When 2019 comes to a close, it may prove to be one of the best years on record for investors. All three major stock indexes have significantly outperformed their historic average annual returns, including dividends, and when adjusted for inflation. Yet, even with the market going through the roof, there are still a handful of stocks that billionaire money managers simply can't get enough of.
On Nov. 15, money managers with at least $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission. Form 13F provides a portfolio snapshot as of the end of the previous quarter (in this case, Sept. 30, 2019), and allows investors to see what some of the brightest and most successful minds on Wall Street have been up to over the past couple of months.
Although 13F filings aren't without their flaws -- they are, after all, at least a 45-day-old snapshot, and a lot could have changed since then -- they can still help investors identify popular trends or stocks. During the third quarter, it would appear that billionaire money managers were fixated on the following three companies.
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Salesforce.com
Easily one of the most popular stocks in the entire market during the third quarter was cloud kingpin salesforce.com (CRM -1.59%). Hedge funds increased their aggregate ownership in Salesforce (as measured by shares held) by a whopping 59%, according to 13F aggregate website WhaleWisdom.com. In particular, Viking Global Investors, which was founded by billionaire Ole Halvorsen, bought more than 2 million shares of Salesforce during the third quarter, with Fisher Asset Management buying up more than 1.6 million shares. Fisher Asset Management was founded by billionaire Ken Fisher.
There are two specifics that continue to draw investors, big and small, to Salesforce. First, there's the huge runway for cloud-based customer relationship management (CRM) software growth. The company pegs its addressable software-as-a-service market opportunity at $140 billion, yet is "only" on track for $16.9 billion in fiscal 2020 sales. Expectations are that Salesforce can more than quadruple the $13.3 billion in sales generated in fiscal 2019 over the next 15 years. This growth is expected to derive from a combination of ongoing acquisitions that'll supplement its core CRM offerings, as well as organic opportunities.
Secondly, Salesforce is an absolute giant in the CRM space. My Motley Fool colleague Joe Tenebruso notes that its three largest CRM competitors combined don't even reach its market share. This, along with key acquisitions, such as Tableau Software, makes it the go-to for enterprises in the digital world.
As has been the case for some time now, Salesforce isn't cheap at 52 times next year's earnings per share (according to Wall Street), but its exceptional growth rate and nearly insurmountable market share lead have made it a favorite among big-time investors.
Image source: Alibaba.
Alibaba Group
Another stock that tugged at the heartstrings of billionaire money managers in the third quarter was the Amazon.com of China, Alibaba Group (BABA 0.09%). Alibaba was particularly popular among hedge funds, with overall share ownership rising by 16%, and nearly three times as many hedge funds opening a new position relative to those closing out their stake. During the third quarter, Chase Coleman's Tiger Global Management added more than 3.4 million shares of Alibaba, with Fisher Asset Management and Viking Global buying around 1.9 million shares and 1.6 million shares, respectively.
The selling point for Alibaba among the investment community continues to be its growth potential. As China's premier e-commerce website, Alibaba continues to benefit from the relatively rapid growth rate of its home market -- even at a 27-year low, China's GDP continues to grow at north of 6% -- as well as China's burgeoning middle class. This middle class, and their penchant for buying goods online, is a big key to Alibaba's success. Also remember that the more eyeballs Alibaba is able to draw to its platform, the more leverage it'll have with advertisers in regards to pricing.
Presumably, there's also a long-tail opportunity for Alibaba's cloud business, which saw cloud computing revenue soar 64% in the latest quarter from the prior-year period. Similar to what we've witnessed from Amazon, cloud-servicing revenue tends to deliver considerably juicier margins than traditional e-commerce platform sales. That bodes well for Alibaba's margins, say, three to five years down the line.
This is also a company that looks fundamentally cheap, despite uncertainties tied to the U.S.-China trade war and China's government. At a mere 21 times next year's estimated earnings per share, growth and value investors appear enticed by Alibaba.
Image source: Getty Images.
Altria Group
Yes, you are reading this correctly. In addition to fast-growing cloud giant Salesforce and hyper-growth Chinese e-commerce company Alibaba, billionaire money managers couldn't get enough of tobacco stock Altria Group (MO 0.49%) in the third quarter. Hedge funds wound up increasing their aggregate stake in Altria by nearly 36%, with billionaire Jim Simons' Renaissance Technologies adding over 5.5 million shares and Ken Griffin's Citadel Advisors buying a little over 1.1 million shares.
Admittedly, Altria doesn't seem like a stock that most money managers would be into right now. The company has been contending with falling tobacco shipment volumes in the U.S., with adult smoking rates hitting an all-time low, dating back at least 55 years. It's also seen its investment in vape device maker Juul plummet following the recent vaping health scare in the U.S. that's claimed 47 lives and led to nearly 2,300 cases of confirmed or probable mystery lung illnesses, according to the Centers for Disease Control and Prevention.
And yet, Altria gathered quite the crowd of buyers in the third quarter. This may have to do with the company's exceptionally strong pricing power, which allows it to continue growing its top and bottom lines, even as tobacco shipments decline.
Additionally, investors might be intrigued by Altria's $1.8 billion equity investment in marijuana stock Cronos Group. Despite this investment declining in value since March, it gives Altria a new channel with which to grow sales and its bottom line. With vape products set to launch in Canada in just a few weeks, there may be excitement surrounding Altria's cannabis ties.
