It's been a volatile year on Wall Street. After hitting record-closing highs during the first week of January, both the iconic Dow Jones Industrial Average and widely followed S&P 500 have entered correction territory. Meanwhile, the growth-driven Nasdaq Composite is firmly in a bear market.
However, volatility isn't enough to chase billionaire money managers to the sidelines. Based on a handful of early Form 13F filings with the Securities and Exchange Commission (at the time of this writing), three ultra-popular stocks were bought hand over fist during the first quarter by wildly successful billionaires.
Based on 13F filings, billionaire Jim Simons of Renaissance Technologies added 811,900 shares of Tesla during the first quarter, which more than doubled his funds' stake in the company. The nearly $1.7 billion tied up in shares of Tesla, as of March 31, 2022, makes it Renaissance's second-largest position.
The likeliest reason for Simons to up his funds' stake in Tesla is the company's outperformance in the wake of supply chain challenges. Despite the auto industry contending with semiconductor chip shortages and other global supply chain issues, Tesla managed to produce more than 305,000 EVs during the first quarter. After producing 930,422 EVs in 2021, Tesla looks to be on track to easily eclipse the psychologically important 1 million vehicle mark this year.
Simons' bullishness might also have to do with Tesla's expanding automotive margin and rapidly growing net income. Over the trailing year (ended March 31, 2022), Tesla's automotive margin jumped by more than six percentage points to 32.9%, and its adjusted net income surged from $1.05 billion to $3.74 billion.
However, the most dominant EV company has its fair share of flaws as well. For example, even though Tesla's net income has been climbing, the company had been reliant, until recently, on selling regulatory emission credits (RECs) to other automakers to generate a profit. Over the trailing-12-month period, more than 19% of the company's generally accepted accounted principles (GAAP) income derives from RECs. That's not ideal.
What's more worrisome is the company's valuation with supply chain challenges finally rearing their head. Last week, it was reported that parts shortages caused Tesla to halt most of its production at the Shanghai gigafactory. With production now highly unlikely to hit prior forecasts, Tesla's projected price-to-earnings ratio of 62 for 2022 sticks out like a sore thumb.
Even though Warren Buffett's company, Berkshire Hathaway (BRK.A 0.55%) (BRK.B 0.50%), has yet to file its 13F with the Securities and Exchange Commission at the time of this writing, the company's first-quarter operating results showed that the Oracle of Omaha had significantly upped his stake in Chevron. As of Dec. 31, 2021, Berkshire Hathaway held approximately 38.25 million shares of Chevron, with a value of $4.5 billion. But as of March 31, 2022, Berkshire's report showed a fair value on Chevron of $25.9 billion. This implies that over 136 million shares of Chevron were purchased during the first quarter.
If I had to venture a guess as to why Buffett piled into Chevron, I'd surmise it has to do with inflation and Chevron's dividend.
Russia's invasion of Ukraine is an event that could challenge global energy supply chains for years to come and keep the price of crude oil and natural gas well above historic averages. Even though Chevron is an integrated oil and gas company, its upstream operations (i.e., drilling and exploration) produce the juiciest margins.
This is a good time to mention that Chevron's integrated operating model is a big key to its success. If and when oil and natural gas prices do decline, Chevron can lean on the highly predictable cash flow of its midstream segment (i.e., pipelines and storage), or count on its downstream refineries and chemical operations to benefit from lower input costs. Having midstream and downstream operations has helped the company weather a number of serious economic downturns.
But it's Chevron's dividend that might have been the greatest lure for Buffett and his investing team at Berkshire Hathaway. Chevron's 3.4% yield is far more palatable than having a mountain of cash sitting on the sidelines losing purchasing power due to inflation. It also doesn't hurt that Chevron announced plans to repurchase $10 billion of its own stock before the end of the year.
Based on an early 13F filing, billionaire Ken Fisher of Fisher Asset Management added 930,290 shares of Netflix, ultimately upping his funds' stake to nearly 6.36 million shares by the end of the first quarter. Buying these shares moved Netflix to Fisher Asset Management's 17th-largest holding.
If you're wondering why Fisher made this move, the answer probably has to do with his funds' focus on buying established growth names. Netflix has a storied history of growing sales by a double-digit percentage, and has consistently been the most-popular streaming subscription service in the U.S.
Additionally, Netflix has leaned on its vast library of proprietary content and movies to gain new subscribers and keep existing members happy. With international markets still largely untapped from a streaming perspective, Netflix would appear to have a long growth runway overseas, as well as ample pricing power domestically.
However, Netflix's streaming dominance has come under pressure in recent years, and various weaknesses in the company's operating model have recently come to the forefront. For instance, the barrier to entry in streaming isn't high enough to keep competing platforms from trying to gobble up Netflix's market share. Despite debuting its Disney+ streaming platform less than three years ago, Walt Disney has built up its subscriber base to 137.7 million. That compares to Netflix, which took about a decade to reach the same number of streaming subscribers as Disney.
Netflix is also notorious for its free cash outflows. Expanding into overseas markets has been an expensive, but necessary, venture. Unfortunately, with the company expecting subscribers to decline by as many as 2 million in the second quarter as streaming competition picks up and consumers become more value-oriented with their spending, Netflix's lack of consistent positive free cash flow stands out in a bad way.
Until Netflix can reestablish subscriber growth and get password-sharing under control, it's not worth your money, in my view.