Goldman Sachs just released its most loved stocks list among the hedge fund community. Goldman narrows the thousands of stocks represented in the most recent quarterly 13F filings down to their “most important” 25. At Billionairesportfolio.com, we’ve narrowed that list down to the five stocks owned by billionaire hedge fund managers with the most potential upside.
Below are the five stocks:
1) Charter Communications (CHTR) – Charter is one of the top ten most owned stocks by hedge funds. Billionaire hedge fund managers Stephen Mandel of Lone Pine Capital and John Paulson own large stakes in Charter. Mandel owns more than $1 billion worth of Charter. At the recent Robin Hood Investment Conference, one of Paulson’s portfolio managers said Charter could be worth as much as $325 a share, nearly 75% higher than current levels.
2) Yahoo (YHOO) – Yahoo is another popular stock owned by billionaire hedge fund managers. Billionaire David Einhorn and Starboard Value, a top $5 billion activist hedge fund, both own big stakes in Yahoo. The average analyst price target for Yahoo is $49 or a 50% potential return from its current share price.
3) General Motors (GM) – Another popular billionaire owned stock in the Goldman Sachs VIP (very important position) list is GM. Billionaire hedge fund manager David Tepper owns GM. If fact, GM is David Tepper’s largest equity position in his hedge fund. The average analyst price target for GM is $50 or almost a 50% return from its current share price.
4) AIG (AIG) – Billionaires Carl Icahn and John Paulson are two of the largest holders of AIG. Both billionaires have pushed for AIG to break up and spin off business units. Icahn recently said that if AIG breaks into three companies the company could be worth more than $100 a share. That would be a 56% return from its current share price.
5) Apple (AAPL) – Billionaires Carl Icahn and David Einhorn both hold Apple as their largest position. Icahn owns almost $6 billion of Apple. Piper Jaffrey recently put a $179 target price on Apple or a 51% return from its current share price.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors.
Everyone has read news in the past about a big buyout in the stock market. And often the news will report that the stock in the company that is being acquired skyrocketed on the day. Envy tends to follow.
Generally, companies that are bought, are bought for a significant premium. Otherwise, shareholders would likely reject the offer. So when you hear of a big takeover, it’s not unusual to hear of a 20%,30%, even a 100% pop for shareholders on the day of the announcement.
So how to you identify the next big takeover? One of the easiest ways is to follow big, influential shareholders into stocks where they are pushing companies to sell themselves.
This week, we owned a stock in our Billionaire’s Portfolio, MedAssets (MDAS), that was taken over for a 33% premium. We held this stock for only two months, following the lead of one of our favorite activist investors, Starboard Value.
Starboard is one of the best at articulating recommendations for management and helping them execute on it. We followed Starboard Value into Office Depot and doubled our money. Starboard is run by the Wharton educated Jeff Smith, who is a tenacious and detailed activist investor. He has one of the best activist track records in the business. Since inception almost 13 years ago, Smith’s fund has made money on 82% of their activist campaigns (prior to MDAS). That’s one of the highest win rates in the industry.
Starboard took a huge activist stake in MedAssets in August and wrote a detailed letter to the company, outlining a plan to unlock value, which included strategic alternatives (such as the sale of the company).
Fast foward just two months: MedAssets was the second biggest winner in the entire stock market on Monday.
There has been a lot written about billionaire investing and activism over the past couple of years. It’s become a very hot topic. And the investors themselves, which once coveted anonymity, now utilize the spotlight to their advantage. Twitter, the internet and the media obsession with their wealth gives them the platform to spread their message about underperforming companies, and garner support from fellow shareholders. Still, finding the right investors to follow, and identifying the right opportunities is paramount.
Out of the 29 campaigns we’ve exited in our Billionaire’s Portfolio since the inception of our service, in August of 2012, five of the stocks were acquired.
That’s 17% of the stocks we’ve selected, and exited, that have been taken over for big premiums – so, strong anecdotal evidence that following influential shareholders that are pushing for a sale works!
Last week we heard from three top billionaire investors, publicly, and for different reasons. In all cases, they gave us some valuable nuggets.
On Friday, Bill Ackman held a conference call defending his multi-billion dollar position in Valeant. In the face of the scrutiny, he predicted Valeant shares would trade $448 in three years — a quadruple from recent prices.
