News and Views

The Official Blog of WhaleWisdom.com

Snap Inc. (SNAP) may be the comeback story of 2019, with the stock up more than 150% thus far. Hedge funds were buying Snap aggressively in the first quarter as the shares were rising off their December lows.  Even since the end of the first quarter, the stock has continued to rise, and it may very well be the case that the hedge funds are still buying the equity.

The public debut of Snap is one that many investors would like to forget. The stock came public in March 2017 and saw its stock price decline by almost 80% through the end of 2018. It could be one of the more disastrous IPO’s in recent memory. The stock resurgence has landed it in the WhaleWisdom WhaleIndex 100 as of May 15, and it has risen by over 20% since the addition.

Piling In

During the first quarter, the aggregate number of 13F shares held among hedge funds more than doubled, rising to 93.5 million from 44.9 million. Additionally, the number of total shares among institutions increased by over 13% to 350.7 million from 309.6 million. In total, 24 hedge funds created new positions in the stock, while 13 added to existing holdings. Meanwhile, 8 hedge funds reduced their stakes, while 8 exited the stock.

(WhaleWisdom)

Adding Users

One reason for the stock’s resurgence has been a return to growth for its daily active users. During the first quarter, daily active users increased by 4 million sequentially to 190 million. Additionally, the company reported better than expected revenue and a smaller loss, as well as providing better than expected second quarter guidance.

Improving Outlook

For the second quarter, analysts now estimate that revenue will increase 36% year-over-year to $357 million. Meanwhile, analysts are forecasting a loss of $0.10 per share, which is better than the loss of $0.14 in the same quarter a year ago.

The strong revenue growth is expected to continue for the full year of 2019, with revenue climbing by 35% to    $1.59 billion. Meanwhile, the company is forecast to see a loss of $0.30 per share, an improvement from a loss of $0.47 per quarter a year ago.

Since the completion of the first quarter, the stock has continued to rise, increasing  by 26%. It would suggest that investors are still very interested in the stock and that hedge funds are even actively buying shares.

If Snap can keep the business turn around going, perhaps the stock can one day even get back to its IPO price.

Berkshire Hathaway Inc., led by iconic investor Warren Buffet, made a couple of surprising moves in the first quarter of 2019. The most astonishing move was the addition of Amazon.com Inc. (AMZN) to the portfolio, as well as adding to its already enormous position in JPMorgan Chase & Co. (JPM).  Meanwhile, the firm continues to reduce its significant stake in Wells Fargo Co. (WFC). But overall, the bank stocks appear to be the focus of the firm as of right now.

WhaleWisdom estimates that the value of Berkshire Hathaway’s 13F holdings increased by almost 9% in the first quarter to $199.5 billion. That was slightly below the performance of the S&P 500 during the same period, which increased by over 13%.  The firm’s top holdings represent nearly 80% of the portfolio’s total value.

(Whale Wisdom)

Buying Amazon

During the first quarter, the firm purchased the shares of e-commerce giant Amazon. Berkshire initiated a position in the stock by purchasing just over 483,000 shares, worth about $860 million. However, the position doesn’t even rank in the top-10 of Berkshire’s holdings. The stock’s position comes in at 27 out of the 48 reported holdings, making it a tiny position for the firm.

The addition of Amazon may be considered by most to be a surprising incorporation to the portfolio considering the firm’s reluctance to add technology stocks to its holdings. However, given the size of the position, it is not likely to have a significant impact on the portfolio if it doesn’t work out.

(Whale Wisdom)

Adding More JPMorgan

Berkshire continued to buy shares of JPMorgan during the first quarter, adding almost 9.4 million shares, bringing the total up to 59.5 million shares. Of course, this follows the fourth quarter’s addition of over 14 million shares. It made JPMorgan the 8th largest holding in the Berkshire portfolio. Additionally, Bank of America, Corp. moved up to the firm’s second most significant position. Overall, bank stocks are half of the firm’s top 10 portfolio holdings.

Dumping Wells Fargo

Wells Fargo is one stock that appears to be out of favor with Berkshire, as the firm continues to shed its position in the equity. During the first quarter, Berkshire sold 17 million shares of the bank, which follows the 16 million shares sold in the fourth quarter. The bank stock fell to the third largest holding in the Berkshire portfolio, and if the current pace of selling continues it could fall out of the top 5 holdings, moving below Coca-Cola Co. (KO) and American Express Co. (AXP) in the second quarter.

(Whale Wisdom)

Additionally, Berkshire reduced its stake in Phillips 66 Co. (PSX) by more than 50%, dropping the holdings to 5.5 million shares. They also sold off almost 20% of their stake in Charter Communications, Inc. (CHTR)

For the most part, outside of Amazon, the first quarter seemed to be a continuation of what happened in the fourth quarter, while the bank stocks appear to remain the firm’s main focus.

Institutional investors were buying the shares of Walt Disney Co. (DIS) at a very fast pace in the first quarter, well ahead of the big stock surge. Disney’s stock has increased by over 21% in 2019, easily ahead of the S&P 500’s gain of 13%. Disney’s big gains have followed an Investor Day in April, which revealed the company’s streaming media ambitions that are likely to propel the company’s future growth.

According to data compiled by WhaleWisdom, the number of investors buying the stock ahead of the investor’s event was at over 2.5 to 1. Disney was the number one stock added to portfolios with more than 500 filers.

Piling In

During the first quarter, 1,419 institutions added to their holdings of Disney while 246 created new ones. Meanwhile, just 540 institutions reduced their positions, while 87 sold out completely. The strong showing among investors placed Disney at seven on the WhaleWisdom Heat Map, up from 70 in the prior quarter.

