Warren Buffett – 5 Stocks Billionaires Couldn’t Stop Buying in Q1
Despite some bouts of wild volatility over the past 14 months, investors have been handsomely rewarded for their patience. Since bottoming out on March 23, 2020, the benchmark S&P 500 has risen by as much as 88%.
Yet the widely followed S&P 500 taking out one new all-time high after another hasn’t stopped highly successful money managers from putting their money to work. With 13F filings hitting the newswires last week, we were able to see what the brightest minds on Wall Street were up to during the first quarter. What we saw were five billionaires who couldn’t stop buying the following five stocks.
Image source: Getty Images.
Viking Global: Bank of America
To begin with, billionaire Ole Andreas Halvorsen’s Viking Global piled into money-center banking giant Bank of America (NYSE: (BA)C) during the first quarter. Halvorsen’s fund opened a new position in the company totaling more than 31.3 million shares, or about $1.21 billion at the end of Q1. (BofA) slides in as the funds’ fifth largest holding.
Why Bank of America? The simple answer is that it’s the most interest-sensitive of the big banks. Even though the Federal Reserve has balked at raising lending rates anytime soon, they’re inevitably going to head higher. When that happens, (BofA) should see the greatest boost to interest income among the big bank stocks. The steepening yield curve is an indication that the U.S. economy is improving and brighter times lie ahead for banks.
Bank of America has also done an exceptionally good job of controlling its expenses to improve margins. The company has invested aggressively in online and mobile banking, which has allowed it to consolidate some of its branches and reduce its noninterest expenses.
Image source: Getty Images.
Tiger Global Management: Microsoft
Tiger Global Management, which is headed by billionaire Chase Coleman III, simply can’t get enough of software kingpin Microsoft (NASDAQ: (MSFT)). During the first quarter, Coleman’s fund added north of 1.8 million shares, which boosted its existing position to 13.72 million shares. With a market value of $3.24 billion, Microsoft is Tiger Global’s second-largest holding.
The reason Coleman is enamored with the tech giant probably has to do with its innovation in the cloud space. Azure continues to grow by a phenomenal clip (50% year-over-year growth in fiscal Q3), with virtually all other core lines involved in cloud, such as Windows commercial products, Dynamics, and Office 365, growing sales by a double-digit percentage as well.
The other thing that makes Microsoft special is its virtually unrivaled operating cash flow. It’s one of only two publicly traded companies to hold a AAA credit rating. This means credit agencies have more faith that Microsoft will repay its debts than they do that the U.S. government, with its AA credit rating, will make good on its own debts. The company’s insane cash position ($125 billion) and trailing-12-month operating cash flow ($72.7 billion) allow it to make potentially game-changing acquisitions on a regular basis.
Image source: Uber.
Third Point: Uber Technologies
Billionaire activist investors Dan Loeb was also a busy bee during the first quarter of 2021. His firm, Third Point, opened a new position in ridesharing and delivery service Uber Technologies (NYSE: UBER). The 6.75 million shares bought by Loeb’s hedge fund totaled close to $368 million at the end of March.
The best guess I can offer on why Loeb is intrigued by Uber is the pent-up demand to go places and do things once the coronavirus pandemic is officially put in the rearview mirror. Uber’s ridesharing demand cratered in 2020 but should see a huge bounce-back as vaccination rates in developed countries rise.
The issue, though, is that Uber’s ridesharing dominance has waned over the years in the United States. A new report from Bloomberg Second Measure finds that Uber controlled 68% of the U.S. rideshare revenue in April. That’s down from 82% of the share in January 2017.
What’s more, Uber Eats continues to be a financial black hole. The company doubled down on this relatively low-margin space with the purchase of Postmates in December. The problem is that food delivery is a highly competitive space, and Uber Eats is far from guaranteed to be one of the companies left standing. Suffice it to say, this is a questionable purchase by Dan Loeb.
Image source: Getty Images.
Two Sigma Investments: Pfizer
Two Sigma Investments, which is run by billionaires John Overdeck and David Siegel, owns positions in thousands of companies. But during the first quarter, Two Sigma bought into pharmaceutical stock Pfizer (NYSE: PFE) hand over fist. The 7.08 million-share buy equates to $256.5 million and made it the sixth largest holding of the fund.
The bullishness surrounding Pfizer probably has to do with its success as a coronavirus disease 2019 (COVID-19) vaccine developer. Working in conjunction with BioNTech, the duo is one of only three drugmakers to get the emergency-use authorization green light in the lucrative U.S. market. According to the company’s first-quarter operating results, its COVID-19 vaccine should generate a whopping $26 billion in revenue in 2021. Meanwhile, the remainder of its portfolio should bring in $44.5 billion to $46.5 billion in full-year sales.
Beyond COVID-19, Pfizer‘s oncology and rare-disease drug segments have been shining stars. Even with sales of breast cancer blockbuster Ibrance unchanged, oncology revenue grew 18% in Q1, with rare-disease sales up an even more robust 29%. The great thing about rare disease therapies is they usually have minimal competition and they face little or no pushback on their list prices.
At less than 11 times forecast earnings per share in 2021, Pfizer is playing the part of a reasonably attractive value stock.
Berkshire Hathaway CEO Warren Buffett. Image source: The Fintech Zoom.
Berkshire Hathaway: Kroger
Lastly, the Oracle of Omaha was doing a bit of buying in the first quarter. Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) added another 17.53 million shares of grocery chain Kroger (NYSE: KR), which brings its ownership up to 51.06 million shares, or 6.71% of Kroger’s outstanding shares.
Buffett has gone on record before as saying he wasn’t the biggest fan of Kroger, suggesting that one of his investing lieutenants, Todd Combs or Ted Weschler, is the mastermind behind this trade.
The question is: Why Kroger? One possibility is that Kroger is benefiting from its role as a provider of basic-need goods. People have been eating in more often than ever over the past year, which means large-scale grocers have been obvious beneficiaries. Since food is a basic-need good, inflation hasn’t been much of an issue — at least not yet.
We might also be seeing excitement about the Restock Kroger Initiative, which is focused on digital, online, and omnichannel opportunities to boost the company’s sales. In an industry known for slow growth and razor-thin operating margins, sales grew 14% in 2020.
It’s an exceptionally safe stock with a modest yield of almost 2%, but it’s unclear where additional growth is going to come from after the company’s stellar 2020.
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Bank of America is an advertising partner of The Ascent, a Fintech Zoom company. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Fintech Zoom’s board of directors. Sean Williams owns shares of Bank of America. The Fintech Zoom owns shares of and recommends Berkshire Hathaway (B shares) and Microsoft. The Fintech Zoom recommends Uber Technologies and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short June 2021 $240 calls on Berkshire Hathaway (B shares). The Fintech Zoom has a disclosure policy.
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