The Fed met today—and they made no change to policy. As we all know, their words will be parsed endlessly. But the fact is, the Fed, at this point, is a side show. It’s two other central banks (BOJ and ECB), and likely policy makers in China that will dictate what stocks do, what commodities do and what the global economy does for the next year (or few).
With that, the real event is tomorrow night. The Bank of Japan will decide on their next move. And the BOJ holds many, if not all of the cards for the U.S. stock market and the global economy. Today we’re going to talk about why that’s the case.
As we said yesterday, the consensus view is that the BOJ will do nothing this week. That sets up for a surprise, which Japanese policymakers like and want. It gives their policy actions more potency.
We talked yesterday about the role central banks have played in the long and slow global recovery. To put it simply, central banks have manufactured the global economic recovery. Without the intervention, there would have been a global economic collapse and blood in the streets, still. It was all led by the Fed. They slashed interest rates to zero. They rolled out the unprecedented bond buying program that pinned down mortgage rates (putting a bottom in the housing market), and helped to recapitalize the big banks that were drowning in defaulted debt, withering deposits and an evaporation of loan demand. They opened up currency swap lines (access to U.S. dollars) with global central banks so that those central banks could fend off collapse in their respective banking sectors.
Most importantly, with all of the intervention, and after spending and committing trillions of dollars in guarantees, backstops and bailouts, the Fed clearly communicated to the public, by their actions, that they would not let another shock event destabilize the world economy. Europe was next to step up, to do the same.
When the weak members of the European Monetary Union were spiraling toward default, which would have destroyed the euro and Europe all together, the leading euro zone nations stepped in with a bailout package.
Still, a year later, bigger trouble was brewing, as big countries like Italy and Spain were on the precipice of default. That’s when the European Central Bank (ECB) went “all–in”, effectively guaranteeing the debt of Italy and Spain by saying they would do “whatever it takes” to save the euro (and the euro zone).
Those were the magic words: “whatever it takes.”
That statement meant that the central bank would buy the debt of those countries, if need be, to keep them solvent, for as much and as long as needed…”whatever it takes.” That was the line in the sand. If you bought European stocks that day, you’ve doubled your money will little–to–no pain.
Similarly, Japan read from Draghi’s script a few months ago (late September of 2015) when global stocks were falling sharply and threatening to destabilize the world again. Japan’s Prime Minister Abe was in New York, and in a prepared speech, said they would do “whatever it takes” to return Japan to robust sustainable growth. Once again, the magic words put a bottom in global stocks and led to a sharp rebound.
“Whatever it takes” means, if need be, they print more money, they will support government debt markets, they will outright buy stocks, they will devalue currencies, they will do whatever it takes to promote growth and to prevent a shock that would derail the global economy. Why? Because they know the alternative scenario/the negative scenario is catastrophic.
Not surprisingly, in the past six days, with global stocks in turmoil, Draghi stepped in again. This time, he conjured up some new magic words. He said there are no limits to what the ECB can buy (as part of their QE program). Guess who followed his lead? The head of the BOJ sat in front of a camera the next day and said the exact same thing. This tells me stocks are fair game. We already know that’s the case for the BOJ. They are already outright buying stocks. But it also tells me commodities are fair game. And high yield corporate debt. Anything that is threatening to destabilize global markets and threatening to knock the global economic recovery off path—it’s fair game for the ECB and BOJ to put a floor under (i.e. by buying up assets with freshly printed currency).
What does it all mean? It means the ECB and the BOJ are now at the wheel. They relieved pressure from the Fed, allowing the Fed to begin the path of removing the emergency policies (albeit very slowly) of the past nine years. The Fed only makes this move because they believe the U.S. economy is robust enough to handle it. And, more importantly, they only start this path because they know that two other major central banks in the world will continue to provide fuel for the global economy and defend against shocks through their aggressive policies.
Now, within this monetary policy dominated world, where everyone is all–in, the policy actions have simply kept the global economy alive and breathing, they have done nothing to address the major structural problems the world is enduring: Massive debt and slow–to–no growth.
What’s the solution? There hasn’t been one. Until Japan unveiled their massive stimulus program in 2013. The potential solution: A massive devaluation of the Japanese yen.
