In case you missed it, arguably the biggest deadline of the third quarter arrived on Monday, Aug. 16. This was when institutional investment firms and hedge funds with at least $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission (SEC).
Put simply, a 13F provides a snapshot of what institutional investors and hedge fund managers have been buying and selling over the previous quarter (in this instance, 4/1 through 6/30). Even though the information contained in a 13F is dated, it can still provide an abundance of clues as to what successful money managers have been buying or avoiding.
After perusing these SEC filings on 13F aggregator WhaleWisdom.com, it became apparent that there were five popular stocks billionaires couldn't sell fast enough in the second quarter.
Although anything having to do with alternative-power vehicles has seemingly been red-hot for years, billionaires headed for the exit in the second quarter when it came to hydrogen fuel-cell solutions provider Plug Power (PLUG -3.13%). Larry Fink's BlackRock and John Overdeck's and David Siegel's Two Sigma Investments were two of the heaviest sellers, with respective share sales of nearly 15 million and 1.79 million. The latter sale for Two Sigma removed Plug from its investment portfolio.
One reason billionaires seem to have taken a step back was Plug Power's admission in mid-March that it would need to restate multiple years of income statements. Even though the company stuck by its gross billings forecast and the restatement had no impact on its cash balance, it still potentially damaged the reputation of management.
The other likely concern has to do with the company's valuation. While alternative energy will undoubtedly power vehicles of the future, there will also be bumps in the road during this multidecade transition. As of now, Plug Power isn't profitable and hasn't exactly demonstrated that it'll be able to scale its technology on a broad level.
Though it's an exciting company, Plug Power has a lot to prove at a more than $14 billion market cap.
Billionaire money managers also wanted little to do with clinical-stage biotech stock Inovio Pharmaceuticals (INO -4.80%) in the second quarter. Philippe Laffont's Coatue Management jettisoned all 3.13 million shares it owned, with Israel Englander's Millennium Management following suit. Englander's firm sold 127,702 shares to completely exit its position.
The pessimism surrounding Inovio Pharmaceuticals probably has to do with its numerous setbacks in developing a coronavirus disease 2019 (COVID-19) vaccine. Initially, it looked as if INO-4800 would be among the leading contenders in the vaccine race. However, a partial clinical hold was placed on the company's phase 2/3 trial last year as the Food and Drug Administration (FDA) sought additional info on INO-4800 and Inovio's delivery device, known as Cellectra. Ultimately, the U.S. pulled phase 3 trial funding for INO-4800, which is forcing the company to conduct is phase 3 trial outside the U.S.
The other issue here is that, over more than four decades, Inovio has yet to have a drug approved by the FDA. Inovio never struggles to develop promising clinical compounds, but it's yet to deliver an approved drug. Until such time as Inovio has a consistent revenue generator, I'm inclined to side with billionaires like Laffont and Englander that this stock should be avoided.
Potentially the least-surprising big-time sell during the second quarter is video game and accessories retailer GameStop (GME -6.83%). Aggregate 13F filers reduced their net holdings by 11%, with BlackRock and Jeff Yass's Susquehanna International respectively cutting their stakes by roughly 2.02 million shares and 93,758 shares.
GameStop is part of the meme stock phenomenon -- i.e., it's valued more for the optimism it instills in retailer investors on social media than its operating performance. Thankfully, the company's management team has been able to use its new-found success to sell stock on multiple occasions. The capital it's raised will wipe its balance sheet clean of debt and give the company more-than-enough cash to see its business-transformation efforts through.
Unfortunately, GameStop has been and will likely remain an operating mess. The company took far too long to recognize that gaming was going digital, and it's now left with a brick-and-mortar store base that's dragging down its e-commerce potential.
More than likely, GameStop will have to continue closing stores to reduce its expenses in order to push its way back into the profit column. Eventually, the company may be successful, but it's a long way from validating a nearly $12 billion market cap.
New Oriental Education
There was also a very clear aversion by billionaires to China-based stocks during the second quarter. The kingpin of China's private-education market, New Oriental Education (EDU -3.34%), was heavily sold by aggregate 13F filers and select billionaire money managers. Chase Coleman's Tiger Global Management, BlackRock, and Jim Simons' Renaissance Technologies respectively dumped about 9.22 million shares, 5.4 million shares, and 5.14 million shares in Q2.
There had been concern for some time that Chinese regulators would begin cracking down on select industries for widening the wealth gap in China. The private-education industry has become the leading target of sweeping reforms.
In July, the Chinese government announced it would ban all for-profit private-education companies, which effectively zaps New Oriental Education's primary revenue generator (K-12 tutoring services). In other words, the fears of money managers in Q2 became a reality in the third quarter.
Worse yet, it's not clear if New Oriental Education even has a future as a public company. As my Foolish colleague Leo Sun notes, the company could shift its platform to target adult language classes, its bookstores, and non-subject classes. The problem is that these other ventures generate menial revenue compared to K-12 tutoring services. In short, investors should follow the big money and avoid New Oriental Education.
In case you missed that last point, billionaires really shied away from Chinese stocks during the second quarter. This includes one of the most popularly held China stocks, Baidu (BIDU 4.68%).
Aggregate 13F ownership in Baidu fell 12% in Q2, with a trio of successful billionaire money managers selling shares. Renaissance Technologies, Ken Griffin's Citadel Advisors, and Susquehanna respectively sold 3.08 million shares, 1.27 million shares, and about 846,000 shares.
The concern surrounding Baidu likely has to do with the broad-based crackdown by regulators on select groups, including tech stocks. This selling likely ramped up after Chinese regulators tagged Alibaba with a record $2.8 billion anti-monopoly fine in April. Considering that Baidu operates as an internet search-engine monopoly within China, money managers may have felt that it would be next on regulators' radar.
Whereas I feel billionaires are justified in their pessimism on the preceding four stocks, Baidu is the one where I respectfully disagree. Baidu's dominance of internet search in China is unlikely to change anytime soon, and the company's investments in artificial intelligence (AI) and cloud services are yielding rapid growth. In the second quarter, growth from AI and cloud services helped boost non-marketing revenue by 80% from the previous year.
Though the near term could be choppy, Baidu's long-term prospects remain bright.