With many top stocks on sale right now, every investor needs to know about one of the best-kept secrets on Wall Street.
Within 45 days of the last day of the previous calendar quarter, professional money managers who oversee $100 million or more in assets are required to disclose their holdings on Form 13F with the Securities and Exchange Commission. This public disclosure requirement gives others (including retail investors) the ability to peek at the recent moves of some of the most successful investors in the world, and it can be super valuable in times like these.
When market volatility hits abnormal extremes like it has in the last few months, it's not surprising to see some of these top investors picking up their buying and selling activity. Let's look at two popular stocks that could be significantly undervalued right now and have gotten some attention from top-level investors.
1. Meta Platforms
Facebook operator Meta Platforms (META -2.00%) has seen its stock plummet this year over several issues. The war in Ukraine and uncertainty about the U.S. economy have caused advertisers to rethink their spending budgets, hurting social media companies that generate revenue primarily from advertising.
Facebook has also taken a hit from Apple's privacy changes in iOS that restrict app developers from tracking users' activity for the purpose of delivering more-relevant ads.
Investors want to see more of the 20%-plus revenue growth that Meta Platforms was reporting through 2021, but the company reported top-line year-over-year growth of just 7% in the first quarter. Wall Street is more focused on making money now, so regardless of how great Meta's prospects look over the long term, the stock is down primarily due to a weak outlook for growth in 2022. This gives patient investors a great opportunity to buy this tech giant at a deeply discounted valuation.
A few investors adding to their position in the first quarter were Pat Dorsey of Dorsey Asset Management, Michael Burry of Scion Asset Management (who famously predicted the 2008 mortgage crisis), and the investment firm Ruane, Cunniff & Goldfarb, which manages the Sequoia Fund.
These investors obviously believe Meta is undervalued and should trade for a much higher price. Speaking to the company's long-term value, CEO Mark Zuckerberg mentioned during the first-quarter earnings call that more people are using the company's services than ever before. Meta's apps, including Facebook and Instagram, are massively popular and still give the company opportunities to grow, especially as more users are starting to shop in online stores through Instagram.
The company is directing more investment toward short-form video, which is more in demand by users, and also investing more in artificial-intelligence-driven recommendation models to deliver more relevant results for users and advertisers over the next few years. "On the Family of Apps side, I am confident that we can return to better revenue growth rates over time and sustain high operating margins," Zuckerberg said.
Meta also offers additional upside potential if Zuckerberg's vision of the metaverse comes to fruition. It's for these reasons that the sell-off in the shares looks like a great buying opportunity.
2. PayPal Holdings
Share prices of PayPal Holdings (PYPL -0.85%) are down 57% year to date. The digital payments leader is experiencing slowing growth, which can be attributed to soft e-commerce spending compared to a year ago when people were receiving stimulus checks. More people are also returning to local stores to shop, which is dampening the volume that PayPal normally sees from people using its online checkout services.
In the first quarter, PayPal reported growth in total payment volume of just 13% year over year, which is well below the 20%-plus numbers that the company has consistently reported for many years. The company generates revenue from fees charged on each transaction, so revenue growth has decelerated, too.
But there is still a lot to like here if you're focused on the long-term value of the business -- and the most successful managers usually buy and sell stocks with a focus on a company's long-term intrinsic value. PayPal is well entrenched in the digital payment landscape, with 426 million active customer accounts. It also has 34 million businesses using its services for checkout.
PayPal has a ubiquitous brand in e-commerce, which no one thinks is going to stop growing over the coming decades. Research from eMarketer projects e-commerce spending to grow 50% to $7.4 trillion by 2025, and PayPal will almost certainly ride that wave, along with its many competitors in mobile payments.
This outlook for growth explains why several notable value investors were buying shares in the first quarter, including Pat Dorsey, David Rolfe of Wedgewood Partners, and David Katz of Matrix Advisors Value.
CEO Dan Schulman said he believes that PayPal will bounce back and deliver more growth. During the recent earnings call, he mentioned that we're going to see economic cycles come and go, but "that does not take away at all the fundamental secular tailwinds that we're going to benefit from long term, which are the increasing proliferation of e-commerce and digital payments."
The stock's sell-off means the market has much lower expectations for growth. This is setting up the potential for PayPal to deliver better-than-expected results over the next year, which could make it a great investment from these lows.