Whether it's the vast sums of money they control or the sensationalistic views they hold, the brightest minds on Wall Street often command the world's attention. But does that mean we should follow their lead?
Of course, here at The Motley Fool, we have the benefit of a brilliant community of stock pickers at our disposal. So, we asked three top Motley Fool contributors to each discuss a stock that some of the smartest investors on on Wall Street are buying now. Read on to learn what they had to say about Campbell Soup (CPB 2.08%), Activision Blizzard (ATVI), and Micron Technology (MU 2.20%).
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Buying to sell
Steve Symington (Campbell Soup): While we typically encourage buying stocks and holding them for the long term at The Motley Fool, not every smart investor on Wall Street goes in with that same goal. Case in point: Shares of Campbell Soup stock popped 21% in the month of June following news that activist investor Dan Loeb of Third Point Capital had bought shares of Campbell Soup on the premise that they're undervalued. More than that, though, were rumblings that Loeb was also planning a "major shakeup" to urge Campbell to abandon its broader strategic business review and focus exclusively on putting itself up for sale.
To be sure, shares are rising again this week following a new report (may require subscription) in The Wall Street Journal that Third Point has built a stake of over $300 million in Campbell Soup -- good for a more than 2.5% stake in the company -- and that Loeb has ramped up his efforts to communicate with family members who control roughly 41% of its total shares to support his sale ambitions.
Still, that doesn't mean you should necessarily follow Loeb in buying Campbell Soup stock now. Sure, there's the possibility that, even after the recent pop, investors today could enjoy a juicy acquisition premium if he succeeds in convincing key Campbell stockholders to make their company an acquisition candidate. But that's far from guaranteed for a company of Campbell's size (with a $12 billion market cap as of this writing), and I think investors would be better off focusing on the fundamentals underlying Campbell's business -- which aren't particularly encouraging -- in forming a rock-solid buy thesis.
Ready player one
Demitri Kalogeropoulos (Activision Blizzard): Wall Street is a huge fan of video-game stocks these days, and industry leader Activision Blizzard has been a key beneficiary of that popularity. Even though shares have trounced the market in 2018, a full 20 of the 27 analysts who cover the game developer still rate the stock as either a "buy" or a "strong buy."
There are good reasons to be bullish about this business, given Activision's deep portfolio of intellectual property and the rising value of major gaming titles as the business shifts more toward a subscription-type model. The developer has several potentially significant revenue streams in the works, too, including eSports, consumer products licensing, and digital advertising.
Those initiatives aren't far enough along to materially lift results yet, though. Meanwhile, Activision's core game release calendar, which drives most of its profits, is aggressively tilted toward the latter half of its fiscal year. Thus, it's possible investors might be disappointed by operating trends over the next few months and send the stock lower. Yet I'd view a significant drop as a potentially good opportunity to pick up shares in a flexible business that has a long runway for growth ahead.
Thanks for the memory
Keith Speights (Micron Technology): Some of the best-performing analysts have been pouring money into Micron Technology, according to TipRanks, a website that ranks financial analysts. Even one Wall Street analyst who has been especially down on Micron stock recently changed his tune.
What's so attractive about Micron? The company is one of the leaders in developing memory chips. This industry is notoriously cyclical. However, Micron's tremendous Q3 results announced in June put any worries to rest that the boom cycle was about to turn into a bust. And what a boom cycle Micron has had. The stock skyrocketed 87% in 2017 and is up more than 30% so far this year.
However, should investors follow the lead of top analysts and buy Micron stock? I think it would be a smart move for several reasons.
Micron has excellent growth opportunities, particularly with memory-intensive artificial intelligence (AI) applications driving demand for more powerful memory chips in data center servers. While AI-focused servers aren't a big part of total server shipments now, Micron thinks they could make up close to half of all shipments within the next seven years.
Another reason to consider buying Micron is that the company itself is buying the stock. Micron announced in June that it will begin a $10 billion stock buyback later this year. There's also Micron's valuation: Shares trade at less than five times expected earnings. No wonder the smartest analysts like this stock.
