It's always interesting to see what the titans of Wall Street are doing with their cash. Sometimes you'll want to follow along for the ride, but other times, the risks are too high for most investors. Here's a little help figuring out if you should mimic George Soros, David Tepper, and Warren Buffett with their investments in Apple Inc. (AAPL -0.91%), Caesars Entertainment (CZR), and Seritage Growth Properties (SRG -1.63%).
Soros warms to Apple again
Chris Neiger (Apple): The hedge fund created by billionaire investor George Soros, Soros Fund Management, added more Apple shares to its stake at the end of the second quarter. Soros' fund sold off all of its shares in Apple toward the end of last year, but the latest move shows that Soros is keen on the tech company once again.
So why should this matter to investors? Because there's a lot to love about Apple's business right now. In the most recent quarter, sales grew by 17% from the year-ago quarter to $53.3 billion and diluted earnings per share spiked 40% to $2.34. The iPhone is the most significant revenue driver for Apple, of course, and while sales of the company's phones only increased by 1% year over year, revenue from the devices was up 20% thanks to the iPhone's skyrocketing average selling price.
While Apple still leans on the iPhone for about 56% of its top line, the company is expanding its sales in other revenue segments to bring more diversification. The best example is its services segment (which includes the App Store, Apple Pay, Apple Music, etc.), which brought in $9.5 billion in sales, up 31% year over year, and made up nearly 18% of the company's sales in the third quarter.
Apple's strong revenue and earnings growth, rising iPhone selling prices, and increasing services revenue make the company a compelling play for investors looking for a solid, yet still growing, tech stock. When you add into the equation the fact that Apple is currently at the beginning of a $100 billion share repurchase program, its shares have a dividend yield of 1.36%, and that the stock is currently trading at just 16 times Apple's forward earnings -- it's no wonder why Soros (and other investors) have put Apple on their buy list.
A big bet on Las Vegas
Travis Hoium (Caesars Entertainment): David Tepper, manager of Appaloosa Management, has one of the best reputations on Wall Street and has a long history of beating the market. One of his latest bets is on Caesars Entertainment, the owner of casinos in Las Vegas and around the U.S., in which Appaloosa now owns a $168.9 million stake after acquiring 3.1 million shares in the second quarter. But just because Tepper is betting on Caesars doesn't mean you should.
Caesars recently emerged from a long restructuring, which left the company with a fairly manageable $8.9 billion of debt on the balance sheet. But 2.8% same-resort growth is pretty anemic for a company in the gaming industry and that's because Caesars operates in some of the least attractive gaming markets in the sector.
Growth and high returns on investment in the gaming industry are focused almost entirely in Asia right now. Macau is the biggest gaming market in the world but Singapore and the Philippines have proven to be profitable markets as well. Caesars, on the other hand, operates in Las Vegas and U.S. regional markets, which have been plagued by slow growth and left some operators crippled financially in the last decade. Even Caesars has gone through its own bankruptcy after struggling to make money in the U.S.
If the economy continues to do well and Caesars can slowly grow into its new structure, the stock could do well. What I would worry about is that Caesars isn't well prepared for an economic downturn given its relatively weak markets and bloated balance sheet. If you're interested in gaming stocks, I would look at Las Vegas Sands, Wynn Resorts, or MGM Resorts, which all have at least a little exposure to Asia's gaming market to go along with their Las Vegas foundation. It's this weakness that's driven me to end an outperformance call on My CAPS page.
First Buffett and now Berkshire Hathaway
Reuben Gregg Brewer (Seritage Growth Properties): In mid-2015, troubled retailer Sears Holdings Corporation created a real estate investment trust to, effectively, raise some much-needed cash from the real estate it owned. From day one, that REIT, Seritage Growth Properties, had its work cut out for it. The bulk of its rents came from retailers that were, and continue to be, in decline. The opportunity, however, was huge if Seritage could transition away from Sears and Kmart.
Legendary investor Warren Buffett was intrigued enough to buy an 8% stake in the company in late 2015. His stake is down to roughly 5.5% today because of additional share issuances by the REIT. And now Berkshire Hathaway has given Seritage a huge $2 billion loan. Smart money is clearly investing in this landlord.
The opportunity, meanwhile, hasn't changed. To put a number on that, new tenants are paying around $14 per square foot compared to the roughly $4 Sears is paying. And Seritage has been making important headway, with non-Sears tenants now accounting for 57% of the company's revenue (up from just 22% in late 2015). Sears and Kmart are still important, but Seritage is a much less risky REIT than it was following its IPO. There's clearly still more to be done, but with Buffett and Berkshire Hathaway behind it, you might want to jump aboard as Seritage continues to shift its business away from legacy Sears and Kmart stores and toward a much more profitable future.
Two out of three ain't bad
Tracking big investors is a tried-and-true way to find good investment opportunities, but not always. You need to do a little more homework than just see that a famous Wall Street pro is in a buying mood. Apple and Seritage both have great stories and big names (Soros and Buffett) behind them. They are each worth a deep dive today. However, David Tepper's investment in Caesars appears to be facing some notable headwinds. And that means most investors should probably shy away from the domestically focused gambling company for now.