Every quarter, investment firms and corporations that manage a minimum of $100 million in assets are required to report their holdings on Form 13F with the Securities and Exchange Commission. Checking what the best investors are buying is worth your effort, for obvious reasons.
Daniel Loeb at Third Point, Charlie Munger at Daily Journal, and Warren Buffett at Berkshire Hathaway (BRK.A -0.70%) (BRK.B -1.09%) are three billionaire investors worth following, as they each have a long record of beating the market with their picks. True to their value investing bent, these investors have recently taken advantage of uncertainty around certain leaders to grab some deals. Let's examine these picks, and why they might be worth considering at these levels.
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Activision Blizzard
Daniel Loeb is the CEO and founder of Third Point, a hedge fund based in New York that oversees $19 billion in investor assets, according to Forbes. Third Point's Offshore Fund has delivered an annualized return of 15.5% per year since its inception in December 1996, which is above the historical 10% average rate of return for the broader market. According to its website, Third Point seeks to "identify situations with a recognizable catalyst which we anticipate will unlock value."
In the third quarter, Third Point bought 2 million shares of Activision Blizzard (ATVI). This top gaming stock has also gained interest from other fund managers recently, including Lee Ainslie at Maverick Capital.
Activision Blizzard is one of the leading game producers in a $175 billion industry. It has a long history of growing profits and delivering market-beating returns to shareholders. But the stock took a nosedive toward the end of the year following a lawsuit and investigation by the Securities and Exchange Commission over discriminatory treatment in the workplace. This ultimately resulted in the company announcing the delay of two important upcoming releases that were expected to come out in 2022 and drive near-term growth.
What hasn't changed at Activision Blizzard is the passion players have for their favorite games. The Blizzard studio, which appears to be the main target of the lawsuit, reported 26 million monthly active users in the third quarter -- flat over the previous quarter.
Third Point likely sees Activision Blizzard as an undervalued entertainment company ahead of two major releases that should serve as key growth catalysts. The release of Overwatch 2 and Diablo 4 should probably land sometime in 2023. In the near term, management said in the Q3 earnings report that Diablo: Immortal on mobile is still on track for release in the first half of 2022.
The stock traded as high as 25 times earnings estimates earlier in 2021. After the sell-off, it now trades at a forward price-to-earnings ratio of 16.5, and pays a dividend yield of 0.74%.
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Alibaba
Charlie Munger has long been Warren Buffett's business partner, serving as vice chairman of Berkshire Hathaway for decades. Munger is also the chairman of Daily Journal, a media and technology company, where Munger lends his investing skills. Munger ran his own investing partnership from 1962 to 1975, where he earned a compound annual return of 19.8%.
In Daily Journal's most recent 13F filing for the fourth quarter, it disclosed only five holdings, including Chinese tech giant Alibaba (BABA 1.75%). Alibaba's share price has been cut in half over the last year amid the crackdown on large internet platforms by Chinese regulatory authorities. Alibaba has divested some media assets and faces increasing scrutiny in the U.S., too.
The SEC recently finalized a rule that paves the way to delist foreign companies that don't comply with requests by auditors for three consecutive years of data. This means U.S. shareholders could permanently lose their investments if they are unable to execute trades once the company delists from U.S. exchanges. Some companies can offer to compensate shareholders with share buybacks, but it's unclear what options U.S. investors would have if Alibaba is forced to delist its shares.
Obviously, Munger sees a deeply undervalued business and sees the risks as overblown. The Daily Journal doubled its Alibaba stake in the fourth quarter.
The stock trades at just 15.9 times forward earnings estimates. That is a bargain for one of the leading e-commerce and cloud service providers in the world. In the most recent quarter, Alibaba posted revenue growth of 29% year over year.
Alibaba ended the quarter with 1.24 billion active customers across its e-commerce marketplaces and has a goal of growing to 2 billion over the long term. Still, investors should tread with caution and do their own due diligence to decide if this stock is right for them.
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Chevron
Warren Buffett has delivered Berkshire Hathaway shareholders an annualized return of 20% per year since taking over the company in 1965, so it's always worth it to see what the Oracle of Omaha is buying.
Berkshire Hathaway first reported a position in Chevron (CVX -0.16%) in the third quarter of 2020. Shares traded as low as $70, or nearly half the current share price, during Q3 of last year. However, Buffett has been steadily adding to the Chevron stake even as the share price rebounded. At the end of Q3 2021, Berkshire Hathaway held 28.7 million shares, which would be worth $3.6 billion at the current quote.
After a decade of struggling to generate adequate returns on invested capital due to falling oil prices, the recent surge in spot prices has breathed new life into Chevron. The third-quarter earnings report showed total profits of $10.5 billion through the first nine months of the year, which reverses the year-ago loss of $4.9 billion. "Third-quarter earnings were the highest since first quarter 2013 largely due to improved market conditions, strong operational performance, and a lower cost structure," CEO Mike Wirth said in the Q3 press release.
Buffett's career shows an affinity for large, profitable energy companies. He accumulated a large stake in ConocoPhilips between 2006 and 2008, and he turned a $488 million investment in PetroChina made during 2002 and 2003 into $4 billion when he sold out at the market peak in 2007.
The Chevron investment is interesting considering the secular shift toward green energy. However, Buffett noted at the 2021 Berkshire shareholders' meeting that the world will need hydrocarbons for a long time, and "we'll be glad we've got them." He clearly sees Chevron's intrinsic value as higher than its recent share price, and he's already earned an excellent return on the stock so far.
Income investors will love Chevron's dividend record. Despite volatile oil prices, the dividend has increased a total of 65% over the last 10 years. Chevron paid out 70% of its free cash flow over the last year, bringing the current dividend yield to an above-average 4.25%.