(WhaleWisdom)

The Event

Investors appeared to be piling into Disney ahead of its Investor Day on April 11. It was in that presentation that the company revealed for the first time its new Disney+ streaming application and the pricing for the service.

The company revealed it planned to price Disney+ at $69.99 per year for an annual subscription or a monthly rate of just $6.99. Additionally, the company noted that it expected to have 60 – 90 million subscribers by the end of the fiscal year 2024, with 1/3 coming from US subscribers and 2/3 from international. Also, Disney sees the streaming unit turning profitable by the year 2024. Further, it noted expectations for the number of Hulu subscribers to roughly double by the year 2024 to 40 – 60 million.

(Disney)

Hulu

Since the event, the stock has jumped by over 13.6% to a new record high. Also, following the event in mid-May, Disney announced it would buy out Comcast Corp.’s 33% stake in Hulu, to become the sole owner of the company by the year 2024. However, as part of the deal, Disney would immediately take over full operational control of Hulu.

In what seems like an instance, Disney went from a company struggling to grow revenue and earnings with mounting subscriber losses at its ESPN unit, to a streaming media business. It has resulted in a positive stock reaction that has paid off for the investors jumping in ahead of the transformational shareholder event.

Square (SQ) Inc. was one hot stock among the investing community in the first quarter, with shares soaring by over 33%. As a result, the equity landed on WhaleWisdom’s heat map at number 1 and was included on the WhaleWisdom WhaleIndex 100.

The first quarter come back was likely spurred by the fact that the stock fell by nearly 43% in the fourth quarter. The significant pullback resulted in the stock falling to its lowest levels since May 2018. It was likely one reason why hedge funds were aggressively buying the stock during the first quarter as it began to rebound.

Number 1

The heatmap is determined by tracking the activity of the top 150 hedge funds used in the most recent WhaleScore calculation. For the first quarter, 21 of the 150 funds held the stock in their portfolio, while 4 had the shares within there top ten holdings.  In total, 18 funds increased their positions, while only 2 decreased their holdings.

In general, hedge funds were buying the stock, with the total number of 13F shares increasing to 22.1 million from 18.4 million in the prior quarter. In total, 28 funds created new positions as 23 added to existing ones. Also, 28 funds reduced their holdings as 9 closed them out completely.

(WhaleWisdom)

Square Cools

Square’s hot start has cooled some in the second quarter, as shares have dropped by about 12%. The company reported underwhelming fourth quarter results at the beginning of February, and that turned the momentum in the stock. That was followed by better than expected first quarter results on May 1, with earnings of $0.11, 40% higher than analysts’ estimates. Revenue was also substantial at $489.05 million, about 2% better than forecast.

However, the company gave weaker than expected second quarter guidance, and that has caused analysts to reduce their earnings forecast by 14% to $0.16. Meanwhile, revenue estimates have remained unchanged at $558.04 million.

High Valuation

Overall, one of the main challenges that the stock faces is its valuation at 58 times 2020 earnings estimates of $1.13 per share. The company is forecast to deliver earnings growth of 61% in 2019 and 49% in 2020, which does help to support that high multiple.

The high valuation is one reason why the stock is likely to continue to see an ebb and flow of activity from hedge funds in the coming quarters. The company offers the opportunity to generate significant profits for investors, but it comes with a heightened risk.

 

Cisco Systems, Inc. (CSCO) has quietly put together an outstanding year, with shares of the networking company rising by over 23%. It has been quite the turnaround story for a company once heralded as a darling among investors in the late 1990s, and then nearly forgotten about over the past 2 decades. Sentiment for the stock appears to be shifting.

Investors seem to be upbeat about the company, with the stock ranking at 30 on the WhaleWisdom heat map, which is down from 7 in the third quarter. Still, it is a strong placement on the 100-company heat map. The heatmap tracks holdings of the top 150 hedge funds using the most recent WhaleScore calculation.

Strong Placement on the Heat Map

Of the 150 hedge funds tracked in the heat map, 29 hold the stock in their portfolio, and 3 hold the stock among their top 10. Meanwhile, 9 of the funds increased their holdings, while 15 decreased them. The declining number of funds holding the stock was one reason why the stock moved down in the ranking.

         (WhaleWisdom)

Over the fourth quarter, among total institutions, the total number of 13F shares decline by less than 1% to 3.33 billion. Additionally, 849 institutions were adding to their holdings, while 229 started new positions. Meanwhile, 990 funds were reducing their stakes while just 105 exited the stock altogether.

Quarterly Results Approach

It brings up a big question: what will investors be doing with the stock after the company reports results on May 15? Analysts estimate that Cisco’s fiscal third quarter 2019 earnings grew by 17.2% to $0.77 per share, while revenue is forecast to have increased by 5% to $12.9 billion.

The company has a history of beating analysts’ estimates. In the past eight quarters, Cisco has topped analysts’ revenue and earnings estimate 8 times. It makes for good odds that the company will beat those earnings estimates again.

It May Come Down to Guidance

It may then come to forward-looking guidance. For that, analysts estimate that revenue will rise to $13.3 billion, while earnings climb to $0.81 per share next quarter. Should the company deliver reliable results and provide strong guidance, it would seem likely that the stock will continue its higher trend this year, and possible that strong results will propel the stock up the WhaleWisdom heat map as investors buy the equity.

Cisco has been among the more significant turnaround stories of the last two decades. It’s hard to believe that despite the stock’s recent run, it shares are still trading at less than half their value of the late 1990s when the company had a market capitalization of about $500 billion, and now 20 years later sits at around $235 billion. Indeed, the stock still has a long way to go to return to its former glory.