Dan Loeb wrote released his quarterly investment letter last week describing his weak performance for the year and the challenging investment climate, yet expressing his high conviction for two stocks (a good read and good game plan outlined): Baxter International and Seven & i Holdings.
And billionaire David Tepper, who famously coined the Bernanke put and sparked a broad stock market rally back in 2010, said on Friday that he thinks China needs to ease more and faster, and that could set up for a situation where the Fed has to tighten quicker and more aggressively. He likes GM as way to lever the U.S. economy. He also said he has added to HCA Holdings.
Today, at the DealBook Conference, we heard from two other influential and legendary billionaire investors, Carl Icahn and Stanley Druckenmiller. Druckenmiller said he is short euros. He thinks the currency move underway will last for years, not months. He is long Amazon and is short “a bunch of value companies that buy back stock and need cyclical growth.” He used IBM as an example of one of those companies (owned by Warren Buffett).
Icahn weighed in on the controversial Valeant (sort of), implying he was involved but not saying whether it was from the long or short side. Rather than talk specifics on stocks, he dropped some interesting perspectives on investing and his success. He admitted he wasn’t a brilliant stock picker, nor does he think anyone is. He’s in the business of finding problems and fixing them. He has famously said he makes money “studying natural stupidity.” Today he added that he’s made so much money over his career because there are people running companies that are in over their heads and have bad incentives, he makes money holding these people accountable.
What about the weak spots in his portfolio? He says “activists get caught in cycles, you need staying power, ability to buy more when they drop.”
Full disclosure, at BillionairesPortfolio.com, our subscription-based premium online portfolio service, we own Transocean (RIG) and Freeport McMoran (FCX), piggybacking Stanley Druckenmiller and Carl Icahn’s investments.
The S&P 500 is now more than 200% higher than at its crisis-induced 2009 lows. Despite the powerful recovery in stocks, the rally has had few believers. All along the way, skeptics have pointed to threats in Europe, domestic debt issues, central bank meddling, political stalemates, perceived asset bubbles — you name it. As it relates to stocks, they’ve all been dead wrong.
The truth is, global central banks are in control. They have been coordinating since 2009 to save the worldwide economy from an apocalyptic spiral. Because the crisis was global, and the structural problems remain highly intertwined globally, the only hope toward achieving a return to sustainable growth was through a coordinated effort to restore stability and confidence. And with that backdrop, they had to create incentives for people to take risk again. It has worked! With the Fed moving closer to exiting emergency policies, this past year, the QE baton has been passed from the Fed to the ECB and the BOJ.
As part of the massive QE programs in Europe and Japan, the Bank of Japan has been outright buying stocks and the ECB might be next. After doubling the value of the Nikkei with his economic stimulus program, the architect of Abenomics, Prime Minister Abe, has said they are only “half way to its goals.” With the tail-winds of central bank influence to continue (Reason #1 to buy stocks). Here are three more simple reasons you should be buying, not selling, stocks:
1) History
If we applied the long-run annualized return for stocks (8%) to the pre-crisis highs of 1,576 on the S&P 500, we get 3,150 by the end of next year, when the Fed is expected to begin the slow process toward normalizing rates. That’s nearly 52% higher than current levels. Below you can see the table of the S&P 500, projecting this “normal” growth rate to stocks.
2) Valuation
In addition to the above, consider this: The P/E on next year’s S&P 500 earnings estimate is just 16.2, in line with the long-term average (16). But we are not just in a low-interest-rate environment, we are in the mother of all low-interest-rate environments (ZERO). With that, when the 10-year yield runs on the low side, historically, the P/E on the S&P 500 runs closer to 20, if not north of it. If we multiply next year’s consensus earnings estimate for the S&P 500 of $126.77 by 20 (where stocks to be valued in low rate environments), we get 2,535 for the S&P 500 by next year — 23% higher.
3) Recession Risk
For those who argue the economy is fragile, the bond market disagrees with you. The yield curve may be the best predictor of recessions historically. Yield curve inversions (where short rates move above longer-term rates) have preceded each of the last seven recessions. Based on this analysis, the below chart from the Cleveland Fed shows the current recession risk at 3.66% — virtually nil.
What about the impact on stocks of a rate hiking cycle? Historically, through the past six rate hiking cycles stocks have performed well, contrary to popular belief. Still, there is an important distinction this time: The Fed moving away from emergency policies is a celebratory event for stocks and the economy. After nine years of crisis, and a near global apocalypse, the Fed thinks the economy is robust enough take down the “high alert” flag.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors.
