Most investors would screen through stocks either through their technicals or fundamentals. However, from time to time, investors can get trading ideas by “copying” that of others. In this case, thanks to the 13F filings (mandatory quarterly reporting of trades in the US by Hedge Funds), we now know the full extent of buying and selling that goes on amongst institutions!
Trajectory-wise, the bear market found no relief as 3Q ended right where it started, giving back all of its gains just as it quickly as it received them. Despite volatile conditions, hedge funds clearly didn’t hold back with Bill & Melinda Gates Foundation leading the way with their purchase of 38,320,050 shares of their very own Microsoft (bringing their ownership of MSFT to 26.91%)
As we continue to look at other significant buys, we’ll come to recognize many familiar names in the list indicating that there is still much confidence in large-cap tech.
Here are the:
Top 10 buys by Hedge Funds in 3Q22
#10 – Micron Technology (6 Hedge Fund Buys)
Semiconductor stocks are not where investors are parking their funds are present.
They were all the hype back in 2021 with the lockdowns spurring demand for the PC market but at present, it would seem that everyone who wanted to buy/upgrade their PCs had already done so.
With the average “ownership duration” of a computer at approx. 8 years, we can argue that the next PC frenzy may indeed be years away. Furthermore, with Micron announcing that they will reduce chip production in 2023, it has indeed been difficult to find a bull case for this company.
#9 – Walt Disney Company (Bought by 7 hedge funds)
Let’s hope there is still some magic left in Disney as it had far from a magical quarter.
The stock fell by close to 15% upon earnings release where investors cited a “mixed picture” from the company’s results. The sell-off was mostly caused by how costs are rising for Disney+ with profit falling behind their experience and theme park segment.
Overall, both revenue and earnings missed with guidance for the full year leaving investors with doubt.
It is not conclusive enough to say that the situation is bleak for Disney however valuations are indeed lofty for the company with their most recent PE ratio of 53.2 being almost twice that of the S&P Benchmark.
#8 – Paypal Holdings (Bought by 7 hedge funds)
Paypal currently trades near its 5-year lows, but analysts are more upbeat than ever regarding its longer-term performance. In my opinion, Paypal is more of a cyclical stock where the spending patterns of consumers would increase and decrease along with the overall sentiment of the economy.
“We’re operating in an environment where we think we’re going to continue to have inflationary pressures, where real wage growth is going to continue to be negative for a period of time, where discretionary spend will be under pressure.”
Chief Financial Officer Gabrielle Rabinovitch said on the Q3 2022 earnings call with analysts.
While we’re seeing their growth slow at present, Revenue and Net income are still rising which indicates that the company is still growing amidst recessionary fears.
#7 – Salesforce.com (Bought by 7 hedge funds)
Of all the companies in this list, Salesforce is the one that puzzles me the most as their valuations are the loftiest amongst the lot.
While the company is well-positioned to capitalize on the digital transformation of the economy, I am skeptical about its ability to hold on to their competitive “moat” over time given the plethora of “CRM” alternatives available globally.
In terms of catalyst, activist investor Starboard recently took a stake in the company. For those unfamiliar with Starboard, in general, they have been known to help “companies focus on operational efficiency and margin improvement. In 48 prior engagements, it has a return of 34.33% versus 13.75% for the S&P 500 over the same period.”
Starboard views Salesforce as a high quality and sticky business at an attractive valuation with the potential for significant value creation through a better balance of growth and profitability. Salesforce’s vision and leading market position has allowed it to grow revenue at a roughly 38% compound annual growth rate over the last 20+ years. It is a market leader in several large and fast-growing markets (No. 1 or No. 2 market share in seven markets with 8.5% to 18.7% growth rates).
CNBC
#6 – Booking Holdings Inc. (Bought by 8 hedge funds)
Most of us would be familiar with Agoda however, not many know that they are actually under the umbrella parent company called Booking Holdings. As the largest online travel company in the world, Booking Holdings has a share in almost every major market with Agoda catering more to us in APAC and Booking.com for those in Europe and America. They also have a stake in F&B with Open Table which has more than 50k+ Restaurants on their platform located Globally.
Fundamentals look great with valuations at a PE of 31.52 and their 2Q2022 reported FCF at $2.59 Billion. At these levels, even George Soros himself pulled the trigger on BKNG!
#5 – Visa (Bought by 8 hedge funds)
Visa has held on extremely well this year having fallen by less than 25% off their all-time highs at the time of writing (the same cannot be said for my portfolio). I guess the saying is indeed true where it’s boring and predictable companies that do indeed come out better than others.
With Visa, investors often see it as a resilient business despite economic conditions. As one of the largest major credit card networks in the world (other being MA), they do indeed have a moat to boast.
To add on to this, dividend investors jumped for joy this quarter as Visa increased their quarterly dividend per share by 20% to $0.45. For management to give out more dividends amidst such uncertainty either mean they are crazy or that they really do see better days ahead.
#4 – Amazon (Bought by 11 hedge funds)
Having 40% share of the US e-commerce market doesn’t give Amazon any relief as they too have found themselves at the mercy of economic circumstances. What’s hurting them most at the moment is how they scaled expansion so rapidly last year that at present, they are forced to scale back due to lower consumer discretionary. While they continue to “make about 10,000 job cuts” to their workforce, fears are that such job cuts would continue well into 2023 given that the ‘festive spending’ would soon come to an end.
