At Billionaire’s Portfolio we study the buying patterns of the world’s greatest billionaire investors and hedge funds. So when two of greatest billionaire investors in the world, Carl Icahn and Warren Buffett, are adding more to their large, beaten down stakes in energy companies, we pay close attention.
We know two things about Buffett and Icahn: 1) they have made billions throughout their careers buying when everyone else is selling, and 2) they have a knack for picking the winners, the stocks and sectors, and marking the bottom when they enter.
Their respective records are especially remarkable in times when widespread fear and doubt is in the air. For example, Icahn marked the bottom in technology stocks in the fall of 2012 with his 10% position in Netflix. He made $2 billion in profits on the trade, a nearly 1,000% return. Buffett marked the bottom in bank stocks in the fall of 2011 when he initiated a $5 billion position in Bank of America. That investment has almost tripled in price since, producing nearly $10 billion in open profits for Buffett.
Now, it’s typical in market environments like this to hear from experts that warn against picking tops and bottoms. But contrary to the Wall Street adages against market timing, the two best investors of all-time have amassed two of the largest personal fortunes in the world by (as Buffett says) “being greedy while others are fearful.” And they are using the new lows in oil and energy markets to add more to their stakes. Historically, that tends to be a profitable signal. There is a Harvard study that shows when hedge funds “double down” on losing positions, on average those tend to be their biggest winners.
Let’s look at the investments from this billionaire duo where they have been adding to their losers:
1) Phillips 66 (PSX) – Buffett revealed last September he had taken a $4.5 billon position in the energy stock Phillips 66. This is a typical Buffett stock. It sells for just 9 times earnings, a huge discount to the S&P 500’s P/E of 21, and the stock pays nearly 3% in a dividend. Furthermore, the company has a pristine balance sheet, with very little debt – a classic Buffett stock, cheap and safe. Buffett has added another $700 million to this stock just in the past two weeks. He’s the largest shareholder.
2) Chesapeake Energy (CHK) – Carl Icahn owns doubled his stake last spring when he bought 6.6 million shares of CHK for about $14. Icahn now owns 11% of Chesapeake. If the stock returns to the price where Icahn doubled down it would represent an almost 300% return for today’s levels. With the sharp fall in the stock price this past week, I wouldn’t be surprised if we find in the coming days that Icahn added more into the recent slide.
3) Cheniere Energy (LNG) – Carl Icahn also initiated a $1.3 billion position in energy stock LNG in August of last year, taking an 8% ownership in the company. Cheniere is on track to become the first U.S. company able to export liquefied natural gas. This makes LNG a classic “wide moat” (no competition) stock. Icahn has already secured two board seats on Cheniere’s board. Icahn’s “board seat effect” has proven to be a huge predictor of success for the legendary activist. According to an essay Icahn penned last year, when he gets a board seat in a company, his stock returns averages 27.5%. Since his initial stake in August, Icahn has added to his stake several times into the end of the year. He now owns 13.8% of LNG — the largest shareholder.
The best billionaire investors in the world have amassed their fortunes by being in the right place at the right time, and betting big.
Billionaires are billionaires because they think differently than the average person. They tend to see opportunities well before anyone else knows they are opportunities. They tend to go where some of the biggest risks are, because that’s also where the biggest returns can be found. They like to invest in situations only when they have an advantage. And when they have high conviction, they bet big.
Here’s a glimpse at these 8 big opportunities for the New Year:
Surprise Prediction #1: China – China’s slowdown this year, will turn into global economic fuel next year. (The Trade: iShares China Large-Cap ETF, symbol FXI)
China’s economic slowdown and stock market boom and bust has been one of the dominant themes of 2015. Multiple billionaires have taken the opportunity to load up.
