It's been a trying year on Wall Street. Whether you've been investing for a year or decades, you're probably underwater since 2022 began. That's because the iconic Dow Jones Industrial Average, widely followed S&P 500, and growth stock-driven Nasdaq Composite (^IXIC -2.05%), have respectively shed as much as 19%, 24%, and 34% of their value since hitting their record-closing highs. This firmly places the S&P 500 and Nasdaq in a bear market.
However, big declines in the broader market rarely, if ever, scare successful money managers away from putting money to work. Just ask billionaire Ken Griffin of Citadel.
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Griffin's hedge fund had more than $50 billion in assets under management, as of May 2022, and over 11,000 positions at the end of the first quarter, according to Citadel's Form 13F filing with the Securities and Exchange Commission. While diversity and hedging -- Citadel regularly uses put and call option strategies as hedges on their positions -- are keys to Griffin's success, it's worth noting that he and his team piled into a number of high-profile stocks during in the first quarter.
What follows are four stocks Ken Griffin bought hand over fist as the Nasdaq plunged.
Bank of America
The first well-known company Ken Griffin piled into as the stock market plunged is money-center giant Bank of America (BAC 3.35%). Though Citadel has owned shares of BofA for more than a decade, the nearly 4.7 million shares purchased in the first quarter increased its stake by a whopping 149%, relative to the number of shares held at the end of 2021.
The most logical explanation behind this increase is Bank of America's interest rate sensitivity.
With the U.S. inflation rate hitting a 40-year high of 8.6% in May, the Federal Reserve has been left with no choice but to get aggressive with its interest rate hikes. BofA happens to be the most interest-sensitive of the big banks. When interest rates rise, it generates more net-interest income from its outstanding variable-rate loans.
According to the company's first-quarter earnings presentation, a 100-basis-point parallel shift in the interest rate yield curve was estimated to generate $5.4 billion in added net-interest income over 12 months. The Fed has already moved 150 basis points, and we're only halfway through 2022.
The other lure for Bank of America is its digitization efforts. In the past three years, the number of active digital users has grown from 37 million to 42 million. More importantly, total sales completed online or via mobile app rose to 53% in the March-ended quarter from 30% in the comparable quarter three years ago. Digital sales are considerably more cost-effective for bank stocks.
Broadcom
Ken Griffin and his investing team also used the Nasdaq bear market as an opportunity to bulk up Citadel's position in semiconductor solutions company Broadcom (AVGO -4.31%). Citadel bought more than 325,000 shares in the first quarter, which increased Griffin's company's stake by 212% from the end of 2021.
Although semiconductor stocks are cyclical and the winds of a possible recession are blowing, Broadcom does offer a number of competitive advantages that likely enticed Griffin and his team to more than triple Citadel's stake in the company.
For example, Broadcom's biggest catalyst is the 5G wireless revolution. Telecom companies are investing billions of dollars to upgrade their wireless infrastructure to handle 5G speeds. That's great news for Broadcom, which provides 5G wireless chips and other accessories found in next-generation smartphones. Consumers and businesses steadily replacing their devices should fuel Broadcom's sales growth for years.
Griffin might also be excited about the transparency of Broadcom's operating cash flow. This is a company that ended 2021 with a record backlog of $14.9 billion, and was booking orders well into 2023. Even a short-term recession won't be enough to slow Broadcom's steady sales and profit growth.
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Western Digital
Though its market cap is nowhere near as large as the other companies on this list, Ken Griffin bought shares of data storage solutions company Western Digital (WDC -3.32%) hand over fist in the first quarter. All told, Citadel purchased almost 1.67 million shares of Western Digital, which increased its sequential quarterly holding in the company by about 2,350%!
Like BofA and Broadcom, Western Digital is a cyclical company. When recessions strike, it usually struggles. To add to that, Western Digital and its peers have historically oversupplied the data-storage market when their pricing power improves.
What might have intrigued Ken Griffin and Citadel's top investors is persistent global supply chain issues. Whereas supply chain shortages and historically high inflation are hurting most businesses, it's all but ensured that Western Digital and other data-storage providers can't flood the market with their products. This is propping up both demand and the price of storage solutions at a time when Western Digital is trading at a microscopic 5 times Wall Street's forecast earnings for 2023.
Furthermore, Western Digital appears to be in the driver's seat to capitalize on growing data center demand, especially in the wake of the pandemic. For years, the company's hard-disk drives (HDDs) have been data center staples. However, solid-state drives using NAND flash memory are more than likely the future. NAND memory offers better storage capacity and is less costly than traditionally HDDs.
Home Depot
The fourth stock billionaire Ken Griffin piled into hand over fist as the Nasdaq plunged is do-it-yourself home improvement chain Home Depot (HD 0.74%). The more than 902,000 shares bought in the first quarter increased Citadel's stake in the company by 426% from the sequential fourth quarter.
Griffin's fascination with Home Depot probably had to do with the fact that the housing market held up particularly well amid adverse economic conditions in the first quarter. It should be noted that mortgage rates have climbed significantly over the past three months, which has begun to cool the price for new and existing homes for sale.
However, Home Depot can be a smart play in virtually any environment. For instance, it benefited from years of strong contractor demand as home prices climbed and lending rates remained near historic lows. With mortgage rates now rising, Home Depot can pivot its focus back to homeowners who are liable to stay put and remodel. We saw Home Depot make this same pivot during the Great Recession.
This is also a company that's made significant investments in digitization. Even though its brick-and-mortar stores should continue to generate the lion's share of its revenue, Home Depot announced an $11 billion investment in digital initiatives back in 2017. The investments it's made are designed to integrate the online and in-store experience for shoppers, as well improve the transparency of its available inventory. Ultimately, this digital push should allow Home Depot to outpace Wall Street's growth expectations.
