Simply because the biggest names on Wall Street are buying up a stock doesn't mean you should follow. Too often, the so-called "smart money" can be awfully dumb. And some deals don't have the same profit potential for individual investors as for the institutional ones, for myriad reasons.
Acadia Pharmaceuticals (NASDAQ:ACAD), Vanguard FTSE Emerging Markets (NYSEMKT:VWO), and Kraft Heinz (NASDAQ:KHC) are among those stocks attracting a name-brand following. Read on to see if you should follow the smartest people on Wall Street into owning shares of these companies.
A rebound in the making
George Budwell (Acadia Pharmaceuticals): The Baker brothers -- Julian and Felix Baker -- are widely revered within biotech investing circles for their ability to pick outstanding growth stocks. So when this dynamic duo keeps buying large chunks of a company over a prolonged period of time, investors take notice.
Investors have long cited the Baker brothers' larger ownership stake in Acadia Pharmaceuticals as a key reason for their confidence in the company. The company had a forgettable 2018, during which the biotech's share price fell more than 46% due to safety concerns over its Parkinson's disease psychosis medication, Nuplazid.
Fortunately, the rock-solid faith in the Baker brothers' stock-picking acumen appears to be well founded. Acadia's stock has ripped higher in the first four weeks of 2019 following an overwhelmingly upbeat presentation at this year's J.P. Morgan Healthcare Conference.
The big-ticket item at this year's J.P. Morgan presentation was management's revelation that Nuplazid's sales continue to rise at a steady pace for its current indication, and the drug's other ongoing trials -- for indications such as major depressive disorder -- are progressing according to plan. Nuplazid thus appears to have a decent shot at transforming into a megablockbuster product within the next four to five years.
In all, Acadia's stock seems poised to continue reclaiming lost ground this year thanks to the growing buzz about Nuplazid's enormous commercial opportunity. But investors will definitely want to keep a close eye on the drug's progress in the clinic. Even the Baker brothers have fallen victim to the unpredictable nature of clinical trials, after all.
Check out the latest Acadia earnings call transcript.
A smart way to play emerging markets
Neha Chamaria (Vanguard FTSE Emerging Markets): Ray Dalio, founder of the world's largest hedge fund, Bridgewater Associates, has been a long-term advocate of diversification. Perhaps that explains why ETFs, especially international ETFs, dominate Bridgewater Associates' portfolio. In its most recent filing dated November, Bridgewater piled up shares of several ETFs, including Vanguard FTSE Emerging Markets. This ETF, in fact, is the second-largest holding in the fund's portfolio, accounting for 21.56%.
Investing in an ETF expands your portfolio beyond stocks, and an emerging-market ETF offers even greater geographic exposure, a good way to diversify your portfolio. With the U.S. stock markets under pressure, Dalio is finding greater value in emerging markets right now. Emerging markets have the potential to grow at a faster clip than the U.S., which adds even more appeal to these ETFs as an investment choice.
The Vanguard FTSE Emerging Markets ETF invests in stocks of companies from nearly 25 markets, primarily China, Brazil, India, Taiwan, and South Africa. It held about 4,700 stocks as of Dec. 31, 2018, with its 10 largest stocks accounting for nearly 20% of the fund's portfolio. Top holdings include Tencent Holdings, Taiwan Semiconductor Manufacturing, Alibaba Group, and South African internet company Naspers. This ETF especially stands out with its incredibly low expense ratio of 0.14%, one of the lowest in the emerging-market ETF category.
The Vanguard FTSE Emerging Markets ETF has been part of Bridgewater Associates' portfolio for several years, though the fund has regularly bought and sold shares in opportune ways. Yet a portfolio chock-full of big brands from some of the fastest-growing economies in the world and a low expense ratio make this ETF one of the best ways to play the emerging market.
A venerable food company ready to run?
Rich Duprey (Kraft Heinz): It's predictable that a rather mundane consumer goods company like Kraft Heinz would have attracted Warren Buffett, but when investors like global financier George Soros become interested too, it may be worth retail investors like you and me taking another look at the packaged foods company.
Soros recently established a new position in Kraft Heinz, buying in at a range of prices that averaged under $60 a share. That means its current price of under $48 a piece would give investors an entry point 20% cheaper than the one the billionaire hedge fund operator got.
A good reason why Kraft Heinz is so cheap is that it has lagged behind other consumer food companies in offering healthier fare, but it has started solving that problem.
For example, last November, it agreed to acquire Primal Kitchen, a maker of Paleo diet-inspired mayonnaise and dressings, and house it in its Springboard division, the segment Kraft Heinz believes can disrupt the food industry. It joins brands such as biltong maker Ayoba-Yo; fermented foods purveyor Cleveland Kraut; and Poppilu, an aronia berry beverage company.
After hitting a low of $41.60 per share in November, Kraft Heinz stock has rallied 12% higher on hopes the worst is behind the business. Short interest, or bets by short-sellers, in the company has also dropped considerably over time, down to 19 million shares, a 45% decline from its peak last June, and less than three days to cover. So don't expect a short squeeze if a turnaround materializes when earnings are reported in two weeks. Positive developments could have shares rising soon on the basis of better things to come.
Check out the latest Kraft Heinz earnings call transcript.