Japan, unlike many other major central banks (including the Fed), has all of the right ingredients to achieve its inflation goal via the printing press—it has the biggest debt load in the world (which can be inflated away by yen printing), it has persistent deflation (which can be reversed by printing), and it has decades of economic stagnation (which can be reversed with hyper easy money and improvements in the global economy).
In short, they can do all of the things that other powerful central banks/economies can’t do—and it can result in a huge benefit not just in Japan but for fueling a recovery in the global economy (as capital pours out of Japan). In a world with few antidotes to the structural economic problems, this is a potential solution for everyone. So perhaps the most important ingredient for a successful campaign in Japan°they have the full support/hope/wishes of the major global economic powers (US, Europe, UK).
The Bank of Japan is targeting to run their aggressive QE program at full tilt until they can produce a target of 2% inflation in their economy. Their latest inflation data is closer to zero than 1% (still very far from 2%). So they still have a lot of work to do. They completed two years of their big, bold plan—and two years was the timeline they projected to achieve their goal. Clearly, they haven’t met the inflation goal. And they have since, as we’ve said, committed to do whatever it takes to do it, and for as long as it takes. With that, we expect more expansion to their QE program (possibly this week). And, importantly, a huge part of their success is (and will be) dependent upon higher Japanese stocks, and a weaker yen. They have explicitly said so. It’s part of their game plan.
Japan’s Prime Minister Abe was elected on his aggressive plan to end deflation. That was, and is, his priority. He hand-selected the Bank of Japan governor to carry out his plan.
Here’s the quick and dirty summary: With free–falling oil and depressed commodity prices threatening widespread defaults across the energy sector, which would soon be followed by sovereign debt defaults from oil producing nations (like Russia), don’t be surprised if we see the BOJ (and maybe the ECB) step in and gobble up dirt cheap commodities as a policy initiative. It would put a floor under stocks, commodities, and promote stability and growth.
It’s a busy week for following the moves of the world’s richest and most influential investors. We have the Robin Hood Investors Conference in New York, which normally produces some investing nuggets from billionaire investors. And the deadline for their quarterly public disclosures to the SEC on their stock holdings is today (13f filings).
Remember, in the second quarter, the world was in the cross hairs of the calamity in Europe, surrounding the threat of a Greek default and exit from the euro. As Greece brought the world to the edge of disaster, the world’s biggest investors showed some fear, as they began shuffling their portfolios. While the turnover was much more subdued in the third quarter, there are a number of interesting buys and sells from the world’s top investors.
1) Billionaire hedge fund manager, David Tepper, who probably has the best 20 year track record of any investor alive, made quite a few interesting moves last quarter. Tepper slashed his holdings in large cap tech: Apple (AAPL) Google, (GOOG) and sold all of his Alibaba (BABA) stake. Tepper initiated new positions in Nike (NKE), Allstate (ALL) and Southwest Airlines (LUV).
2) Billionaire value investor Seth Klarman initiated a new 52 million share position in Alcoa, making him the second largest shareholder in this beaten down S&P 500 stock. Alcoa sells for just $8 a share but has a book value of almost $10. Alcoa is down almost 50% YTD, so Klarman is trying to pick a bottom in this aluminum stock.
3) Warren Buffett initiated a new positon in AT&T (T) and Kraft Heinz (KFC). Buffett now owns an incredible $22 billion of Kraft Heinz making his second largest position or 18% of his portfolio. Buffett also purchased more IBM (IBM) and trimmed his stakes in Goldman Sachs (GS) and Wal-Mart (WMT).
4) Billionaire hedge fund manager Dan Loeb of Third Point also took a new position in Kraft Heinz as well, almost $600 million. Loeb also took new stakes in Time Warner Cable (TWC) and Avago Technologies (AVGO). Loeb sold all of his SunEdison (SUNE) and Perrigo (PRGO) positions.
5) At the Robin Hood investment conference this morning, billionaire hedge fund manager, David Einhorn of Greenlight Capital said his “Best Idea” was Consol Energy (CNX), a coal and natural gas stock. The fund owns almost 23 million shares of Consol making it one its largest holdings. Einhorn first purchased the stock at $37.58 in late 2014, today it sells for $7.76. If Consol goes back to Einhorn’s purchase price it would mean a 350% return.
