An excellent way to become a better investor is to learn from the best. One way to do that is by looking closely at what some of the top investors are buying. The key, however, isn't to blindly follow their moves, but to try and unearth the characteristics they look for in an investment.
Three stocks that some of the top investors recently bought are gas producer CNX Resources (NYSE:CNX), blood diagnostic company Adaptive Biotechnologies (NASDAQ:ADPT), and gold miner Barrick Gold (NYSE:GOLD). Our Motley Fool contributors take a closer look at what drew those investors to these companies.
Decoding the adaptive immune system
Maxx Chatsko (Adaptive Biotechnologies): At a market cap of $1.05 trillion, you could make the argument that Microsoft knows how to put money to good use. As part of efforts to grow its Azure cloud computing business, the technology giant has built relationships with a number of biotechnology start-ups that have staggering data-crunching requirements. That includes blood diagnostic upstart Adaptive Biotechnologies, which agreed to spend at least $12 million per year on Azure in return for a $45 million investment from Microsoft in 2017.
That turned out to be a pretty good move for both parties. Adaptive Biotechnologies is valued at over $4.6 billion after its successful initial public offering (IPO) weeks ago. The business has developed diagnostic tests that scan the adaptive immune system -- the T cells and B cells that change over your lifetime to continuously defend against foreign invaders and mutations -- for molecular data that can detect disease, inform therapeutic decisions, or discover new drug candidates. Researchers have compiled a database comprising data points from over 20 billion immune cell receptors scanned since 2009, used Microsoft's machine learning capabilities to analyze the patterns within, and sold the insights to over 125 biopharmaceutical companies to date.
While it's only just beginning to scratch the surface of its potential, Adaptive Biotechnologies thinks the market opportunity for its platform could stretch to $48 billion. Investors certainly can't deny the company's ambitions. In addition to helping external biopharma customers, the business is developing a portfolio of research products, clinical diagnostics, and cellular therapies of its own. The focus on both cellular diagnostics and biologic drugs makes it a unique investing opportunity in immuno-medicines.
However, it could take some time for Adaptive Biotechnologies to live up to the hype. The business isn't growing nearly as fast as peers Guardant Health or Personalis. In the first quarter of 2019, Adaptive Biotechnologies reported revenue of just $12.7 million, representing "only" 30% growth from the year-ago period, and an operating loss of $20 million. That makes a $4.6 billion market cap look a little frothy.
Then again, the company boasted nearly $700 million in cash after its IPO, so investors will hardly be concerned with operating losses anytime soon. Anyone interested in the opportunity presented by immuno-medicine might want to follow Microsoft's lead and take a closer look at this stock.
Betting big on natural gas
Matt DiLallo (CNX Resources): David Einhorn made a name for himself betting against Lehman Brothers during the global financial market collapse of 2008. He rode that success to grow his hedge fund, Greenlight Capital, into one of the largest in the industry. It made him one of the youngest billionaires as well as one of the top-earning hedge fund managers.
While some of his more recent bets haven't played out as he had expected -- his fund lost 34% in 2018 -- Einhorn is still one of the world's top investors. Because of that, when he bets on a company, investors should take notice.
One stock he has been buying a lot of is natural gas producer CNX Resources. The company controls drillable land in the Marcellus and Utica shale regions. It's working on converting that position into a cash flow machine. CNX Resources expects to hit that inflection point next year. In the company's view, it can produce enough money in 2020 to grow its production by 10% while generating more than $500 million in free cash. CNX could use those funds to grow at a faster rate if natural gas prices improve, pay down more debt, or buy back shares. Any of those options could create more value for shareholders like David Einhorn.
While Einhorn has had a tough run of late, his bold bet on natural gas via CNX Resources looks like an interesting one to watch. The stock certainly seems like it could have a lot of upside in the next year as it starts generating a gusher of excess cash.
Have you caught the gold bug, too?
Neha Chamaria (Barrick Gold): Gold prices have soared to six-year highs as of this writing, largely amid geopolitical concerns and fears of an impending interest rate cut by the Federal Reserve. To top that, gold bulls have found support in Ray Dalio, founder of one of the world's largest hedge funds, Bridgewater Associates. In a recent LinkedIn post on paradigm shifts in the market, Dalio emphasized how "it would be both risk-reducing and return-enhancing to consider adding gold to one's portfolio." With investors catching the gold bug, most gold stocks have rallied in recent weeks.
Consider Barrick Gold, for instance. Fourteen hedge funds bought the stock fresh while 22 others added more shares to their existing Barrick holding during the first quarter, according to WhaleWisdom. Some well-known advisory firms and institutions that bought Barrick Gold shares in Q1 include Blackrock, Vanguard Group, and Citigroup. Dalio's Bridgewater Associates also owns Barrick, along with several other gold stocks. Barrick Gold shares have risen nearly 27% so far this year.
There's a lot happening at Barrick Gold right now. Thanks to last year's acquisition of Randgold Resources, Barrick is now the second-largest gold mining company with a strong asset base. More recently, Barrick formed a joint venture with Newmont Goldcorp to establish Nevada Gold Mines, the world's largest gold mining complex. Mines within this complex produced a whopping 4.1 million ounces of gold combined in 2018. Barrick owns 61.5% in the venture, and the two companies expect synergies of up to $500 million per year for five years starting in 2020.
Meanwhile, Barrick is finally putting an end to its ordeal in Tanzania involving majority-owned Acacia Mining by acquiring a remaining stake in Acacia. This move should hugely help management shift focus to the productive side of its business -- primarily efforts to produce more gold at lower costs, boost cash flows, and lighten its debt load. All of this makes Barrick Gold a great long-term investment for those looking to invest in precious metals.