Good investors spread their bets across a wide spectrum of assets, which is why this list of picks from top Wall Street investors is so interesting. Not only are some of the smartest people in finance buying these three stocks, but the opportunities highlighted here by big-name investors, noted by three Motley Fool contributors, span industries from technology to healthcare to precious metals. Maybe you won't find all of these ideas of interest, but it is likely that at least one could find a place in your portfolio. Here's a primer on what the smart money sees.
A sort-of Buffett stock
Brian Stoffel (Amazon.com): Value investors of every stripe were surprised in May to find that Warren Buffett's Berkshire Hathaway now owns shares of the world's largest e-commerce company: Amazon (NASDAQ:AMZN). To be clear, Buffett has never been one to shy away from praising the prowess and acumen of Amazon founder and CEO Jeff Bezos.
It's just that Buffett cares deeply about the price he pays for his companies. And his value-oriented type of investing doesn't like overpaying. Trading at over 70 times trailing earnings and 40 times free cash flow, Amazon simply doesn't fit the mold of Buffett's normal purchase. Perhaps it shouldn't be surprising, then, that Buffett himself didn't make the purchase -- one of his up-and-coming portfolio managers did.
That being said, I still think investors would do themselves a favor by looking into the company. Amazon is best known as "The Everything Store," but the real story is how the company has been able to monetize the tools that make The Everything Store work.
Amazon Web Services (AWS) was started because the company had to figure out how to stop its technology bottlenecks. Now AWS is the biggest profit-machine. The network of fulfillment centers was built to deliver Amazon's own products as fast as possible. Today, third-party merchants make up over half of all sales, with Fulfillment by Amazon collecting high-margin fees to make that possible.
The company has multiple moats surrounding it, and still has lots of avenues for growth. You'd do yourself a favor to consider following in Berkshire's footsteps.
$112 million reasons to buy this biotech stock
George Budwell (Heron Therapeutics): Biotech stocks that nosedive on an unexpected regulatory outcome can turn out to be outstanding bargains for risk-tolerant investors. Some biotechs, in fact, have seen their share prices quickly rebound in the wake of a disappointing regulatory outcome and even go on to burst through their all-time highs in a fairly short amount of time.
Heron Therapeutics (NASDAQ:HRTX), a small-cap biotech focusing on the development of non-opioid pain medications and anti-nausea treatments for cancer patients, could be the next name to join this list. Keeping with this theme, the biotech has attracted some of Wall Street's best investors. The renowned biotech gurus Julian and Felix Baker, for instance, have built a whopping $112 million stake in the biotech over the past five years. Best of all, the Baker Brothers have continued to scoop up shares this year, despite the surprise rejection of the company's experimental pain medication HTX-011 last April.
Why is this biotech stock worth buying? Heron offers investors two core value drivers. First off, the biotech's chemotherapy-induced nausea and vomiting (CINV) franchise has started to produce a healthy level of sales growth in recent quarters after an initially sluggish start. Next up, the Food and Drug Administration (FDA) reportedly rejected HTX-011 solely for technical reasons. That's key because it means that Heron won't have to conduct another costly late-stage trial to get this high-value drug back on track.
The big picture is that Heron has a decent shot at generating over $1 billion in annual revenue early in the next decade. That's a sizable revenue stream for a company with a current market cap of $1.36 billion. Heron's shares, in kind, could turn out to be ridiculously undervalued if the FDA eventually green-lights HTX-011 as expected and the company's CINV franchise keeps growing by leaps and bounds.
Silver is finally a benefit
Reuben Gregg Brewer (Wheaton Precious Metals): BlackRock, Franklin Resources, Invesco, and Driehaus have all added at least 1 million shares of Wheaton Precious Metals (NYSE: WPM) in recent months. These are some of Wall Street's biggest names, which is a good reason to take a look at this precious metals streaming company.
There are two big stories with Wheaton. First, it's focused on owning a small number (28 to be exact) of large streaming deals. These are contracts that call for Wheaton to provide miners with cash up front in exchange for the right to buy gold and silver at reduced rates in the future. Purchase prices are usually keyed to spot prices, which helps keep margins relatively high in good markets and bad. While its focused portfolio means that Wheaton is less diversified than peers in some ways, it also means that new deals can have a big impact on results. It inked two sizable deals in 2018, which should be an upside catalyst.
That said, the second big story for Wheaton is that its production is roughly equally split between gold and silver. (Peers are more heavily focused on gold.) That's been a drag on performance in recent years because of weak silver prices. But silver has strengthened recently.
Which brings up the still-wide gold/silver ratio, a comparison of the prices of the two metals. A wide spread suggests that silver might be the more attractive metal. With more silver exposure than peers, Wheaton could be a better option as a safe-haven asset during a market sell-off. This is likely one of the reasons why some big Wall Street names are buying it... and a good reason for you to take a close look, too.