6) In an interview at the Robin Hood Investors Conference, Jamie Dimon, the CEO of JP Morgan, gave a rare glimpse into his billion dollar portfolio. Dimon said that he owns 3 stocks: Yum Brands (YUM), Boeing (BA) and Union Pacific (UNP).
7) Billionaire Leon Cooperman initiated a new almost $100 million stake in Valeant Pharmaceuticals (VRX) at prices between $155 and $260. Cooperman also initiated new stakes in Pfizer and Amazon. That reiterates our view that billionaire investors hedge funds continue to buy more healthcare and biotech stocks, even as the rest of the world is running from the sector.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors.
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.
It’s not often that you get an opportunity to buy Apple stock, the world’s most widely held stock, at a discount. But given the broad market declines of the past month, Apple has given the world a nice dip to buy.
As the great billionaire investor Bill Ackman puts it, there are times when “high quality businesses can be purchased at a discount” due to investors that “overreact to negative short term corporate and macro factors.” With all of the skittishness about China and the Fed in recent weeks, nothing sounds more relevant to the moment.
But while Apple is a widely loved company and widely loved stock, at BillionairesPortfolio.com we only have interest when we get to invest alongside an influential billionaire investor, and only when there is a catalyst at work that can reprice a stock higher. Apple ticks those boxes, most notably with the very public presence of the greatest billionaire investor of all-time, Carl Icahn.
We know the power of the Icahn Effect on stocks, and he’s proven that in Apple. But additionally, we have three other top billionaire investors and hedge fund managers that initiated a new and significant position in Apple last quarter.
1) Billionaire hedge fund manager David Tepper initiated a new $315 million position in Apple last quarter. It’s now his third largest position representing almost 8% of his hedge fund. Tepper also said last week that Apple is “a cheap stock.”
2) Billionaire Barry Rosenstein, head of the activist hedge fund Jana Partners purchased $31 million in Apple call options last quarter, a highly leveraged bet that Apple will rebound by the end of the year.
3) Philippe Laffont, head of the $10 billion technology focused hedge fund Coatue Management, added 860,000 shares to his already huge Apple position. Apple is now Laffont’s biggest position, more than $1 billion dollars (or 10% of his fund’s assets). Laffont is former “tiger cub” and is considered one of the best technology stock pickers in the hedge fund world.
All three of these hedge fund managers paid a higher prices for their stock, as Apple traded between $120 and $133 last quarter. Today you can buy these billionaires on a dip – Apple sells for $116.
So what’s the catalyst?
Of course, today, the company rolls out new product, and a new phone upgrade plan that is said to result in more revenue and more profit per phone. This new iPhone leasing program should improve Apple’s margins which would value the company at a higher multiple and reprice the stock higher.
Barron’s quotes a top mutual fund manager that is targeting a 50% rise in Apple stock near term and $200-$250 in three to four years.
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.
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.
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.
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.
At Billionairesportfolio.com we strive to curate the best ideas from the world’s best billionaire investors and hedge funds. Many of the richest investors primarily pursue situations where they believe they can influence change in a company, and subsequently create tremendous value for shareholders.
Below are five stocks owned by billionaire investors, each of which the investor involved has projected to double in price, or better:
1) Hertz (HTZ) – Billionaire Barry Rosenstein, head of the activist hedge fund Jana Partners, recently said at an investing conference that he believes Hertz shares could triple in price. Rosenstein said Hertz could buy back as much as 20 percent of its shares, which would double earnings per share and cause the stock to triple.
2) Monsanto (MON) – Billionaire Larry Robbins of the hedge fund Glenview Capital Management recently said Monsanto could be worth as much as $250 to $300 a share, which would mean a return of 100% to 150% from its share price today.
3) Navistar (NAV) – Billionaire money manager, Mario Gabelli recently said on CNBC that Navistar should double. He expects the truck maker’s business to improve as the economy improves. Billionaire Carl Icahn also owns a huge chunk of Navistar, almost 20% of the company.
