You may not have realized it, but Monday, August 15 marked one of the most important days of the quarter. It was the official Form 13F filing deadline with the Securities and Exchange Commission (SEC) for fund managers with over $100 million in assets under management.
In simple terms, a 13F is a quarterly filing with the SEC that allows investors an under-the-hood look to see what the brightest minds on Wall Street have been buying and selling. Although 13Fs have their limitations -- e.g., they provide a more than six-week-old snapshot by the time they're filed -- they can be particularly helpful in identifying the trends and stocks that successful money managers are piling into or avoiding like the plague.
Image source: Getty Images.
Perhaps the biggest surprise from 13F season is what billionaire money managers have been buying. Based on 13F filings and various SEC disclosures, three billionaires with incredible investing track records can't stop buying a trio of surprising stocks.
PayPal Holdings
The first shocker can be found via disclosures offered by fintech giant PayPal Holdings (PYPL 2.36%). When PayPal reported its second-quarter operating results two weeks ago, it noted that Elliott Investment Management, which is headed by billionaire activist investor Paul Singer, had taken a more than $2 billion stake in the company.
What's surprising about Elliott Investment Management building a significant stake in PayPal is that activist investors like Paul Singer typically target struggling businesses. While PayPal has, indeed, lost nearly two-thirds of its value over the past year, it's not as if the company is struggling.
There are a number of factors adversely impacting PayPal's growth at the moment. Historically high inflation is negatively impacting the lowest-earning decile, which could inhibit spending and transactions on its digital payment platforms. Likewise, the U.S. economy has logged back-to-back quarters of gross domestic product retracements. In spite of this, PayPal's total payment volume on its platforms grew by 13% on a constant-currency basis in the second quarter and has maintained a double-digit growth rate for quite some time.
What's more, engagement among active accounts continues to impress. At the end of 2020, active accounts were completing an average of 40.9 transactions over the trailing-12-month (ttm) period. By June 30, 2022, this figure was up to 48.7 transactions per ttm. PayPal is predominantly a fee-driven platform, which means increased engagement will lead gross profit higher over time.
However, PayPal CEO Dan Schulman did note during his conference call that he's had discussions with Elliott Investment Management to accelerate a variety of cost-cutting measures. PayPal is aiming for $900 million in cost-savings this year and a cumulative $1.3 billion in cost-savings in 2023. A leaner PayPal can potentially boost profitability faster in a slower-growing economy. To boot, it could be more fundamentally attractive to growth and value investors.
Occidental Petroleum
The second surprising stock that at least one well-known and highly successful billionaire money manager can't stop buying is oil stock Occidental Petroleum (OXY 0.51%).
Based on both SEC filings and 13Fs, Warren Buffett has been consistently buying shares of Occidental for Berkshire Hathaway's (BRK.A -0.37%) (BRK.B -0.15%) investment portfolio since the beginning of the year. At the end of the first quarter (March 31, 2022), Berkshire owned a little over 136 million shares of Occidental Petroleum. But as of an August 8 filing with the SEC, this stake had grown beyond 188.3 million shares.
There are two reasons Buffett's continued purchases of Occidental are so surprising. First, the Oracle of Omaha has never been an outspoken fan of Big Oil -- at least from an investing standpoint. At no point this century has the energy sector accounted for a larger percentage of Berkshire Hathaway's portfolio than it has in 2022. However, with oil majors reducing capital spending during the pandemic, and Russia invading Ukraine earlier this year, supply chain disruptions in the global energy complex could support significantly higher crude oil and natural gas prices for years to come.
The second eye-opener is that Buffett chose to continue piling into Occidental even though its balance sheet was, at one point in 2020, one of the ugliest in the entire industry among integrated operators. The Oracle of Omaha is typically a stickler for top-notch balance sheets, but appears to have let this rule slide with the heavily indebted Occidental.
On the other hand, Berkshire Hathaway also owns $10 billion in preferred stock with Occidental that yields 8% annually, and is liable to get added upstream exposure (i.e., drilling) from Occidental compared to other integrated oil and gas companies. If Warren Buffett truly believes that energy commodity prices will be elevated for years to come, his abundance of optimism for this company could pay off.
The all-electric Ford F-150 Lightning Lariat. Image source: Ford.
Ford Motor Company
The third surprising stock at least one billionaire can't stop buying is automaker Ford Motor Company (F 0.43%).
According to a 13F filing with the SEC, billionaire Ray Dalio of Bridgewater Associates gobbled up 2.42 million shares of Ford during the second quarter. This more than doubled Dalio's position in the company at the end of March, as well as made it a top-100 holding for Bridgewater.
Although Dalio is known for buying time-tested companies that are well-known by consumers -- all descriptors that Ford fits -- what's shocking about this move is that he's been buying into Ford when auto stocks are demonstrating clear cyclical weakness. Whereas Dalio usually piles into companies that provide nondiscretionary goods or services (i.e., they aren't affected much, if at all, by economic downturns and recessions), he's clearly looked past this with Ford.
Over the past couple of quarters, Ford's production has been negatively impacted by semiconductor chip shortages and COVID-19 lockdowns adversely affecting parts supply in various regions of the world. Add to this rapidly rising interest rates and historically high inflation, which have the potential to price potential buyers out of a new vehicle. It's certainly interesting timing for Dalio's purchase.
However, it could ultimately be great timing on Dalio's part. Ford has a multidecade growth opportunity on its doorstep with electric vehicles (EVs) and appears to be seizing the bull by the horns. Ford has increased its aggregate expected capital outlay for EVs, autonomous vehicles, and batteries to $50 billion through 2026 (the company previously expected to spend about $30 billion through 2025), with a goal of launching 30 new EVs globally by the end of 2025.
Ford's EV push appears to be working. The company began production on the all-electric Ford F-150 Lightning in April and was forced to cap reservations at 200,000 because demand was vastly outpacing production capacity.
With Ford valued at a reasonably low forward price-to-earnings ratio of 8 and staring down sustainably higher organic growth potential for decades, Ray Dalio may be onto something.