This morning, the European Central Bank primed global stocks by telegraphing more action (more stimulus) to respond to the recent shake up in global economic activity and sentiment.
It had to happen. In the grand scheme of things, the ECB’s sentiment manipulation this morning was the bare minimum of what had to be done.
The global central banks (led by the Fed) have spent, committed and promised trillions of dollars to manufacture the tepid recovery that’s underway, in hopes that they can bridge their way to the point where economies begin to organically grow again. That bridge has not yet reached the point of organic growth. And it’s not even that close. With that said, the recent collapse in oil prices, and the threat to an implosion of the energy sector was getting narrowly close to undoing what the central banks have done to this point. And, not only is another downturn unpalatable, but it’s apocalyptic. The bullets have all been fired. Fiscal and monetary policy would have no shot to ward off another global destabilization.
The plan for the continuation of the global central bank-led (and manufactured) economic recovery has been clear. And the evolution, where the U.S. economy began leading global growth, while Europe and Japan were just embarking on big and bold stimulus is likely the reason Bernanke felt comfortable enough to exit. Think about it, the Fed hands off of the QE baton to the ECB (Europe) and the BOJ (Japan). Meanwhile, the Fed can make the first step in moving away from emergency policies. Europe and Japan have all of the ingredients to execute on their big QE promises to continue providing fuel for global growth and stability (they need a weaker currency).
The Fed’s exit from emergency policies shows their confidence in the economic recovery. And the ECB and BOJ can “print away”, suppressing global market interest rates (which helps the Fed), fueling higher global stock prices (which helps everyone), and fueling capital flows into the U.S. to further bolster U.S. recovery.
The question is often asked, when referring to QE, “what is the transmission mechanism?”
Here’s the answer: 1) Stability – QE assures people that the central bank(s) are there, acting, and ready to do more, if needed, to defend against any further shocks to the global economy and financial system. That creates stability. And with that stability backdrop, major central banks promote incentives for people to borrow again, to spend again, to hire again. 2) Risk-Taking – Ultra-low interest rates and a stable environment promotes the rebirth of housing activity, and encourages investors to reach further out on the risk curve for more return. That means more demand for stocks, and higher stock prices. Higher stocks and higher housing prices create paper wealth. Paper wealth gives people comfort to borrow again, to spend again and to hire again.
That has been the recipe. And it has worked! The key ingredients continue to be higher stocks and higher housing prices (even if at a modest growth rate).
Central Banks Need You To Buy Stocks
With the ECB doubling down on their commitment to do “whatever it takes” and with the architect of the massive
QE program in Japan, Prime Minister Abe, uttering those same words in the past month, the pressure valve on the Fed has been released and should clear the path for the Fed to make its first move on interest rates in nine years this coming December.
When we consider where we’ve been (fighting back from what was potentially the Great Apocalypse of economic crises), and how the economy is performing now, the fact that the Fed thinks the economy is robust enough to remove emergency policies is, indeed, a time for celebration.
And with that, there are plenty of reasons to buy stocks, not just because central banks need you to. But frankly, most people don’t seem to understand this central bank dynamic anyway. And that’s precisely why sentiment has been gloomy on stocks for the entire recovery, dating back to the 2009 bottom.
Given this negative sentiment, with respect to the economic outlook and the outlook for stocks, it’s not surprising that the declines in stocks along the way have been sharper and more slippery because of this pervasive fear in the investment community. Along the way that has created great buying opportunities. This recent decline is no different. Often market sentiment tends to over emphasize events. And it tends to be wrong (contrarian). Nonetheless, when events pass, as we’ve seen along the way, regardless of the outcome, the fog lifts, and the underlying fundamentals return to dictate performance.
From a valuation standpoint, when rates are “low,” historically, the P/E ratio of the stock market tends to run north of 20. And, of course, we are not just in a low interest rate environment; we are in the mother of all low interest rate environments, even with the Fed ready to begin moving. North of 20 is precisely where the valuation on stocks has gone in the past year. Now, based on next year’s earnings estimate, the market is valued at just 15x. A move to 20x earnings would mean an S&P 500 around 2,600 by next year. That’s 30% higher than current levels.
Why would a low rate environment tend to mean higher valuations for stocks?