Over the past 15-years, stocks have returned just 4.5% annualized. Meanwhile, Chase Coleman of Tiger Global has returned 21% annualized (gross of fees) on his long positions and became a billionaire in the most difficult stock market in our lifetimes. Coleman holds over 20% of his hedge fund in Chinese stocks. Billionaire Stephen Mandel, another top hedge fund manager, also has a huge chunk of his portfolio in Chinese stocks. And another billionaire, an astute macro investor, and one of the best performing investors in 2015, has one of his top positions in China.
Additionally, billionaire David Tepper thinks next year could be a boom for Chinese stocks and the economy, as he thinks the Chinese central bank could ease more aggressively than anyone thinks is possible. That positive fuel for the global economy could be the antidote for a global demand rebound.
Surprise Prediction #2: Stocks – The comfortable ride on the S&P train for the past six years is over. It’s a stock pickers market. (The Trade: iShares S&P 500 Value ETF, symbol IVE)
Billionaires have mixed views on the broad stock market. Bill Ackman and Leon Cooperman think stocks are a good value. Tepper has been uber bullish for much the past five years, but is more neutral now. Legendary billionaire investor Carl Icahn thinks there’s danger in high yield bond markets that could affect stocks.
More broadly speaking, the consensus view among the best investors in the world is that the broad stock market indicies won’t give you the easy returns we’ve had for the better part of 2009 to 2014. There will be more volatility, and it will be a stock pickers market! That’s when billionaire investors and hedge funds thrive. The winners will be the ones that can strategically identify the right stocks to own. A momentum driven market has favored index buying through this global economic recovery period, and now there is an over-due cyclical shift toward value. With billionaire investors and hedge funds primed to take advantage, the time to join our Billionaire’s Portfolio service couldn’t be better.
Surprise Prediction #3: Fed – The Fed could be forced to raise rates far more aggressively than they have planned. (The Trade: ProShares Short 20+ Year Treasury, symbol TBF)
As we said in the above, billionaire David Tepper thinks that China could ease more aggressively than anyone thinks is possible. If that happens, and it does indeed fuel a pop in global demand, the result could be quicker growth in the U.S. and quicker inflation than what is anticipated by the Fed. With that, the Fed could be forced to raise rates faster than expected.
For the past year the chatter among market participants has been about the potential for more a return to QE for the Fed (i.e. QE4). No one is talking about the Fed potentially being behind the curve on inflation, as they were for much of 2011-2013. This sets up the market for a surprise, which can result in sharp moves as people scurry from one side of the ship to the other.
Surprise Prediction #4: Commodities – Commodities are bottoming. (The Trade: DB Commodity Index Tracking Fund, symbol DBC)
Stanley Druckenmiller, billionaire and legendary macro trader, made his career picking tops and bottoms. He is taking a stab at bottom ticking commodities, loading up on gold, which is the top position in his family office fund. His former boss, George Soros has been scooping up coal and energy stocks. And in the most recent quarter, these macro trading legends have welcomed a lot of their fellow billionaires to the bottom fishing pond, as billionaire investors like Carl Icahn have been building stakes in stocks across the energy sector.
Surprise Prediction #5: Oil – Oil bounces to $70. (Energy Select SPDR, symbol XLE)
The self-made billionaire energy trader, Boone Pickens, has recently called for $70 oil in six months. 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.
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.
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.
Surprise Prediction #6: Bonds –Treasury bonds have topped, corporate bonds will fall hard. (ProShares Short High Yield, symbol SJB)
Everyone agrees treasury bonds are a top – though it’s claimed a lot of victims, including Bill Gross. Perhaps the most dangerous area in the bond market though, is high yield bonds. Companies have been borrowing cheap money and buying back stock at an aggressive rate. Billionaires from Icahn to Druckenmiller think the music has stopped, and the high yield bonds will continue to sink, while weak companies that have been in the business of pumping up share prices through share buybacks will fall.
