This hasn't been an easy year for the investing community. Since hitting their respective all-time closing highs between six and eight months ago, the timeless Dow Jones Industrial Average, broad-based S&P 500, and growth-driven Nasdaq Composite have tumbled by as much as 19%, 24%, and 34%. In fact, the S&P 500 just turned in its worst first-half performance in 52 years!
Yet in spite of this miserable performance, billionaire money managers haven't been deterred from putting their money to work. Even though the following three supercharged growth stocks have fallen between 70% and 88% from their all-time closing highs, filings with the Securities and Exchange Commission (SEC) show that billionaires can't stop buying them.
Image source: Getty Images.
Pinterest: Down 77% from its all-time high
The first hypergrowth stock that at least one billionaire money manager can't seem to get enough of is social media stock Pinterest (PINS 1.16%). According to a report from The Wall Street Journal late last week, Elliott Management, which is headed by billionaire activist investor Paul Singer, had acquired a 9% stake in Pinterest.
Activist investors often move in when they feel a company's current management team isn't doing enough to create shareholder value. Although it's a bit too early to tell what Elliott Management might have in mind, activist investors typically push for a company to sell itself or offer up board seats to the activist investor(s) in question. The key point is that investor activism tends to be a positive for shareholders more often than not.
However, there's actually a lot more to like about Pinterest than just Singer's involvement.
NYSE: PINS
Key Data Points
In recent quarters, skeptics have been fixated on Pinterest's declining monthly active users (MAU) and the potential for Apple's iOS data-tracking changes to hurt Pinterest's ad-driven operating model. But if you dig beyond the surface, you'll find that neither of these objections holds much water.
As an example, Pinterest's four-quarter MAU decline can be explained by COVID-19 vaccination rates ticking up and people getting out of their homes more often. If you pan out five years and disregard the initial COVID-19 MAU pop and drop, user growth has been climbing steadily.
More importantly, Pinterest has had no trouble monetizing its users. Global average revenue per user (ARPU) rose 28% in the first quarter, with even more robust ARPU growth observed in international markets. This pretty clearly demonstrates that merchants are willing to pay a premium to reach Pinterest's 433 million MAUs.
Additionally, the entire premise of Pinterest's platform is to have users willingly share the things, places, and services that interest them. In other words, the company doesn't need data-tracking approval to help merchants target users. This unique aspect of Pinterest's operating model should allow it to become a relevant e-commerce player over time.
NASDAQ: CRON
Key Data Points
Cronos Group: Down 88% from its all-time high
A second supercharged growth stock that's been beaten to a pulp, yet is still a magnet for billionaires' money, is Canadian licensed marijuana producer Cronos Group (CRON 1.17%). Even though shares of Cronos have fallen 88% from their 2019 high, it didn't deter Millennium Management's Israel Englander from acquiring nearly 1.23 million shares during the first quarter.
Three years ago, Canadian marijuana stocks like Cronos Group were expected to be the cream of the crop in the high-growth cannabis industry. But Canadian regulators and the country's pot stocks grossly mismanaged their opportunity. A slow dispensary approval process in key markets (like Ontario), coupled with overzealous acquisitions, doomed much of the industry to a massive underperformance.
If there's a silver lining for Cronos Group, it's that the company has a close-knit relationship with tobacco stock Altria Group (MO 1.26%). Altria took a 45% equity stake in Cronos, totaling $1.8 billion, in March 2019. Even though that equity stake has plummeted in value, Altria appears to be committed to helping Cronos succeed if an avenue to enter the more lucrative U.S. cannabis market were to open up. Altria has a rich history of product development and marketing, and could certainly bring its distribution expertise to the table.
Unfortunately, it could be a long time before Congress changes its tune on cannabis in the United States. All previous attempts to move forward with federal legalization reforms have died in the Senate. Even with a Democrat majority in the Senate, there don't appear to be enough votes to consider federal legalization anytime soon.
For Cronos Group, this lack of federal reform in the U.S. will likely doom it to ongoing operating losses. Canadian consumers have gravitated to value cannabis products, which isn't an area Cronos was counting on to drive its top and bottom lines. Although Cronos is sitting on a hearty amount of cash that should help buffer its downside, there just aren't any catalysts to suggest there's much in the way of upside, either.
The Lucid Air electric sedan. Image source: Lucid Group.
Lucid Group: Down 70% from its all-time high
A third supercharged growth stock that's been pulverized, yet remains a target for billionaire money managers, is electric vehicle (EV) manufacturer Lucid Group (LCID +4.79%). The company losing 70% of its value since February 2021 didn't stop Coatue Management's Philippe Laffont from buying nearly 2.97 million shares of Lucid during the first quarter.
In many ways, EVs are viewed as a no-brainer investment opportunity. Developed countries want to take steps to reduce their carbon footprints and slow or halt climate change. Pushing consumers and businesses to make the transition to EVs and other clean-burning energy sources is, arguably, one of the easiest ways to achieve this. Since Lucid had nearly $5.4 billion in cash at the end of the first quarter, it's viewed as one of the better-capitalized EV-focused brands.
What's more, Lucid Group has the potential to become "the next Tesla (TSLA +3.93%)." After watching Tesla build itself from the ground up to mass production, investors have become fixated on finding the next success in the auto industry. The company's Lucid Air sedans are effectively aiming to ride Tesla's coattails by cornering a large percentage of the well-to-do/premium EV sedan market. With Tesla mostly focused on its more affordable Model 3 these days, the premium sedan category is ripe for the picking.
NASDAQ: LCID
Key Data Points
However, COVID-related supply issues, coupled with persistent semiconductor chip shortages, have hit the auto industry hard. Despite strong initial demand -- Lucid claimed to have over 30,000 Lucid Air reservations as of early May 2022 -- the company is calling for just 12,000 to 14,000 sedans produced in 2022. That's well below the 20,000 EVs Wall Street had initially expected.
Even more problematic is the fact that Lucid delayed the launch of its Project Gravity SUV by a year to 2024. Delaying the launch of a differentiating product while the company is burning copious amounts of capital and attempting to boost global production is less than ideal.
Even though Lucid has clearly caught the attention of a successful billionaire money manager, it's not yet clear that the company will survive, let alone thrive, over the long run.