Economics are about incentives, and when rates are ultra-low, people are incentivized to switch out of bonds and into stocks, to seek higher yield/higher returns. When we think about the direct implications of this incentive dynamic, we look no further than the amount of cash that big funds are holding, and where that might find a home.
Historically, one of the most predictive indicators of stock market bottoms is how much cash fund managers are holding. Right now, cash is at levels only seen during the 2008-2009 Great Recession period. Fund managers are holding 5.5% of their portfolio in cash and their allocation to stocks are at the lowest levels since 2012. Furthermore, 35% of all funds are now overweight cash.
When you see fund managers so pessimistic on stocks, while holding so much cash, it has historically been a signal for a huge move in stocks. These managers are paid to invest, and cash has always been the dry powder that’s fueled every rally in stocks throughout history. When fund managers are not holding cash and are fully invested, they have no powder left to buy stocks. The only way they can buy a stock is to sell another stock, which usually occurs at market tops.
The last two times fund managers held this much cash while being so underweight stocks was 2009 and 2012.
What happened? A huge rally! Between 2009 and 2011, the S&P rose 41%. Between 2012 and 2014, the S&P 500 rose 46%.
Sign up for our Free ebook, The Little Black Book of Billionaire Secrets, and learn how to follow the “best ideas” of the world’s top billionaire investors. You don’t have to be rich to take part. You don’t have to pay the hefty 2% management fee and 20% profit share to a hedge fund. You can follow the lead of powerful billionaire investors by simply buying the same stocks they do, in your own brokerage account.
Good friend to our website, and legendary hedge fund allocator, Mark Yusko was on CNBC yesterday and made the bold statement that the Fed should move rates back to normal in one swoop. As we’ve talked about many times, and contrary to the broad sentiment, the first rate hike by the Fed is a celebratory event. After nine plus years of crisis and near global economy apocalypse, the Fed thinks the economy is robust enough to begin removing emergency policies. Article from CNBC.com below with Mr. Yusko’s sentiments…
Morgan Creek Capital Management CEO Mark Yusko said Wednesday the Federal Reserve should raise interest rates to 3 percent in one fell swoop.
“Get back to normal,” Yusko told CNBC’s “Squawk Box.”
“Just reload the gun, 300 basis points.”
Acknowledging a move like that would shock the markets, he argued, “it would send a message of confidence and saying the economy is strong [and] it can handle normal interest rates.”
The Fed’s two-day September meeting begins Wednesday, with a decision on whether to raise rates for the first time in more than nine years Thursday afternoon, followed by a news conference by central bank chief Janet Yellen.
Read More Fed’s market dependence is troubling: David Darst
“If you think about … 100-plus years of history, the short-term rate has been equal to the nominal GDP growth rate. Nominal GDP is around 4 percent. So 3 [percent] would even be below that,” said Yusko whose Morgan Creek Capital, currently with $4.5 billion in assets under management, is primarily a hedge fund allocator, which means it invests in other funds on behalf of clients. The firm also makes its own bets on certain stocks.
“This artificial period of rates has been harmful,” he said. “It’s like water behind pipe. If you hold it back, hold it back, hold it back. When it finally releases, it’s going to be much worse.”
Morgan Creek was founded in July 2004 by Yusko, a former chief investment officer of The University of North Carolina at Chapel Hill Endowment. He has close ties with investment legend Julian Robertson, who provided seed funding.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 27% gain since 2012.
Most energy stocks are trading at historical lows, and many have been priced like stocks in the pipeline for bankruptcy. Even valuations on the major oil companies are trading at a 35-year low relative to the broader market. And it all has to do with the weakness in the price of oil.
But that may be changing, and very soon.
The self-made billionaire energy trader, Boone Pickens, has recently called for $70 by year-end. If he misses, he says it will be because oil is “over $70, not under $70.” He’s not the only oil bull. Another famous and very wealthy energy trader has called a bottom in oil too, and is looking for much higher prices. His name is Andy Hall.
Hall was a Citigroup oil trader who made billions of dollars for the bank energy trading arm, Phibro, in the early-to-mid-2000’s. He was one of the first energy traders to load up on oil futures in 2002, when oil was sub-$30, on the thesis that a boom in demand was coming from China.
Hall reportedly made $800 million in profits for Citigroup in 2005 from his original bullish energy bet. He then made over $1 billion in 2008 for the bank, as oil prices soared to $147 a barrel and then abruptly crashed. Hall profited handsomely from both sides of the trade and earned over $100 million for himself that year.
