is an increase of more than 61% from RH’s fiscal 2019 earnings of $8.54 per share. It comes to a compound annual earnings growth rate of 17.2% and it leaves the stock trading at roughly 15.4 times fiscal 2021 earnings estimates of $12.33 per share. When adjusting the equity for its compound annual growth rate, it gives the stock a PEG ratio of less than one at 0.89. This could suggest that the stock is cheap.

The stock’s valuation and prospects for future earnings growth, could have been one of the main drivers for Berkshire’s purchase of RH, despite the stock already having a big push higher in the third quarter of 2019.

It isn’t clear if Berkshire is finished buying RH or has plans to acquire more of the stock. It will make watching for future filings all the more important. However, it seems entirely possible that watching the performance of the stock may yield an underlying clue.

Nvidia Corp. (NVDA) has had quite the comeback in 2019, with shares climbing by more than 55%. Still, the stock is a distances from its all-time highs, down by more than 28%. The company will try to inch a bit closer to its all-time highs again and hopefully get a boost after reporting its fiscal third quarter 2020 earnings results on November 14 following the close of trading.

The stock was active among hedge funds in the second quarter of 2019, and to this point it has been a big win. Of stocks with 1,000 institutional filers or more, Nvidia was among the top stocks accumulated. There were nearly 27% more institutions increasing their positions in the equity during the quarter, then decreasing their positions, according to data compiled by WhaleWisdom.

Institutions Were Buying Nvidia

According to data collected, there were nearly 570 institutions that were buying Nvidia in the second quarter, and 120 that started new positions. Those statistics are compared to 448 institutions that were decreasing their positions, and 125 that sold out of the stock.

(WhaleWisdom)

Hedge Funds Increasing their Holdings

Overall, hedge funds were active during the quarter, with the aggregate number of shares rising by over 21% to 19.5 million from 16.04 million in the first quarter. There were 27 funds that bought new positions and 29 funds that added to their holdings. In the meantime, there were 35 funds that reduced their holdings and 22 funds that liquidated.

A Return to Growth

The move into the stock has been profitable for investors as the company has continued to recover from the inventory glut in the GPU market at the end of 2018. However, the company is still working its way through that oversupply and as a result analysts see the company earnings slipping by over 14% in the fiscal third quarter 2020 to $1.58 per share, and revenue dropping by 8.25% to $2.91 billion.

Analysts see growth returning in fiscal 2021, with earnings forecast to climb by almost 34% to $7.16 per share, followed by growth of around 25% in fiscal 2022 to $8.92 per share. Revenue will return next year too, rising by almost 21% to $13 billion, and an additional 17.5% in 2022 to $15.3 billion.

If growth comes back the way analysts are forecasting, than Nvidia’s recent move higher may be only the start of something bigger and longer-term. It could turn out to be a tremendous win for investors buying the stock in the second quarter of 2019.

 

 

Microsoft Corp. (MSFT), Facebook Inc. (FB), and Amazon.com Inc. (AMZN) all have one thing in common, that they are the three largest holdings among the Tiger Cubs in aggregate. The Tiger Cubs are a group of investment firms that can trace their origins back to famed money manager Julian Robertson and Tiger Global Management LLC.  According to data compiled by WhaleWisdom, the Tiger Cubs own more than 5% of each of the three companies in their respective portfolios.

Microsoft and Facebook have seen big comebacks in 2019, rising dramatically off their lows in the fourth quarter of 2018. Microsoft has jumped by over 41%, while Facebook has increased by almost 48%, versus the S&P 500’s gain of about 22%. Amazon has been the laggard, which is surprising given the stock’s big gains over the last few years, rising by just 19.2%.

Microsoft

Microsoft is owned by three Tiger Cubs, Coatue Management LLC, Joho Capital LLC, Lone Pine Capital LLC, and Tiger Management. The stock makes up a significant portion of the four firms’ portfolios, representing between 6 and 16%. In total, the four funds own about $39.23 billion worth of the stock. Additionally, during the second quarter, three of the funds were adding to their position and just one was selling its position.

Facebook

Just 2 Tiger Cubs own shares of Facebook, Coatue, Viking Global Investors LP, and then Tiger Management. Facebook represents between 6 and 10% of their respective portfolios, a smaller weighting than that of Microsoft. Additionally, the three firms hold in total $21.5 billion worth of the stock. During the second quarter, two of the firms were buying the stock and just one was selling.

Amazon

Lone Pine, Valinor Management LP, Viking Global, and Tiger Management all own shares of Amazon. The stock represents between 5 and 8% of the firms’ individual portfolios. In total, the four firms own about $25 billion worth of the stock. During the second quarter, only one firm was buying the stock, while two were selling it, and one was unchanged.

