It’s that time again.
Forty-five days after the end of a quarter, large institutional money managers have to disclose their portfolio moves to the Securities and Exchange Commission by filing form 13F. This gives the rest of us a chance to look over the shoulders to see what stocks some of the most successful “smart-money” investors in the business have been buying and selling.
But as always, before you look at a list like this for ideas, keep a few things in mind.
By the time we get this information, it is 45 days old, which can be an eternity on Wall Street. For all we know, that “new” stock in the portfolio might have already been sold by the time we know about it.
And the 13F filings apply only to long positions. Short positions aren’t reported, so you would have no way of knowing if one of those big new “buys” was actually just one half of a pair trade.
That said, there’s still plenty of good information to be gleaned from these smart-money stock trades. So today, we’ll look at seven of the highest-profile investors in the business, and see what they’ve been collecting and dumping.
The Smart Money: Warren Buffett
Plays to Focus On: Apple, IBM, Phillips 66, AT&T
These days, when we look at Berkshire Hathaway’s portfolio moves, it’s just just Mr. Buffett we have to consider. As Buffett has gotten older and shifted his focus to succession planning, he has given lieutenants Todd Combs and Ted Weschler freer rein in choosing Berkshire’s investments. And Berkshire’s biggest new investment — a $1 billion investment in beleaguered Apple (AAPL) — was made by either Combs or Weschler.
That’s OK. Were they not living under Buffett’s enormous shadow, either gentleman would probably make the “smart money” list in their own right.
At any rate, Buffett has famously eschewed tech stocks for most of his career — though he bought International Business Machines (IBM) and actually upped his stake in this most recent quarter — but Apple is in many ways a classic Berkshire Hathaway investment. It’s a first-rate company with an iron-clad balance sheet and a large and growing competitive moat.
Sure, iPhone sales are slowing and Apple has nothing in the pipeline to replace the iPhone as its chief moneymaker. But AAPL gets more and more skilled every year at squeezing more revenue from its user base from app sales and other add-ons.
Several other “smart money” investors, including activist Carl Icahn, have lost patience with Apple’s sluggish stock and moved on. But I would take Berkshire’s side here. Trading at just 11 times earnings and at a dividend yield of 2.4%, AAPL stock is an absolute steal.
The Smart Money: Carl Icahn
Plays to Focus On: Apple, Icahn Enterprises, Gannett, PayPal
Speaking of Mr. Icahn, he’s been fairly active himself in the last quarter, though he’s been doing more selling than buying. As I mentioned a moment ago, Icahn sold his entire enormous position in Apple last quarter. Not too long ago, fully 20% of Icahn’s portfolio was in Apple, so this is a major move.
In a recent appearance on CNBC, Icahn went to great lengths to praise Apple and CEO Tim Cook, but he also made it clear that he worried about Apple’s ability to navigate a rough Chinese market.
Icahn made a good profit in Apple, earning a little over 40% based on his average purchase price. But I think he sold too soon. Apple could rise by a good 50% from here and not be even close to overvalued.
In addition to the Apple sale, Icahn liquidated his positions in Hologic (HOLX), Tegna (TGNA), Mentor Graphics (MENT), Pep Boys (PBY) and Gannett Company (GCI) and he reduced his positions in Nuance Communications (NUAN) and PayPal Holdings (PYPL).
One of the few things Ichan actually bought was actually his own MLP stock, Ichan Enterprises LP (IEP). Icahn Enterprises now makes up fully 34% of his primary hedge fund’s portfolio.
With all this selling, it looks to me like Icahn is hoarding cash. To what end, we have no way of knowing. Perhaps he’s taking a little risk off the table. Or maybe … just maybe … he has a major whale of an investment in mind.
I suppose we’ll find out soon enough.
The Smart Money: David Einhorn
Plays to Focus On: Apple, American Capital Agency Corp (AGNC), General Motors
David Einhorn of Greenlight Capital had a busy quarter. After massively reducing his stake in Apple at the end of last year, he upped it by a whopping 31% in the first quarter. Apple currently makes up about 15% of Einhorn’s long portfolio.
Einhorn also had the fortuitous good luck to start a position in mortgage REIT Hatteras Financial (HTS) just weeks before larger rival Annaly Capital (NLY) announced it was acquiring the company. He also added to his existing position in mortgage REIT American Capital Agency Corp (AGNC).
Einhorn isn’t the only money master to be enamored with mortgage REITs. Bond king Jeff Gundlach has been bullish on the sector for months and particularly bullish on Annaly Capital.
Among Einhorn’s larger positions, he also added to his stake in General Motors (GM), his second-largest position after Apple. Einhorn had actually reduced his stake in GM by nearly 14% at the end of last year before turning around and increasing it by nearly 10% in the first quarter. GM now makes up about 8% of Einhorn’s total long portfolio.