Hall now runs a $3 billion energy hedge fund, Astenbeck Capital Management. He’s made fortunes pegging bottoms in tops in oil over the past 15 years, and he’s expecting a big bounce back in oil. In a recent letter to investors, he laid out an extensive fundamental case for higher oil prices and suggested a cut from OPEC could be coming as well. On that front, he noted that merely a hint of an OPEC policy change in August of 1986 spiked oil prices by 50% in just 24-hours.
So we have two of the greatest and wealthiest oil traders in the world that are long oil and have called for a return to much higher prices sooner rather than later.
If they are right about the future direction of oil, there will be a lot of money to be made in energy stocks on this bounce. Warren Buffett has famously said a simple rule dictates his buying: “Be fearful when others are greedy, and be greedy when others are fearful.”
This statement shows the mindset of great investors and how they react when markets fall. Instead of running in fear, great investors welcome market corrections as opportunities to buy on the cheap. You don’t get rich buying into a high market or selling into a falling market. You can get rich though, buying into market corrections and beaten-down markets.
At Billionairesportfolio.com we love opportunities like those presented in the energy sector right now. But, we like to have the added protection of investing alongside a billionaire investor that has a lot of money at stake, and the power to influence change.
In this case, not only does billionaire oil magnate Boone Pickens have his money where his mouth is on his oil call, but each of the five energy stocks below are owned by at least one of the world’s great billionaire investors, and each has the potential to double (or more) if Pickens is right about oil at $70 by year-end:
1) SandRidge Energy (SD) – Billionaire investor Prem Watsa owns almost 11% of SandRidge. This stock traded above $4 last November, when oil was $70. That’s 788% higher than its current share price today.
2) Oasis Petroleum (OAS) – Billionaire hedge fund manager John Paulson owns nearly 7% of this stock. Additionally, SPO Advisory, a $7 billion activist hedge fund, owns almost 15% and has been buying the stock on almost every dip. When oil was last $70, OAS was trading $25, or 150 % higher than current levels.
3) Whiting Petroleum (WLL) – Billionaires John Paulson and Andreas Halvorsen, of the hedge fund Viking Global, own a combined 10% of WLL. And the company has officially put itself up for sale! This stock traded at $52 when oil was last at $70. That would be a 205% return from its share price today.
4) Chesapeake Energy (CHK) – Billionaire investor Carl Icahn owns 11% of CHK and recently added to his position around $13. Chesapeake has halted their dividend and said they are looking at selling assets, all of which is bullish for the stock. The last time oil was $70, Chesapeake was $25. That would be a 203% return from its price today.
5) Transocean Energy (RIG) – Billionaire Carl Icahn also owns almost 6% of Transocean. RIG recently reported better than expected earnings this month. The last time oil was $70 Transocean was $24 or almost a 50% return from its share price today.
At Billionairesportfolio.com, we follow the “best ideas” of the world’s top billionaire investors. You don’t have to be rich to take part. You don’t have to pay the hefty 2% management fee and 20% profit share to a hedge fund. You can follow the lead of powerful billionaire investors by simply buying the same stocks they do, in your own brokerage account.
In the past month, U.S. stocks had the biggest one day spike in volatility on record, and while the percentage swing in stocks didn’t rank in the top five of biggest days, it wasn’t far off.
Since then, there have been violent swings across global stocks, and heightened uncertainty about what lies ahead.
Keep in mind, there was a lot of damage to investor psychology in the early days of this decade-long economic downturn. That has created a contingent of investors that have been fearing another shoe to drop.
That fear leads to under participation in stocks, and it also leads to weak hands in the stock market. The “weak hands” are those that may own stocks, but have little conviction (and likely a lot of fear). It’s this dynamic that has created the sharp swings we’ve seen a few times in recent years, and this most recent decline fits the bill. While the current decline was sharper and more extreme than anything we’ve seen since 2008, the reasons are far from the same. Bear markets in stocks are driven by recession or a major economic event that can lead to recession. We have neither.
In the U.S., fundamentals are solid and improving. For those that argue the economy is fragile, the bond market disagrees with you. The yield curve is the best predictor of recessions historically. Yield curve inversions (where short term rates move above longer-term rates) have preceded each of the last seven recessions. Based on this analysis, the below chart from the Cleveland Fed shows the current recession risk at virtually nil.