The Tiger Cubs appear to like the three companies in a big way, as so far they have largely been rewarded for owning these three stocks. Each of the three companies is the dominant force in their respective industries, and in the case of Amazon and Microsoft, are fierce competitors in cloud computing.

Given the big holdings among this elite group of investors it seems they may only continue to flourish in the future.

The Baker Brothers Are Having One Amazing Year

Posted on October 28th, 2019

One has to think that Baker Brothers Advisors have put together one heck of a year. Two of their top three holdings are up by 80% or more in 2019, helping to make their top three holdings worth a combined $7.9 billion. It represents nearly 45.8% of the firm’s total assets under management, according to data compiled by WhaleWisdom.

Shares of Seattle Genetics Inc. (SGEN) have soared by more than 81% in 2019, while Acadia Pharmaceuticals, Inc. (ACAD) has seen its stock rise by more than 150%. With the two stocks soaring, so too has the Baker’s profits.

(WhaleWisdom)

Seattle Genetics

At the end of the fourth quarter of 2018, the Bakers held 51.0 million shares of Seattle Genetics, with a market value of about $2.9 billion. The stock has soared since the end of September, following the reporting of positive data on two of its cancer drugs in development. Currently, the stock trades for around $102.70, which is up from $56.65 at the end of 2018. Despite selling about 990,000 shares in the second quarter of 2019, the Bakers still own about 50 million shares worth an approximate $5.1 billion, a profit of nearly $2.2 billion.

Acadia Pharmaceuticals

Acadia Pharmaceuticals’ stock has jumped even more. The Bakers held 39.7 million shares of Acadia at the end of 2018, a position with a market value of about $642 million. Shares of the bio-pharmaceutical company have risen from roughly $16.15 to $41.55 on October 25. The stock took a massive leap higher in early September, after the company announced positive results for its drug in development for dementia-related psychosis. Not only that, but the Bakers bought more shares of the stock in a secondary offering following those positive results, increasing their stake in the company to 41.1 million shares, while the market value has soared to around $1.63 billion. Of course, not all of the $1 billion gain is profit, because the Bakers bought more stock, but this is still a massive gain.

Overall, it is hard to deny that the investment advisor is having a stellar year. Not only that, but the firm’s second-largest holding, Incyte Corp. (INCY), is having a decent year too, up by more than 22%. Meanwhile, Alexion Pharmaceuticals Inc. (ALXN) is up about 8% and BeiGene Ltd. (BGEN) is down about 1% to round out their top 5 holdings.

Not a bad year for the investment firm. Not a bad year at all.

Hedge Funds Seem Torn Over Boeing

Posted on October 21st, 2019

The Boeing Co.’s (BA) good fortune at the start of 2019 has vanished after the grounding of its 737-MAX jets, following two crashes at the beginning of the year. Amazingly, despite the company’s major headline risk and even the pulling of its full-year guidance, the stock has remained relatively strong. However, that may all be about to change.

The stock fell to number 79 on the WhaleWisdom Heatmap in the second quarter, down from 26 in the first quarter. The heat map tracks the activity of the top 150 hedge funds as determined by the WhaleWisdom WhaleScore calculation.

Moving Down the Ranks

At the end of the second-quarter, 24 of these top 150 hedge funds held Boeing’s stock in their portfolio. The number of these funds increased from 18 in the first quarter. However, the number of these funds with the stock among their top 10 holdings fell to 4 during the second quarter from 6 in the first quarter. Additionally, the average position for the stock within these hedge fund portfolios fell to 61 from 42, a sign that most of the funds overall were reducing their positions in the stock.


BA 1Q’19

BA 2Q’19

The Rest May Be Left Holding the Bag

Surprisingly, the rest of the hedge fund industry was busy buying shares of Boeing. During the second quarter, the number of total shares among all hedge funds increased by a shockingly high 12% to roughly 18.3 million shares. In total, 25 funds created new positions and 54 funds added to existing holdings. Also, 29 funds sold out of the stock while 67 reduced their positions. The increasing share count versus the greater amount of sellers than buyers, would seem to suggest that the funds buying the stock were taking on bigger positions. This is the complete opposite of actions taken by the typical funds that account for the Whale Wisdom Heatmap.

Outlook Deteriorates

The financial outlook for Boeing has deteriorated. Just over the past 30 days, analysts have slashed earnings estimates for Boeing by 32.9%, and now see the company’s earnings plunging by almost 84% versus last year to $2.60 per share from $16.01 per share. Meanwhile, revenue is expected to decline by 18% in 2019 to $82.7 billion.

The big hope for investors seems to be the enormous backlog for the company of $474 billion. However, if that backlog starts to show any signs of deterioration, then perhaps the funds tracked by the heatmap had a good reason for their caution and will be proven correct.