November brings more to investors' tables than pumpkin-spiced lattes and turkey dinners. It also happens to be one of the four months a year where 13-F filings with the Securities and Exchange Commission are due. A 13-F is a required holdings disclosure for money managers with more than $100 million in assets under management. In other words, once every quarter (45 days after the previous quarter has ended, to be precise) we get a look under the hood at what the wealthiest and possibly brightest money managers have been up to in the preceding three months.
While even the wealthiest money managers are fallible, just like the retail investor, they didn't get to be in the position they are today without having a pretty good understanding of how businesses work. Therefore, paying attention to the stocks they bought and sold can tell us a lot about investors' sentiment, and perhaps even clue us into trends we may not have noticed.
Billionaire money managers reduced or axed these prominent brands from their portfolios
Though most of the focus is usually on what billionaire money managers are buying, I find more value in looking at what's not in favor anymore. This past quarter, three very well-known brand-name stocks were reduced or got the boot from some prominent money managers.
Arguably one of the biggest battleground stocks during the third quarter was innovation kingpin Apple (NASDAQ:AAPL). Despite the Oracle of Omaha, Warren Buffett, modestly upping his stake in the tech giant, we witnessed three other billionaire money managers cutting their stakes. Both Paulson & Co. and Soros Fund Management ditched their entire stakes in Apple during the quarter, albeit both were relatively small to begin with, while David Einhorn's Greenlight Capital chopped 44% (1.74 million shares) from its previous Apple stake in the second quarter.
What weighed down Apple, you wonder? It looks to be a combination of concerns regarding the launch of the iPhone X and psychological factors surrounding its valuation.
Price was a possible constraint when Apple introduced both the iPhone 8 and iPhone X. Whereas the iPhone 7 started at $649 for the smaller model and $769 for the 7 Plus last year, the newer models are considerably pricier, with the iPhone X breaching the $1,000 barrier for the first time ever. Additionally, the iPhone 6s hasn't been phased out, which could potentially weigh on sales of the new phones. Technical issues during iPhone X's development, described by Foolish tech specialist Ashraf Eassa, and recent supply issues, are other possible concerns.
Apple was also sporting, at least temporarily, a $900 billion valuation recently. Historically, companies that top the $600 billion valuation barrier usually struggle shortly thereafter. History may be playing a role here, with billionaires believing Apple is fully valued.
Nonetheless, with initial iPhone X demand looking strong, selling Apple now might wind up being a mistake.
No love for the wicked! Embattled national banking giant Wells Fargo (NYSE:WFC) found itself on the chopping block with two billionaire money managers in the third quarter. Warren Buffett's Berkshire Hathaway wound up shedding 3.76 million shares during the quarter (which is actually less than 1% of its holdings), while David Tepper's Appaloosa dumped all 681,463 shares that it had owned. As a whole, according to WhaleWisdom, 868 funds reduced their position in Wells Fargo in the third quarter, and 111 closed out their position completely. That compared to just 75 that opened a position, and 609 that added to an existing stake.
The big issue with Wells Fargo continues to be its loss of consumer confidence. After disclosing last year that its aggressive cross-selling measures at its branches led to the creation of 2.1 million fraudulent accounts without customers' knowledge, it revealed during the third quarter the existence of 1.4 million additional fraudulent accounts. The potential for fines and loss of customers in the near-term is a very real worry for Wells Fargo's investors.
On the other hand, Wells Fargo has history on its side. Consumers tend to have a pretty short attention span when it comes to scandals. Just look at Bank of America, which faced more than $60 billion in settlements tied to its mortgage practices following the Great Recession, and attempted to charge debit cardholders a monthly fee in 2011. It may have been unpopular for quite some time, but it's firing on all cylinders once again.
Wells Fargo has historically had one of the highest return on assets of all major money center banks, which I suspect will bode well for the company over the long run.
Last, but not least, search engine mammoth Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), the parent company behind Google and YouTube, found itself shown the door by two billionaire fund managers. Dan Loeb's Third Point sold 45% of its stake, or 260,000 class A shares (GOOGL), while Chase Coleman's Tiger Global Management dumped its entire position, which included 36,516 class A shares, and 35,715 class C shares (GOOG).
The "tech-xodus" from Alphabet appears to be a result of the company reporting somewhat mixed second-quarter earnings results. Even though it crushed Wall Street's adjusted EPS forecast by $0.52, and its paid clicks jumped by 52% year-on-year, there were a few red marks that investors have struggled to overlook. In particular, cost per click fell 23% from the year-ago period, which was considerably more than the 15% drop analysts were forecasting. Traffic-acquisition costs (TAC) also rose 22% of advertising revenue from 21% in the year-ago period. With the company expecting TAC to rise further, it's a warning that Alphabet's core business could see margin pressure.
Then again, NetMarketShare.com finds that Google boasts close to 81% of all search market share globally on desktops, so it's not exactly as if the company is set to lose its pricing power anytime soon. The big question really is: What does it plan to do with YouTube to really monetize a fast-growing platform beyond search. Until there's a distinct plan here, and shareholders get a deeper dive into the inner workings of YouTube, which Alphabet hasn't been too forthcoming with, it could be tough for this stock to push much higher -- at least in the interim.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams owns shares of Bank of America. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.