With no recession risk on the horizon, this dip in stocks looks like yet another valuable buying opportunity. We’ve had seven declines of close to 5% or more in the S&P 500 since late 2012. In each case, the decline was fully recovered in less than two months. In most cases, the decline was recovered inside of one month. This is an amazing fact, yet many people have been trying to pick tops, rather than preparing to buy the dip. We still have global central bank policies that continue to defend against shocks and promote global recovery (from Japan and Europe) and the Fed should continue its plan to slowly remove the crisis-driven emergency policies that have been in place for the better part of 10 years. Moving away from emergency policies is positive! With that, this broad correction looks healthy and could kick off another leg of a strong run for stocks.
Warren Buffett has famously said a simple rule dictates his buying: “Be fearful when others are greedy, and be greedy when others are fearful.” No surprise, he publicly said today that he’s on the prowl to deploy $32 billion of fresh capital to buy stocks on sale.
At Billionairesportfolio.com our specialty is following the lead of billionaire investors. Many will speculate on what Buffett might buy with a fresh $32 billion. But to find stocks on sale, we look no further than his current portfolio. There, we find stocks that have the “wide moat” characteristic Buffett covets. And after the recent sell-off, some have dividend yields higher than treasury bonds, and P/Es well below the market average.
Below are four blue-chip stocks owned by the great Warren Buffett, each of which is cheap, and with a catalyst at work that can reprice the stock higher:
1) American Express (AXP) is one of Buffett’s “four horseman,” yet American Express is down 20% over the past year, leaving it with a current P/E of only 13. Recently one of the top activist hedge funds, ValueAct Capital (an $18 billion hedge fund run by Jeffrey Ubben) took a $1 billion position in AXP. ValueAct takes a private equity approach to investing and many are predicting that ValueAct will shake up the current management of American Express. The last blue chip stock ValueAct targeted, Microsoft, is up almost 50% since ValueAct took a position — a good sign for American Express investors.
2) IBM (IBM) is another one of Buffett’s core holdings. Buffett owns 8% of IBM or almost $13 billion worth. Right now you can buy IBM at a much cheaper price than Buffett paid for his shares (Buffett paid around $162). Buffett rarely makes mistakes, so this is a once in a lifetime opportunity being able to buy Buffett at a discount. IBM is also dirt cheap with a P/E of 9 (almost half the P/E of the S&P 500) and has a dividend of 3.6%, well above the current yield on the 10-year Treasury note. The stock is so cheap any positive news could send IBM flying. Earnings could be the big catalyst for this stock. They report in October.
3) Wal-Mart (WMT) – Buffett currently owns more than $4 billion of Wal-Mart. The stock is down 24% in 2015. It trades at only 13 time earnings with a dividend yield of 3%. One could argue Wal-Mart is the cheapest “blue chip stock” at a price-to-sales of .42 (the lowest of any Dow component). Consumer discretionary is the strongest sector in the market this year, the only sector that has a positive gain for the year. With unemployment nearing “normal” levels, and with gasoline prices at 11-year lows it is only a matter of time before consumers start spending more, and Wal-Mart is usually one of the biggest beneficiaries of this trend.
4) General Electric (GE) is another large Buffet stake that has a huge dividend (3.8%) and sells for a forward P/E of 15. The real catalyst with GE is that the company expects to return a whopping $90 billion to shareholders over the next couple of years, which will mean a dividend increase and a stock buyback, all positive catalyst’s to reprice GE higher in the future.
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Overnight, China openly devalued its currency. And it may be only the first step in a return to the “weak currency” policies that catapulted its economy to one of the biggest in the world. Such a policy reversal would have huge implications for Chinese stocks, and the geopolitical landscape.
China has slowly and modestly appreciated its currency (vis a vis the dollar) over the past decade, in compliance with the pressures from major trading partners and global economic leaders (namely the U.S.). As a result, China’s economy has slowed, its exports have fallen in competitiveness and Chinese leadership is under pressure.
Additionally, since late 2012, Japan has delivered a massive blow to China through its outright devaluation of the Japanese yen. Japanese goods have become 40% cheaper than Chinese goods, on a relative currency basis, since Japan first telegraphed its massive QE and yen devaluation plans. Japanese growth in exports have nearly doubled that of China over the past three years.
With that, it’s no surprise that China is beginning to fight back.