What’s good to see from management is that they continue to take an active approach when it comes to setting up or shutting down revenue streams. At the same time that Alexa is being downsized, Amazon finds itself yet another new opportunity by tapping into the Healthcare industry.
Despite near-term headwinds, JPMorgan continues to reiterate that Amazon is ‘well positioned’, citing the following,
“Longer-term, we continue to believe US e-comm penetration can reach 40%+ of US adj retail sales as AMZN & other retailers gain share in key under-penetrated categories such as grocery, CPG, apparel & accessories, & furniture/appliances/equipment”
JPMorgan analyst Doug Anmuth
#3 – Alphabet Inc. (Bought by 11 hedge funds)
In the recent earnings call, shares of Alphabet Inc. fell as the company reported weak earnings as well as slowing revenue. Overall management cited that the company saw reduced ad spending from businesses operating in “insurance, loans, mortgage, and cryptocurrencies.”
Despite these headwinds, Alphabet remains one of the world’s largest tech/advertising businesses with a stake in almost everything tech related.
While slowing revenue from ads are indeed a legitimate concern, it would seem that Alphabet does have a fast-growing revenue segment to give investors reason to buy back in and that would be their Google Cloud Platform.
Google Cloud remains one of their few segments whose growth shows no sign of slowing amidst a world where companies rely more and more on storage, choosing to do so virtually instead of physically. Though they do face stiff competition in this area from Microsoft and Amazon, Google does have their own suite of productivity software to complement the use of Google Cloud.
#2 – Meta (Bought by 13 hedge funds)
By now we’re more than familiar with the narrative behind Meta and their pursuit of the Metaverse. Management seems to acknowledge that investors don’t want gains in 10,20,50 years they want it now. They want Meta to once again focus on what it is good at and that’s making money from advertising.
As such, it is good to see Mark come out to say things like “We talk a lot about the very long-term opportunities like the metaverse, but the reality is that business messaging is probably going to be the next major pillar of our business as we work to monetize WhatsApp and Messenger more,“. This is great for investors as they want Meta to focus on the present and to find a way to reaccelerate its ad revenue.
Along with this, Meta has now fallen to 2016 levels where it is at this point where investors now find a favorable margin of safety given that 13 different Hedge funds chose to add Meta to their portfolios this quarter.
#1 – Microsoft (Bought by 13 hedge funds)
Microsoft follows the same fate as many of the other large tech companies above where they are indeed at the mercy of the macroeconomy. What makes Microsoft DIFFERENT from everyone else on this list is how a single Hedge Fund added a total of 38,320,050 shares of Microsoft this quarter.
With 26.26% of their portfolio concentrated into this one stock, the Bill & Melinda Gates Foundation Trust increase its stake in Microsoft by a whopping 4056% at an estimated average price of $232.90. At this price point, they have decided to make their move on Microsoft where it is roughly a third off its all-time high.
Once again, we never know if such moves truly equate to profits but it could possibly be a signal for more to come in the near future.
Where are the inflows going?
We can see that smart money is still behind large-cap tech stocks despite the drawdown. Inflows into semiconductor stocks seem to be lacking with no notable buys into the likes of Nvidia or AMD. Interest in hospitality, leisure and healthcare stocks also seem to be low, which leads me to deduce that pent-up travel demand could have peaked.
It seems that smart money is slowly flowing back into the more stable tech companies with a good balance between both value and growth. This can be interpreted as institutions slowly “buying the dip” on plays that they think will make good long-term holds.
Top 10 Hedge Fund Buys [3Q 2022]
| Symbol | Stock | Buys | Est. No of Shares Purchased | Price (at point of writing) | 52 Week Low | % Above 52 Week Low | 52 Week High |
|---|---|---|---|---|---|---|---|
| MSFT | Microsoft Corp. | 13 | 41,717,382 | $245.07 | $212.83 | 15.15 | $341.10 |
| META | Meta Platforms Inc. | 13 | 3,839,210 | $111.41 | $88.09 | 26.47 | $352.71 |
| GOOGL | Alphabet Inc. | 11 | 4,310,645 | $97.05 | $83.34 | 16.45 | $151.55 |
| AMZN | Amazon.com Inc. | 11 | 10,090,447 | $93.21 | $85.87 | 8.55 | $181.68 |
| V | Visa Inc. | 8 | 3,146,536 | $210.33 | $173.81 | 21.01 | $233.54 |
| BKNG | Booking Holdings Inc. | 8 | 141,779 | $1947.42 | $1616.85 | 20.45 | $2715.66 |
| CRM | Salesforce.com | 7 | 4,290,185 | $149.25 | $136.04 | 9.71 | $299.27 |
| PYPL | PayPal Holdings Inc. | 7 | 5,874,532 | $79.92 | $67.58 | 18.26 | $197.69 |
| DIS | Walt Disney Co. | 7 | 440,615 | $96.21 | $86.28 | 11.51 | $160.32 |
| MU | Micron Technology Inc. | 6 | 7,628,652 | $58.61 | $48.35 | 21.22 | $97.92 |
