In case you missed it, the most important day of the first quarter came and went last week -- and it had nothing to do with earnings results.
Approximately 45 days following the end of a quarter, money management firms with at least $100 million in assets are required to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what money managers were holding as of the end of the most recent quarter (in this case, Dec. 31, 2020). Although 13Fs have their limitations -- they're 45 days old and won't reflect any trading activity in the current quarter -- they can still turn Wall Street and retail investors on to stocks or trends that have the attention of hotshot money managers.
What might be of interest is that four highly popular Robinhood stocks were favorites among billionaire investors during the fourth quarter. Though Robinhood's predominantly young user base is known for chasing momentum plays and penny stocks, the companies that billionaire money managers honed in on appear to have real substance behind them.
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Alphabet
To begin with, billionaires piled into what's arguably the cheapest FAANG stock, Alphabet (GOOGL -1.82%) (GOOG -1.80%). Alphabet is the parent company of Google and YouTube. Ole Andreas Halvorsen's Viking Global added more than 427,000 shares, with Daniel Loeb's Third Point opening a position of 260,000 shares. In total, 13F filers increased their stakes in Alphabet by 14.5 million shares, and 356 funds opened a new position in the company, up from just 133 funds in the sequential third quarter (all figures above are for the Class A (GOOGL) shares).
Alphabet continues to dominate internet search. According to GlobalStats, Google has accounted for between 91% and 93% of global internet search for more than a year. That gives the company exceptional ad-pricing power and makes it the undisputed go-to for businesses looking to reach an audience. This fact alone is cause for billionaire money managers to like the stock.
They might also be excited about Alphabet's fast-growing ancillary projects. YouTube is one of the three most-visited social platforms on the web, and its recent ad revenue growth demonstrates this. On an annual run-rate basis, YouTube is generating over $27 billion.
Likewise, Google Cloud is showing plenty of promise. Sales of $3.8 billion in the most recent quarter grew 45% from the prior-year period. Since cloud service margins are considerably juicier than advertising margins, Cloud could be Alphabet's key cash flow driver in the years to come.
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Plug Power
Billionaires also couldn't stop buying into the 16th most-held stock on the Robinhood platform, Plug Power (PLUG -1.38%). Larry Fink's BlackRock upped its stake in Plug Power by 6 million shares in the fourth quarter, with Jeff Yass' Susquehanna International lifting its position by 1.95 million shares. As a whole, 13F filers increased their ownership in the company by 19.1% in Q4 from the sequential third quarter.
The optimism with Plug Power primarily stems from Joe Biden winning the presidency. Democrats subsequently won a slim majority in Congress in early January, too. The Biden administration is expected to tout renewable and alternative energy sources that will lessen the nation's reliance on fossil fuels and slow climate change. Plug Power's hydrogen fuel-cell solutions could be one of the many beneficiaries of Biden's energy proposals.
Plug Power landed two very noteworthy joint ventures in January. It first received a $1.5 billion investment from SK Group to develop hydrogen fuel-cell technology for use in vehicles and refilling stations in South Korea. Just days later, it forged a joint venture with French automaker Renault to focus on the hydrogen fuel-cell solutions for the light commercial vehicle market in Europe.
Plug Power's management has since increased its gross billings target in 2024 to $1.7 billion from a prior forecast of $1.2 billion. The company has some big shoes to fill after an incredible run, but patient investors with a long time horizon may be handsomely rewarded.
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Aphria
Marijuana stocks have been popular for months, but Aphria (APHA) has gotten special attention from billionaire money managers. Specifically, David Siegel and John Overdeck's Two Sigma Investments opened a 3.35-million-share position in Aphria during the fourth quarter. As a whole, 13F filers increased their ownership in the company by nearly 61% from the sequential quarter.
Two catalysts drove this bullishness. First, similar to Plug Power, billionaires were likely responding to the November elections. Former President Donald Trump had no intention of legalizing cannabis at the federal level in the United States. Comparatively, Biden plans to decriminalize and reschedule cannabis. We might even see marijuana legalized at the federal level if lawmakers like Senate Majority Leader Chuck Schumer get their way. Long story short, legalization would allow Aphria to enter the more lucrative U.S. pot market.
The second factor was probably the announced merger with Canadian licensed producer Tilray (TLRY). Combining with Tilray should create the largest cannabis company by total sales, and is expected to result in lower production costs and other key synergies.
Considering Tilray's cash burn and ongoing losses, it very much needed to find a partner. However, my suspicion is that it's going to take multiple quarters to realize these synergies and turn Tilray's struggling operations around. That makes Aphria quite pricey at the moment.
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Johnson & Johnson
Lastly, the largest publicly traded healthcare stock found itself on billionaires' buy lists during the fourth quarter. A little north of 804,000 shares of Johnson & Johnson (JNJ 0.05%) were added by Ray Dalio's Bridgewater Associates, while Ken Griffin's Citadel Advisors scooped up almost 614,000 shares. As a whole, 13F filers added 111 million shares of J&J to their portfolios in the fourth quarter.
A lot of optimism surrounding Johnson & Johnson likely revolves around its development of a coronavirus disease 2019 (COVID-19) vaccine. J&J's treatment option only requires a single dose, and was shown to be 72% effective in a study conducted in the U.S. The most important aspect of J&J's late-stage study is that its vaccine was 100% effective at preventing COVID-related hospitalization and death at day 28. It's expected that J&J will be granted emergency-use authorization for its vaccine.
Beyond the pandemic, Johnson & Johnson has increasingly focused on expanding its pharmaceutical portfolio. Although brand-name drugs only have a finite period of exclusivity, they're currently providing the bulk of revenue, margin, and cash flow growth for the company.
If not for the pandemic, Johnson & Johnson would still be riding a more than three-decade-long streak of adjusted operating earnings growth. Expect a new streak to start up in 2021, as this is one of the soundest healthcare stocks on the planet.
