Have you ever wondered what the brightest minds on Wall Street were up to or thinking? Well, wonder no longer.
Every quarter, investment firms and hedge funds with more than $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission (SEC). This SEC filing effectively provides a snapshot of a firm's or fund's holdings at the end of the most recent quarter. Even though 13Fs have drawbacks -- they're providing a snapshot that's often six week old -- they still offer immense value by allowing professional and retail investors to see what trends and stocks have piqued the interest of the world's most successful investors.
During the fourth quarter, the smartest money managers couldn't stop buying the following five stocks.
David Tepper's Appaloosa Management: Amazon
Billionaire activist-investor David Tepper only holds 45 stocks in his Appaloosa Management hedge fund. But during the fourth quarter, e-commerce giant Amazon (AMZN 0.25%) was one of Tepper's biggest additions. The 56,200 shares purchased increased Appaloosa's stake by 39%, which made Amazon the second-largest holding in Tepper's fund.
Most people are very familiar with Amazon's greatest revenue generator: its marketplace. According to an eMarketer report from March 2020, Amazon's marketplace was on track to control almost 40% of U.S. online sales in 2021. Think about that for a moment -- $0.40 of every $1 spent online in the biggest consumption-dependent economy in the world is routing through Amazon. This dominance has helped Amazon easily surpass 150 million Prime subscribers worldwide.
However, Amazon's future growth is reliant on its cloud infrastructure service segment, Amazon Web Services (AWS). Despite the steepest economic downturn in decades, AWS grew sales by 30% in 2020 and now tallies $51 billion in annual run-rate revenue, based on fourth-quarter sales of $12.7 billion. With margins that trounce retail, AWS is Amazon's ticket to explosive growth in its operating cash flow.
Chase Coleman's Tiger Global Management: Sea Limited
Chase Coleman was a busy bee during the fourth quarter. The billionaire and his investing team added to or started positions in 28 stocks. But one of the biggest buys for Tiger Global Management was the 867,265-share addition to Sea Limited (SE 3.60%). This 10% increase to Coleman's existing stake has lifted Sea to Tiger Global's fifth-largest holding by market value.
Singapore-based Sea has caught the eyes of a lot of successful investors due to its three exceptionally fast-growing segments: Gaming, e-commerce, and digital financial services. Gaming is currently the most profitable. Last year, with more folks stuck in their homes due to the pandemic, the number of paying gamers rose from 9.4% of all users to 12%. In total, quarterly paying users more than doubled from the prior-year period.
But the long-term buzz with Sea has to do with its Shopee online platform and its mobile wallet services. Shopee is primarily targeting developing and emerging market regions with a burgeoning middle class. Meanwhile, some of the Southeastern Asian regions Sea operates in are somewhat underbanked, providing plenty of runway for digital wallet services.
According to Wall Street, Sea Limited has the ability to triple its sales over the next three years.
John Overdeck's and David Siegel's Two Sigma Investments: Facebook
Billionaires John Overdeck and David Siegel run a highly diversified fund in Two Sigma Investments. The fund holds well over 3,500 securities and manages close to $35 billion in assets. But one of the biggest buys in Q4 for Overdeck and Siegel was social media kingpin Facebook (FB 1.18%). The nearly 820,000-share purchase increased Two Sigma's stake by over 1,100% and made Facebook the fund's 13th-largest holding.
As with Amazon, the lure of FAANG stocks is their industry dominance. Facebook ended 2020 with 2.8 billion monthly active users visiting its namesake site and 3.3 billion family monthly active people (a figure that takes into account unique monthly visits to other owned assets). Over 40% of the world's population is visiting a Facebook-owned social media platform each month, which is music to the ears of advertisers. Whether they're angling for a broad or targeted audience, Facebook is the clear platform they head to.
It's also crazy to think about Facebook still being in the relatively early innings of its growth. It's yet to monetize WhatsApp or Facebook Messenger in any meaningful way, yet these are top-five social platforms in terms of monthly visits.
Facebook is also expected to push payment options on its namesake platform and is likely to introduce other features to broaden its revenue stream. In other words, it looks like a bargain.
Dan Loeb's Third Point: Alphabet
Billionaire activist-investor Dan Loeb added to or started positions in 44 stocks during the fourth quarter. That's noteworthy, because his Third Point hedge fund only holds stakes in about six dozen securities. In particular, Loeb came across as especially bullish on Alphabet (GOOGL -1.34%)(GOOG -1.29%). Loeb's Third Point opened a 260,000-share stake in the Class A shares (GOOGL) in Q4, which made Alphabet the fund's eighth-largest holding.
Keeping with the FAANG stock theme, Alphabet is absolutely dominant when it comes to internet search. Its subsidiary Google has controlled between 91% and 93% of global internet search market share dating back for more than a year, according to GlobalStats. Just as advertisers rush to Facebook because of the depth of its social media audience, Google's dominance in internet search has advertisers clamoring for prime placement.
Beyond internet search, Alphabet has a duo of rapidly growing segments. YouTube has become one of the three most-visited social platforms in the world, and its annual run-rate ad revenue (based on Q4 sales) has nearly reached $28 billion. Meanwhile, Google Cloud, a direct competitor to AWS, grew by 47% in the fourth quarter from the prior-year period. Though Alphabet is investing aggressively in Cloud now, it should be a core generator of operating cash flow by mid-decade.
Warren Buffett's Berkshire Hathaway: Verizon
Finally, Warren Buffett's Berkshire Hathaway (BRK.A 0.10%)(BRK.B -0.03%) added to or opened a position in 10 stocks during the fourth quarter. None was a bigger buy than telecom-giant Verizon (VZ 0.88%), with Berkshire adding over 146.7 million shares (about $8.6 billion in market value as of Dec. 31, 2020).
Why Verizon? The answer might lie with the safety in numbers behind this investment. Verizon has a low beta, which means it's not very volatile. At the same time, it's paying out a rock-solid 4.4% annual dividend yield. With Berkshire Hathaway sitting on a mountain of cash that stood at $145 billion at the end of September, Buffett and his team may be thinking that generating 4.4% annually in a steadily profitable stock like Verizon is a smart move, rather than letting its cash earn far less from U.S. Treasury bonds.
Furthermore, Verizon may have upside catalysts tied to the rollout of 5G networks. It's been a decade since consumers and businesses have benefited from faster download speeds. This suggests there's a lot of pent-up demand for technology upgrades. Since Verizon's juiciest margins are tied to its wireless segment, an uptick in data consumption can only be a positive for the company's operating margin.