Main Street investors shouldn't blindly follow professional investors into their latest stock picks. However, tracking Warren Buffett, Nelson Peltz, and Steven Cohen can be profit-friendly given that an uncanny knack for buying at the right time has turned each of these investors into billionaires. After reviewing the latest holdings of these three pros, our Motley Fool investors think that it could be smart to buy Synchrony Financial (NYSE:SYF), Procter & Gamble (NYSE:PG), and Activision Blizzard (NASDAQ:ATVI) shares now.
Give Buffett some credit
Dan Caplinger (Synchrony Financial): No investor has a better reputation for intelligence and wisdom than Warren Buffett, and so when the Oracle of Omaha starts looking at a stock, other investors pay a lot of attention. One of the biggest moves that Buffett made last quarter was to add shares of Synchrony Financial, a consumer financial services company that offers a variety of products and services. The company's Synchrony Bank unit provides online savings accounts with attractive rates, but Synchrony's more interesting business focuses on corporate clients that want to offer credit to their own customers through branded credit cards and installment loans to finance purchases.
Buffett has generally been optimistic about financial companies, so the purchase of Synchrony doesn't come as a complete surprise. Even though some investors are concerned that credit quality in the U.S. economy could deteriorate if the long expansion gives way to tougher economic conditions, Synchrony shares offer attractive value even in comparison to other beaten-down financial stocks. Given Synchrony's history with General Electric as part of the conglomerate's broad-based financial services segment, Buffett has a comfort level with the business; if the economy stays strong in the years to come, Synchrony Financial has a good chance of reaping the rewards and paying off shareholders like Buffett handsomely.
Become your own activist
Demitri Kalogeropoulos (Procter & Gamble): Billionaire Nelson Peltz has been scooping up Procter & Gamble shares in hopes of winning a seat on the board of directors. The activist investor is agitating for a strategic shake-up and claims that P&G's management team hasn't done enough to turn the business back toward market-beating sales growth.
P&G executives mounted a sharp response to this charge in mid-August, arguing they've transformed the company over the past few years through a productivity program that removed over $10 billion of expenses and a portfolio reboot that's seen the sale or disposal of 100 slower-growing brands.
P&G has a point. Operating margin has improved by a full 2 percentage points since 2015, and organic sales growth sped up to a 2% pace over the past 12 months from 1% in the prior-year period. Sure, the company is still losing market share overall. However, its latest business trends suggest that slump could end soon. The company's U.S. shaving business, for example, just posted volume growth after eight straight quarters of declines.
Peltz's chances of winning a seat on the consumer goods giant's board are slim, but he can still benefit from his large stock position if P&G's operating momentum keeps improving. That's not a bad backup option, and it's one that's available to individual investors, too.
To the victors go the spoils
Todd Campbell (Activision Blizzard): If you're not a gamer -- or you don't have a gamer in your household -- you might not realize that the video gaming industry is going through a major transformation (with favorable profit implications).
In the past, companies like Activision Blizzard made money selling PC and console software through retailers. Today, video game makers still sell software this way, but making increasingly larger contributions to their revenues are margin-friendly internet sales and in-game purchases. In the future, video game league play -- commonly called esports -- could drive sales and earnings significantly higher.
Activision Blizzard is on the cutting edge of this transformation. Perhaps that's why billionaire investor Steven Cohen -- formerly SAC Capital Advisors' head honcho and currently managing billions of dollars of his own money at Point72 Asset Management -- bought $39 million worth of its shares in the second quarter. Cohen also increased stakes in Take-Two Interactive Software and Electronic Arts, but it's Activision that I think investors ought to be paying attention to.
The company's titles include eight billion-dollar blockbuster franchises, and it boasts 407 million actively engaged users, who are increasingly spending more money online to enhance their game play. With gamers spending more time playing, and more money on things like expansion packs, it's not surprising that Activision is overdelivering on its financials.
In Q2, sales of $1.63 billion exceeded management's forecast for sales of $1.43 billion. As a result, the company is targeting sales of $6.4 billion this year. Increasing profitability has management targeting $1.94 in earnings per share, and given that operating margin was 35% in Q2, 6% better than management's guidance, and new games are launching (Destiny 2 comes out in September and Call of Duty: WWII will be released in November, just in time for the holidays), this guidance could prove to be conservative.
Activision Blizzard is also on the cusp of a major opportunity in the fast-emerging esports business. Gamers are watching their peers play competitively at an unprecedented rate, and that's led to Activision creating leagues for Call of Duty and Overwatch. Recently, Activision announced the first seven "city" teams for its upcoming Overwatch League, and that list includes highly successful sports franchise owners, including New England Patriots owner Robert Kraft. It's anyone's guess if esports leagues will get as big as traditional sports leagues in the long term, but the momentum and potential revenue opportunities, such as media contracts and advertising, make Activision's stock incredibly intriguing.
Dan Caplinger has no position in any of the stocks mentioned. Demitrios Kalogeropoulos owns shares of Activision Blizzard. Todd Campbell owns shares of General Electric. His clients may have positions in the companies mentioned.
The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive Software. The Motley Fool recommends Electronic Arts and Synchrony Financial. The Motley Fool has a disclosure policy.