Please ensure Javascript is enabled for purposes of website accessibility

The Smartest People on Wall Street Are Buying These 3 Stocks -- Should You Follow?

By Neha Chamaria, Rich Duprey, and George Budwell – Updated May 17, 2019 at 8:17AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Why are billionaire investors betting on stocks like Disney and GW Pharmaceuticals?

Whether you've just started to invest or are a pro at it, it's tempting to track what stocks the "smartest" minds on Wall Street have been buying and selling. One mistake investors often make, though, is to blindly emulate bigwigs' portfolios without realizing that not every stock fits their individual goals and risk perception. It's only after analyzing the stocks a little more deeply that you should make any investment decision.

These three Motley Fool contributors, for instance, picked three stocks that some of the smartest investors are buying to find out if they're worth your money. Here's what they have to say about GW Pharmaceuticals (GWPH), Mastercard (MA -0.85%), and Disney (DIS -3.20%).

A trendsetter

George Budwell (GW Pharmaceuticals): GW Pharmaceuticals has attracted numerous blue-chip investors and top fund managers alike over the past few years. However, this mid-cap biopharma stock might make a great pickup for retail folk as well.

What's the scoop? GW became the first company ever to bring a cannabis-based drug to market in the U.S. last year with its antiepileptic medication Epidiolex. The FDA green-lit Epidiolex in mid-2018 as a treatment for two childhood forms of epilepsy known as Dravet syndrome and Lennox-Gastaut syndrome. And since its launch, GW has been able to rapidly secure favorable reimbursement status for the drug with a number of top third-party payers in the United States. This broad insurance coverage, in kind, has helped Epidiolex's initial sales ramp up to far exceed expectations.

A young man thinking of ideas.

Image source: Getty Images.

The best might be yet to come, however. GW recently announced positive late-stage results for Epidiolex as a treatment for patients suffering from seizures stemming from a genetic disorder called tuberous sclerosis complex (TSC). The big deal is that TSC's commercial opportunity dwarfs that of Dravet syndrome and Lennox-Gastaut syndrome combined.

What's the key takeaway? Epidiolex now has a clear line of sight at generating more than $2 billion in annual sales with this latest clinical win. GW's stock, in turn, should have a lot more room to run. Underscoring this point, the biopharma's shares are trading at less than three times this peak sales forecast. That's an outright bargain for a biopharma stock, especially for one with a well-differentiated product on the market.

A long-term fintech play

Neha Chamaria (Mastercard): Mastercard has been a longtime favorite among Wall Street bigwigs, with even legendary investors like Warren Buffett and Joel Greenblatt owning the stock. Buffett's Berkshire Hathaway, for instance, has held shares of Mastercard for almost eight years now. To further give you an idea about how popular the stock is, consider that as many as 25 hedge funds added Mastercard shares to their portfolios in the last quarter of 2018.

So what's made Mastercard such a hit? Several factors, such as operating in a near-duopoly in the global payments processing industry with Visa, an asset-light business model, operating margins north of 50%, and steady growth in earnings and cash flows over the years.

Remarkably, a global trend underpins Mastercard's growth and investing thesis: the war on cash, or simply the consumer shift from cash to cashless modes of payments such as credit and debit cards and mobile wallets. So when financial institutions like banks issue a Mastercard-branded card, the company processes all transactions made with the card and earns fees for it.

In its most recent quarter, Mastercard clocked 13% growth in revenue and bagged several deals across the globe, including one each with Apple and T-Mobile. The quarter reflected Mastercard's aggression to expand its footprint into some of the fastest-growing regions in the world to exploit less-penetrated, high-potential markets. The company is also dabbling in various value-add products and services that should further complement growth. Investors who've owned Mastercard shares for a long period of time have minted a lot of money, and I won't be surprised to see the stock continue to hold a spot in the portfolios of some of the smartest minds out there for years to come.

An entertainment powerhouse

Rich Duprey (Disney): Interest in Disney stock is on the rise this year, as a number of big-name investors bought up shares of the entertainment giant in the first quarter of 2019. While the House of Mouse has returned around 20% on average since their purchase -- a nice payoff for moving into the stock at the right time, since Disney has traded sideways for a long while -- investors might still want to consider making a bet on it too.

We're moving into the summer months, which naturally will play well to Disney's theme parks, which account for the largest portion of its revenues. The parks, experiences, and products segment saw a 5% increase in revenues in the fiscal second quarter, as most components performed well. But Easter was moved into its fiscal third quarter, so that should boost results for Q3.

Although its media networks division saw flat revenues for the period, the segment that's almost as large as the theme parks has a couple of drivers that will really come into play later this year when its new Disney+ streaming video channel launches in November and the last installment in the Skywalker saga, Star Wars: The Rise of Skywalker, is released in December. This division should also benefit from the conclusion of the story line in Avengers: Endgame, which won critical and box office acclaim.

Disney's stock has pulled back about 5% from recent highs and trades at around 20 times trailing and estimated earnings, giving it a reasonable valuation for a company that still holds so much potential.

George Budwell has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), Mastercard, Visa, and Walt Disney. 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 recommends T-Mobile US. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
$94.33 (-3.20%) $-3.12
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$284.34 (-0.85%) $-2.43
GW Pharmaceuticals plc Stock Quote
GW Pharmaceuticals plc

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.