Longer term, a return to weaker currency, in an effort to reclaim its global export dominance, would create major political turbulence with its leading trading partners. But short term, it could give China’s economy and its stock market a huge shot in the arm.
At BillionairesPortfolio.com, we like to follow the lead of billionaire investors that have large stakes in companies and, as such, the ability to influence outcomes.
Below are five U.S. exchange traded Chinese stocks, each owned by top U.S. billionaire investors:
1) eHI Car Services (EHIC) – Billionaire Chase Coleman of Tiger Global recently initiated a 21.5% stake in EHIC in June. eHi Car is considered the “Uber” of China. The stock hit a high of $19 this year and currently trades at $11.45. A return to its 2015 highs from here would mean a 65% return.
2) JD.Com (JD) – Billionaire Steven Mandel, who runs the hedge fund Lone Pine Capital, owns nearly 3% of JD.com, or almost $900 million worth. JD.com has been called the “Ebay” of China.
3) Alibaba (BABA) – Alibaba is a billionaire hedge fund hotel. Billionaires’ Julian Robertson, Chase Coleman and George Soros all own Alibaba. BABA is billionaire Julian Robertson’s second largest position. The stock’s 52-week high is $120 or 53% higher than its share price today. Alibaba reports its highly anticipated earnings on Wednesday, August 12th.
4) Baidu (BIDU) – Baidu is another stock that is a Billionaire hedge fund hotel. Billionaires Stephen Mandel, Julian Robertson and George Soros all own Baidu. Baidu sold as high as $251.99 over the past year — about 50% higher than current levels.
5) iShares China Large Cap ETF (FXI) – Billionaire Louis Bacon who runs the top performing global macro hedge fund, Moore Capital, recently added to his nearly $200 million position in FXI. The exchange traded fund, FXI, is one of the most liquid and diverse ways to get exposure to Chinese stocks.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 27% gain since 2012.
It’s widely known in the mutual fund community that poor performing stocks which are heavily owned by institutional money managers can be targets of ”window dressing” at the end of a quarter.
Window dressing is a tactic where portfolio managers sell their worst performing stocks and buy more of their best performing stocks into the end of the quarter. When they report the quarter-end holdings of their portfolios, after a little window dressing, they tend to look a little smarter when they have a book of nicely performing stocks, after purging the weaker performers.
At BillionairesPortfolio.com, what’s most interesting about this practice to us is that it can create an opportunity for us to buy billionaire-owned stocks at a price cheaper than what the billionaire paid for his shares.
Below is a list of four of the highest conviction stocks of four of the top billionaire investors in the world. Each of the stocks listed got a little cheaper in the past couple of weeks, likely due to some mutual fund window dressing, along with a dose of some broad market risk aversion:
1) Qualcomm (QCOM) – Billionaire Barry Rosenstein’s activist hedge fund Jana Partners owns $2 billion worth of Qualcomm. It’s the fund’s largest holding. Jana paid around $66 to $68 for their QCOM shares. That’s about 10 % higher than what it is selling for today. Qualcomm dropped six straight days into the end of June, typical behavior of window dressing selling. Qualcomm now has 3.05% dividend yield and sells for just 14 times earnings with one of the best balance sheets of any S&P 500 company.
2) Monsanto (MON)- Billionaire Larry Robbins of Glenview Capital was named the number one hedge fund manager by Barron’s with a 57% annualized return over the past 3 years. Monsanto is Glenview Capital’s largest position, and the fund’s average cost for Monsanto is around $112 a share. That’s 5% higher than what Monsanto sells for today. Robbins stated at hedge fund conference that Monsanto could be worth $220, or a double from its price today.
3) Chesapeake Energy (CHK) – Billionaire Carl Icahn owns 11% of Chesapeake at $17 a share, and recently added to his stake in March at $14. Chesapeake has been hammered ever since. The stock is down 25% over the past month and 10% this week alone. CHK now has a 3.2% dividend yield and sells at just two-thirds of its $15.50 book value.
4) Micron Technology (MU) – Micron is David Einhorn’s second largest position in his hedge fund Greenlight Capital. Einhorn paid around $21 a share for his nearly $1 billion position. The stock now sells for $18.78 – about 11% cheaper than what Einhorn paid. MU sells for just 6 times earnings and 4 times cash flow. Micron looks like the classic window dressing stock as it dropped 22% over the past week.
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