Every quarter, professional investment managers that oversee at least $100 million in assets are required to disclose their holdings on Form 13F with the Securities and Exchange Commission (SEC). These filings provide a treasure trove of ideas that have already passed some high-level filters.
With many stocks well off their highs, there is no better time to check what the best investors were recently buying. Three Motley Fool contributors recently identified three stocks from some of the world's best-known managers that could be great values right now. Here's why they like Wayfair (W 5.53%), Amazon (AMZN 1.41%), and Booking Holdings (BKNG 2.04%).
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Ruane, Cunniff & Goldfarb bought more Wayfair stock in the first quarter
John Ballard (Wayfair): Shares of the leading online home goods store have fallen 86% after reaching an all-time high of $369 in 2021. Wayfair's broad selection, investments in logistics infrastructure, and growing supplier base has led to phenomenal growth. Since 2015, revenue has increased from $2.3 billion to $13.7 billion.
However, the reopening of the economy hasn't been kind to the company's sales momentum. In the first quarter of this year, revenue fell 13.9% over the year-ago quarter, which has caused much skepticism on Wall Street over Wayfair's growth prospects. But one of the most respected investment firms sees value in the stock price.
Since 1970, Ruane, Cunniff & Goldfarb has led the Sequoia Fund to an annualized return of 13.6%, beating the S&P 500's return of 11.3% over that period. The firm originally bought shares of Wayfair in the third quarter of 2019. The run-up in the stock during 2020 caused the disciplined value investing firm to sell some shares, but as the stock fell over the last year, Ruane, Cunniff started buying again.
The stock is currently trading at its lowest price-to-sales (P/S) ratio since Wayfair's initial public offering in 2014. At a P/S multiple of 0.41, the market is essentially pricing in the expectation for zero growth over the long term. That expectation might be way off the mark for a company that was growing revenue around 40% per year before the pandemic.
W PS Ratio data by YCharts
The growth of e-commerce is slowly spilling over to the home goods category, which management estimates is worth over $800 billion per year and expected to grow to $1.2 trillion by 2030.
What gets overlooked is that Wayfair is a tech company. It has more than 3,000 software engineers, designers, product managers, and data scientists building the next evolution of shopping online. Management's investments in 3D modeling could pay off in a future where people can virtually render their home while shopping for new furniture on Wayfair.
Its track record of growth, addressable market opportunity, and technology investments say this stock is likely worth far more than 0.41 times sales.
David Tepper increases stake in Amazon
Parkev Tatevosian (Amazon): Interestingly, Appaloosa Management's David Tepper recently added a meaningful serving of Amazon shares to the portfolio. The billionaire money manager is undoubtedly attracted to the e-commerce business-turned-everything store for its vast potential and excellent value. Amazon's stock is down 42% off its high as other investors grow concerned about the effects of declining e-commerce sales on its business. Not Tepper, who increased his position by 21% to a total value of $277 million.
In Amazon's most recent quarter, which ended on March 31, online sales fell by 3% from the same time the year before. This segment thrived at the pandemic's onset when folks were trying to avoid shopping in person. The trend is reversing now that vaccinations are more widespread. But Amazon's e-commerce business is not likely what's attracting Tepper. It is more likely Amazon's robust web services business, which grew revenue by 37% in its most recent quarter and generated $6.5 billion in operating income.
Also attracting interest could be Amazon's robust advertising business, which grew revenue by 25% from the same quarter the prior year and is more profitable than e-commerce. Overall, Amazon's more profitable segments are growing much faster than the business, where the value is. E-commerce could eventually recover and supplement the healthy profits from AWS and advertising, but that's not required to provide a solid return.
AMZN PE Ratio data by YCharts
Making the investment more enticing is that Amazon is trading at its cheapest price-to-earnings and price-to-sales ratios in years (see chart above). It's no wonder that billionaire investor David Tepper is increasing his stake by 21%.
The man who predicted the 2008 crash likes Booking Holdings
Jennifer Saibil (Booking Holdings): Michael Burry became famous as one of the protagonists of Michael Lewis' best-seller (and subsequent film hit) The Big Short. Recently, he's made headlines for shorting Apple stock. At the same time, he opened a few new positions for his wealth management firm, Scion Asset Management, including Booking Holdings.
The premise for investing in Booking Holdings right now is pretty obvious. The company runs six travel-related businesses: Booking.com, Priceline, Agoda, Rentalcars.com, Kayak, and OpenTable, and travel is on its way back. With its diversified business, investing in Booking, as opposed to any other travel company, is a hedged bet in favor of travel resuming.
There were both positives and negatives in the 2022 first quarter, although progress was visible. Gross travel bookings increased 129% year over year to $27.3 billion, and revenue increased 136% to $2.7 billion. That was still below 2019 levels, and net loss ballooned from $55 million last year to $700 million this year. The company is investing in growing its business, specifically its travel payments platform, and a travel resurgence is likely to wipe out pandemic declines and generate a return to profitability.
Booking holdings hasn't been a market-beater. Its stock has gained only 15% over the past five years while the S&P 500 has gained 66%. However, that's almost entirely due to the pandemic kind of ruining its business over the past two years; prior to that time it was outperforming the broader market.
Burry is known to be a trader, not a long-term holder. He might be banking on the travel industry coming back to give this stock a lift in the near term. However, the company was growing nicely before the pandemic, and is likely to rebound soon and continue its upward trajectory. Its wide business scope makes it more resilient than other travel stocks, creating a long-term opportunity.
