It's easy to add to your stock holdings when the economy is good and the market is hitting new highs. But what are your instincts when a recession hits or when the markets pull back? If your first reaction is to go shopping for deals, you have something in common with the world's best investors.
Following the gurus can keep you focused on the long term and allow the magic of uninterrupted, compounding returns to grow your nest egg. With that in mind, here's why a few of the best investment managers have been buying shares of Brookfield Asset Management (BN -2.52%), Activision Blizzard (ATVI 0.10%), and NVIDIA (NVDA 0.95%).
1. Brookfield Asset Management: A growing collection of real assets
Chuck Akre has been a rising star in the mutual fund world. He has beaten the broader market over the past 22 years by investing in quality growth stocks at reasonable valuations. His holdings are worth checking out if you are looking for a compounding machine to fuel your returns. Akre's modus operandi is to look for businesses that earn above-average returns on equity, are run by shareholder-friendly management, and generate plenty of free cash flow.
Akre's latest addition to his fund's portfolio is Brookfield Asset Management. Akre Capital Management purchased 5.3 million shares of Brookfield in the third quarter, according to the latest 13F filing with the Securities Exchange Commission (SEC).
Brookfield certainly fits the type of company Akre looks for. The company is one of the largest alternative asset managers in the world, with more than $500 billion in assets under management. Over the last five years, assets under management and cash available for distribution to shareholders have compounded at 23% per year.
The stock has followed suit, delivering a total return of 90% over that five-year timeframe, including dividends. Fueling those returns is management's bent for looking for value in real assets, including real estate, energy, private equity, and infrastructure. Brookfield buys high-quality businesses that produce sustainable cash flow, and management only buys when the price is right.
What's more, CEO Bruce Flatt and other officers of the company have skin in the game. Flatt personally owns about 4.3% of the outstanding shares, while all officers and directors combined own more than 10%.
2. Activision Blizzard: This leading game maker is poised to level up
A few well-known hedge fund managers have started buying shares of Activision Blizzard in recent quarters. The stock took a nosedive in the fall of 2018 after a run of disappointing operating performance. That left one of the premier video game makers in the world trading at a more attractive valuation, which also induced a few of the world's best investors to add to their holdings.
In the third quarter, Lone Pine Capital, Thomas Gayner at Markel, and Lee Ainslie's Maverick Capital bought shares of Activision Blizzard. It seems to be good timing, as Activision has started to show signs of improvement in recent quarters, and the stock has drifted higher since August.
Earlier in the year, Activision Blizzard announced a turnaround strategy to invest more in its biggest games, including World of Warcraft, Overwatch, and Call of Duty. The results of those efforts were on display in the third quarter, with the company reporting growth in revenue and profits, as well as an improved outlook heading into 2020. Plus, Activision has a robust pipeline of new games to fuel growth for the next decade.
The video game industry is expected to grow about 9% per year to reach $196 billion by 2022, according to industry researcher Newzoo. Activision Blizzard should be able to ride that wave. It owns some of the most beloved gaming franchises in the industry, and the company generates $1.8 billion in free cash flow, which it can reinvest in new intellectual property and other growth opportunities, such as esports.
3. NVIDIA: Demand for graphics processors is ramping up again
NVIDIA is the leading supplier of graphics processing units (GPUs) for gaming. That expertise has put NVIDIA in a great position to capitalize on the growing need for GPUs in data centers, autonomous vehicles, and other areas that are tapping the power of artificial intelligence (AI).
In the third quarter, Maverick Capital and David Rolfe's Wedgewood Partners bought shares of NVIDIA. That move is already paying off, with the stock up 23% since the end of the second quarter.
The stock is up more than 900% over the last five years. That includes last year's plunge following what looks like a temporary slowdown in the gaming and data center segments -- NVIDIA's two largest sources of revenue. But some analysts see rising demand over time for the company's GPUs in these markets.
It's apparent that Ainslie and Rolfe hold that view as well. NVIDIA reported strong sequential growth last quarter in gaming and data center, which signals that demand is on the rise.