Warren Buffett is arguably the greatest investor of our time. His buy-and-hold ethos, along with his knack for sniffing out solid yet undervalued businesses, have rightly earned him the nickname “Oracle of Omaha,” which pays homage to his Nebraska roots. In close to six and a half decades, he’s taken about $10,000 in seed capital and transformed it into approximately $86 billion in net worth. Mind you, this figure would be well over $100 billion had it not been for Buffett’s philanthropic ventures.
But, truth be told, there are other great billionaire money managers out there besides Warren Buffett, and they can each bring interesting new perspectives to the table. Since last week was the deadline to file Form 13F with the Securities and Exchange Commission (investment firms with more than $100 million in assets under management must file a 13F), Wall Street and investors have been given a unique look under the hood at what other top money managers were up to during a very volatile fourth quarter.
Below is a look at the companies that Buffett’s peers were actively buying during the fourth quarter.
Image source: Getty Images.
Appaloosa Management: PG&E
Possibly the biggest shocker of all is that David Tepper’s Appaloosa, which has a little over three dozen securities in its portfolio, was an active buyer of Northern and Central California electric and gas utility PG&E (NYSE:PCG) during the fourth quarter. Appaloosa increased its stake in the company by 62% (2.48 million shares), making it the portfolio’s fourth-largest holding.
Now, before we go labeling Tepper a dunce, understand that fourth-quarter purchases could have happened at any point between Oct. 1 and Dec. 31, and they don’t yet reflect any moves Appaloosa may have made since the new year began. As a refresher, PG&E filed for bankruptcy protection in mid-January. The company is facing an unknown amount of liabilities from the Camp Fire in 2018 and multiple fires in 2017 that may have been the result of untended electrical equipment. However, speculation from Wall Street has pegged this liability at closer to $30 billion.
Despite going bankrupt, Appaloosa’s investment may not be a lost cause after all. You see, when PG&E filed its bankruptcy paperwork, it had roughly $20 billion more in assets than liabilities (albeit this liabilities figure is destined to move up or down by a lot). Since the State of California absolutely needs PG&E and its electric, gas, and green-energy services, there’s the possibility that holders of common stock could be left with significant value. Ultimately, this will take years to play out in court, and the only guarantee of riches at the moment appears to be with the lawyers handling this case.
Image source: Getty Images.
Baupost Group: eBay
Another big Wall Street name that investors tend to keep a close eye on is Seth Klarman and his hedge fund, Baupost Group. Of the fund’s $11.5 billion in assets under management as of the end of 2018, nearly $590 million was directed toward e-commerce retailer eBay (NASDAQ:EBAY), the fund’s ninth-largest holding. During the fourth quarter, Klarman’s Baupost opened a 21-million-share position in eBay.
Why eBay? First, Baupost tends to be a value-oriented fund, and eBay certainly checks off a number of boxes that would attract Klarman. The former growth giant has a forward P/E of just 12 and a reasonable PEG ratio of under 1.3, and it has generated close to $2.7 billion in operating cash flow over the trailing 12-month period. While growth has slowed, eBay still offers brand appeal and attractive fundamentals.
The second reason for this purchase could be the expectation of investment activism bearing fruit. Elliott Management and Starboard Value have both pressed for changes at eBay. More specifically, calls have been made for eBay to spin off its classified-ad business and online ticketing platform StubHub. If broken up, it’s possible eBay could be worth more than it is now, but only time will tell if that’s the path the company will take.
2019 Jeep Cherokee. Image source: Fiat Chrysler Automobiles.
Tiger Global Management: Fiat Chrysler Automobiles
Chase Coleman III and his fund, Tiger Global Management, were active sellers of tech stocks during the fourth quarter, but also were on the hunt for deep discounts. One such stock that was purchased aggressively was Fiat Chrysler Automobiles (NYSE:FCAU), with the fund adding 18.88 million shares. In total, Tiger Global Management now owns just over 81 million shares of FCA (over 5% of the company’s outstanding shares), making it the fourth-largest holding in the fund.
Coleman’s most logical reason for continuing to gobble up shares of Fiat Chrysler — which owns a number of auto brands you’re familiar with, including Jeep, Ram, and Dodge — is valuation. Even with a reduced outlook, Fiat Chrysler is valued at less than five times next year’s profit projections and is well capitalized compared with other Detroit automakers that are mired in debt. Coleman is known for being opportunistic, and you’d struggle to find a lower forward P/E than you’ll receive with this stock.
Then again, there have been concerns for years about auto sales hitting a cycle peak, and this might be the year that it finally happens. In the U.S., car loan delinquency rates are rising, while in Europe, car sales dropped 4.6% in January, based on registration data, with Fiat Chrysler European sales declining nearly 15%. There’s also concern that auto tariffs are on the table in the unresolved tariff war between the U.S. and China. Despite its relative cheapness, Fiat Chrysler is no slam-dunk investment for Chase Coleman III and Tiger Global Management.
Image source: Campbell Soup.
Third Point: Campbell Soup
What exciting investment has Daniel Loeb and Third Point cooked up for the fourth quarter? Well, more Campbell Soup (NYSE:CPB), of course. Third Point has been actively buying shares of Campbell Soup since the second quarter of last year. During the fourth quarter, it added another 3 million shares, upping its stake to 21 million shares, or 10.6% of its portfolio, and 7% of Campbell’s outstanding share count.
Unlike the other investors on this list who have taken a predominantly passive investment role, Loeb has been incredibly vocal about his displeasure with Campbell’s management team, and has even gone as far as to sue the company for misleading investors regarding its strategic review process. Despite wanting to replace the entire 12-person board, Loeb settled late last year after having been awarded two board seats. Mind you, none of the existing directors lost their seats. Instead, the board was expanded to 14 directors from 12.
In a perfect world, Loeb would like to see Campbell Soup put itself up for sale. The problem is that the descendants of chemist John T. Dorrance (who created condensed soup) own more than 40% of all outstanding shares, blocking any possibility of a sale. Loeb has a history of pushing hard for change, but there’s no guarantee he’ll be able to extract much value out of the foundering Campbell Soup.
Image source: Amazon.
Citadel Advisors: Amazon.com
Last, but not least, Ken Griffin at Citadel Advisors took quite a liking to beaten-down tech giant Amazon.com (NASDAQ:AMZN) during the fourth quarter. Griffin’s fund acquired just north of 1 million shares of the e-commerce retailer last quarter, more than quintupling its stake to 1.25 million shares, or about $1.88 billion in market value. Not counting options, it’s Citadel’s largest individual stock holding.
Griffin’s affinity for Amazon’s stock likely has to do with two factors. First, there’s the company’s incredible moat in the online retail space. By mid-2018, eMarketer data estimated that Amazon controlled 49.1% of all e-commerce sales in the U.S., with eBay a not-so-close second at 6.6%. Being so dominant, and able to keep its customers loyal via Prime memberships, should lead to consistent growth and cash flow from its retail operations as more consumers move away from brick-and-mortar consumption.
The other factor is Amazon Web Services (AWS), which — despite representing a small portion of Amazon’s revenue pie — is responsible for the bulk of its profits. In 2018, AWS revenue surged 47% to $25.7 billion, with $7.3 billion of Amazon’s $12.4 billion in operating income derived from its cloud segment. In other words, Amazon doesn’t even look close to having reached its full potential yet.