4) Nuance (NUAN) – Icahn owns almost 19% of Nuance, and his son Brett Icahn is on the company’s board. The legendary billionaire activist investor tweeted that he believes Nuance, the creator of the Siri voice for Apple, could triple in price.
5) Platform Specialty Products Corporation (PAH) – Billionaire activist hedge fund manager, Bill Ackman, owns more than 22% of Platform Specialty Products – squarely in the driver’s seat. Recently, the CEO of Platform said in an interview that he believes PAH will sell for $200 a share one day. That would be more than a 600% return from its share price today.
BillionairesPortfolio.com helps average investors invest alongside Wall Street billionaires. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 28% gain since 2012.
One of the most profitable ways to piggyback the world’s best billionaire investors and hedge funds is by following their newest positions.
Over the past two weeks there has been significant buying from billionaire investors and hedge funds, which is usually a bullish sign for stocks. Let’s take a look at some of the most recent transactions:
1) Chesapeake Energy (CHK) – Legendary billionaire activist Carl Icahn recently added to his already large position in Chesapeake last week, buying 6.6 million shares at average price of $14.15. That gives Icahn an 11% stake. Chesapeake looks cheap at 9 times earnings, with a dividend yield of 2.5%, and selling at just two thirds of its book value of $21 a share.
2) Valeant Pharmaceuticals (VRX) – Billionaire hedge fund manager Bill Ackman, of Pershing Square, recently upped his stake in Valeant from 4.9% to 5.7% — at an average price of $196.72. Valeant has been a high flyer. It’s up 38% in 2015 and 54% over the past year. It’s hard to argue with Ackman’s timing. Almost every stock he has purchased over the past 2 years has gone straight up.
3) Manitowoc Company Inc. (MTW) – Billionaire hedge fund manager Larry Robbins, of Glenview Capital Management, initiated a new 6.3% position in Manitowoc — at an average price of $20.41. Manitowoc also happens to be owned by billionaire Carl Icahn. Icahn recently forced the company to split into separate companies, which could potentially unlock $10 of hidden value in this stock according to many wall street analysts.
4) EXA Corporation (EXA) – Billionaire George Soros recently purchased 1.26 million shares of EXA, or 9% of the company, at an average price of $10.10. EXA is small cap software and services company to the automotive industry that has been rumored to be an acquisition target at $16 to $20 share. That would be a 30% to 60% premium from its share price today.
BillionairesPortfolio.com helps average investors invest alongside Wall Street billionaires. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 31% gain since 2012, beating even the great Carl Icahn’s record for the same period.
The magic formula for investing is “risking a little, to make a lot.” When you do this, and spread your risk, you only have to be right a handful of times to make outsized returns.
With this in mind, let’s take a look at two stocks that are among the most widely traded in the world, Facebook and Apple.
The average consensus analyst target price target on Facebook is $90. That’s only 12% higher than current levels. By purchasing Facebook today you are risking a lot to make a 12% potential return. Facebook is trading at 75 times trailing earnings and 37 times forward earnings. High P/E stocks tend to underperform in rising interest rate environments. And that’s precisely where we are headed in the coming months.
What about Apple?
The average consensus analyst price target on Apple is $140, just 10% higher than Apple’s current share price. At best, buying Apple today you will get a potential 10% return. Apple trades at 18 times trailing earnings, and 15 times next year’s earnings estimate. While it’s a stock that is far more fairly valued than Facebook, a 10% upside doesn’t compensate for the downside risk.
So, while Apple and Facebook are the darlings of the stock market, neither offer a potential reward great enough to compensate for the risk to your capital.
On the other hand, here is an example of a stock that does: Chicago Bridge & Iron, symbol CBI.
Chicago Bridge & Iron Company is a Warren Buffett-owned stock. It has an average consensus analyst target price of $72. That’s more than 52% higher than its current share price. The stock trades for just 9 times trailing earnings, and 7 times forward earnings. A low P/E ratio is what Buffett calls a “margin of safety” — it gives him limited downside with potential for big upside. Buffett owns more than 8% of Chicago Bridge and Iron.
Billionairesportfolio.com gives self-directed investors the opportunity to piggy-back an actively managed portfolio of low risk-high reward stocks — all owned by the world’s best billionaire investors.