Surprise Prediction #7: Biotech – Biotech and healthcare stocks have a big year. (The Trade: Nasdaq Biotechnology ETF, symbol IBB)
Biotech has been volatile over the past year and a half as it is a stock pickers market in the biotech sector – sparked by a very rare statement from the sitting Fed Chairman about biotech stock valuations, and most recently because of the political backlash associated with soaring drug costs. When average investors run out of the store, when stocks go on sale, the world’s best investors go on a shopping spree. Biotech and Healthcare stocks are where the big additions have been made in the past quarter in billionaire portfolios. No surprise, with share prices beaten down, M&A in the sector is at a record pace.
Surprise Prediction #8: Technology – New technology keeps booming! (The Trade: DJ Internet Index Fund, symbol FDN)
The Silicon Valley VC, Bill Gurley, has been sounding the alarm about a tech bust. But the reining godfather of the Silicon Valley VC, Marc Andreesen, says we’re not in a bubble, we are working our way out of a 15-year bust (i.e. big innovation is in the early stages). If Andreesen is right, and the technological revolution is closer to the bottom of a cycle than the top, expect more game changing companies to emerge.
The common theme of all of these billionaire surprise predictions is that strategic investing is returning, and riding the Fed-induced rising tide in the broad stock market indices is over. Between 2000 and 2010, when the S&P 500 returned zero, the billionaire investors and hedge funds we follow in the Billionaire’s Portfolio had some of their best performance ever, with some returning 30% to 40% a year over that period.
That type of outperformance comes from being in places where they see an opportunity before anyone else thinks it’s an opportunity. While the ETFs offer a way to play it, the big returns will come from being in select stocks that these billionaires are buying to capitalize on a market that is broadly wrong-footed on many of these predictions.
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The goal of the Billionaire’s Portfolio is simple: to provide retail investors with the same plain-vanilla stock investments that the world’s greatest billionaire investors and hedge funds own. And our subscribers can invest alongside these billionaires without the typical $5 million minimum investments and paying big hedge fund management and performance fees. Instead, they get access to our best of the best portfolio of billionaire owned stocks for just $297 a quarter.
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!
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.
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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%.
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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.
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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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.
According to the Rob Copeland of the Wall Street Journal today, top hedge fund managers are beating the S&P by a huge margin this year.
The article notes that three billionaire hedge fund managers, David Tepper, Larry Robbins and John Paulson, are all up 10% or more after fees in 2015. That compares to a 3% return for the S&P 500.
Of that trio, Paulson is up an eye popping 19% year-to-date. That’s more than six times the return of the S&P 500. He’s done it by betting correctly on stocks like Time Warner Cable and Salix Pharmaceuticals, both of which were acquired for large premiums.
At Billionairesportfolio.com we have been piggybacking the highest conviction stocks, ETFs and options of the world’s best billionaire hedge fund managers since 2012, and we’ve witnessed first-hand, the power of following the best ideas of the world’s greatest billionaire investors. Earlier this year, we followed Perceptive Advisors, a multi-billion dollar biotech specialist hedge fund, into Sarepta Therapeutics (SRPT). That stock is up 155% since early February.
Given the value of following the biggest and best, and given the hot hand that billionaires Tepper, Robbins and Paulson have had this year, let’s take a look at their most recent stocks picks:
1) Billionaire Larry Robbins of Glenview Capital has made huge returns on healthcare stocks this year, including a $200 million gain in one day when Humana announced that it was exploring a possible sale, and subsequently exploded higher in value. Robbins has two new healthcare picks, both of which he has said could double, Abbvie (ABBV) and Brookdale Senior Living (BKD).
2) Billionaire John Paulson, an M&A specialist with an incredible track record of buying stocks right before they get acquired, has initiated a new stake in AIG (AIG). He also recently added to his position in T-Mobile (TMUS), a stock that has constantly been rumored as a takeover target.
3) Billionaire David Tepper who recently made a bold bet on the broad stock market, buying a billion dollar worth of call options on the Nasdaq 100 (QQQ) and the S&P 500 (SPY), has added two new notable stocks to his portfolio recently, Micron Technology (MU) and Jet Blue Airways (JBLU).
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