Apparently, Einhorn and I are on the same page. Einhorn’s two largest positions also happen to be two of my largest positions. And I’m a big beleiver in mortgage REITs as well, considering the entire sector is trading well below its liquidation value.
The Smart Money: David Tepper
Plays to Focus On: Facebook, Kinder Morgan, Energy Transfer Partners, Williams Partners, Alerian MLP ETF
Distressed debt specialist David Tepper has been one of the most successful investors in the business over the past decade. He made out like a bandit in 2009 by buying distressed financial stocks, and he’s been on a roll ever since.
Tepper also extended his big, fat, billionaire middle finger to the state of New Jersey earlier this year by relocating to no-income-tax Florida as a resident. Atta boy, David!
At any rate, Tepper had a busy quarter, starting with a major new purchase of Facebook (FB) stock. A glitzy growth name like Facebook would seem a little out of character for Tepper, but I can understand his reasoning. In a world where growth is scarce, fast-growing Facebook is a rarity.
Perhaps the biggest news is Tepper’s activity in the MLP space. He made a splash in the fourth quarter of last year by buying shares of beaten-down pipeline operators Kinder Morgan (KMI), Energy Transfer Partners (ETP) and Williams Partners (WPZ). He also initiated a small position in the Alerian MLP ETF (AMLP).
Well, Tepper apparently lost enthusiasm for Kinder Morgan in the first quarter, selling a little over half his position. But he massively backed up the truck and loaded up ETP, WPZ amd AMLP. He increased his position in Energy Transfer Partners by a whopping 214%, and ETP is now his largest stock position, making up over 9% of his portfolio. He upped his positions in Williams Partners and the Alerian MLP ETF by 458% and 134%, respectively.
Between ETP, WPZ, AMLP and KMI, midstream pipeline stocks now make up a combined 18% of his portfolio.
The Smart Money: Seth Klarman
Plays to Focus On: Cheniere Energy, EMC, Allergan
Other than Warren Buffett — who has achieved something close to demigod status — perhaps no other investor has quite the cult following of Baupost Group’s Seth Klarman. Value investors are willing to do back-alley deals with men in trenchcoats to get a copy of his out-of-print book, Margin of Safety. He’s just that good.
That said, Klarman has made a few moves recently that have raised a few eyebrows. Klarman bet big on energy, at one point having nearly 20% of his portfolio in liquefied natural gas exporter Cheniere Energy (LNG). Well, Klarman bought even more Cheniere last quarter, and he now owns nearly 13% of the entire company.
Yet Cheniere is no longer Klarman’s biggest holding. After a buying spree in the first quarter, that distinction now belongs to big data player EMC Corp (EMC). EMC now makes up slightly more than 20% of Klarman’s portfolio.
Klarman also made an interesting new buy in beaten-up biotech Allergan PLC (AGN), a favorite holding of fellow money masters Daniel Loen, John Paulson, Leon Cooperman and David Einhorn, among others. Allergan makes up about 7% of the portfolio.
The Smart Money: Daniel Loeb
Plays to Focus On: Alphabet, Baxalta, Lowe’s, Danaher, Targa Resources, Williams Companies, EMC
Activist investor Daniel Loeb is one of the best investors of his generation. He’s also what I would call the “Anti-Warren Buffett.” While Buffett is known for buying companies with management teams he admires, Loeb intentionally targets companies that he sees and being managed poorly and then agitates for change. Few things will make a board of directors feel true dread like getting a sharply worded open letter from Mr. Loeb.
Interestingly, he also started a position in Seth Klarman’s largest holding, EMC. The fact that two of the smartest men on Wall Street see value here is something worth noting.
I also find it interesting that Loeb, like Tepper, is seeing value in the midstream MLP space. His positions in Williams and Targa Resources are only about 1% of the portfolio, but a quarter ago it was rare to see MLPs in a smart money portfolio at all.
The Smart Money: Bill Ackman
Play to Focus On: Valeant Pharmaceuticals
And finally we get to fellow activist investor Bill Ackman, who has had a rough go of it lately. 2015 was a horrendous year for Ackman, and it really hasn’t gotten much better. After a banner 2014, Ackman’s hedge fund has lost nearly half its value.
A lot of this is due to the spectacular blow up of his largest holding, Valeant Pharmaceuticals (VRX). A year ago, Ackman had about 26% of his long portfolio in Valeant. Today, despite owning more shares, that position makes up about 6% of Valeant’s portfolio. That’s because Valeant is down an almost unbelievable 85% over the past year.
Ackman’s Pershing Square upped its holdings in Valeant by about 30% in the first quarter, and the new shares are already down more than 60%.
Bill Ackman will get his groove back … eventually. He’s made some bone headed investment moves in the past but has always come back stronger. If you believe in Ackman as a money manager, then shares of beaten-down Valeant would be a decent bet. Just learn from Ackman’s mistakes and remember to keep your position sizes reasonable.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long AAPL, GM, KMI and VRX.