Whether you've been investing for decades or are relatively new to the investing landscape, 2022 has been a challenge. The widely followed S&P 500 produced its worst first-half return in over 50 years. Meanwhile, the growth-focused Nasdaq Composite, which was largely responsible for lifting the broader market out of the coronavirus pandemic doldrums, has entered a bear market and lost as much as 34% of its value since reaching a record high in November.
There's little question that bear markets can test the resolve of investors and, in some instances, send folks scurrying to the sideline. But that's not been the case for billionaire money managers.
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According to 13F filings with the Securities and Exchange Commission, some of the brightest billionaire investors on Wall Street were actively buying stocks as the S&P 500 and Nasdaq plunged into a bear market during the second quarter. In particular, billionaires flocked to some of the most beaten-down growth stocks.
What follows are three phenomenal growth stocks down 82% to 94% that select billionaires can't stop buying.
Rivian Automotive: Down 82% from its all-time high
The first exceptional growth stock that's been beaten to a pulp, yet is still quite popular among billionaire investors, is electric vehicle (EV) manufacturer Rivian Automotive (RIVN -2.21%). Shares of Rivian ended last week 82% below the intraday high set shortly following its initial public offering last November.
The billionaire angling to take advantage of Rivian's short-term tumble is none other than Jim Simons of Renaissance Technologies. During the second quarter, Simons initiated a nearly 1.92-million-share position in Rivian that was worth about $49.3 million, as of June 30.
The "why" behind this buy is simple to understand: EVs are the future, and pretty much every developed country around the world is pushing their commercial and consumer use. But what allows Rivian to stand out is the sizable order it landed from e-commerce giant Amazon, as well as its niche product.
Well before becoming a public company, Rivian validated itself by snagging an order for 100,000 electric delivery vans from Amazon. Although Amazon has more than enough capital to throw around, it wouldn't have placed such a mammoth order if it didn't believe in the technology and design offered by Rivian. The assumption here is that Amazon's order will fuel cash flow and enterprise EV adoption moving forward.
Rivian also has a solid chance to differentiate itself with its R1T pickup and R1S SUV. In particular, the R1T is an upscale design that still allows truck enthusiasts to go off-road. It's beaten leading EV manufacturer Tesla to production, and has no meaningful competition in the luxury category from legacy automakers in the United States.
But Rivian's expansion is going to be costly. The company is spending $5 billion on a manufacturing plant in Georgia that won't even begin production for two more years. Further, the COVID-19 pandemic is hampering the supply of semiconductor chips and general parts. The result: Rivian's forecast production of 25,000 EVs in 2022 is well below what Wall Street originally anticipated. If Rivian's output and sales fail to impress, its premium valuation could take an even bigger hit.
Palantir Technologies: Down 83% from its all-time high
The second phenomenal growth stock that's been beaten down, but that remains a prime target of billionaire fund managers, is data mining company Palantir Technologies (PLTR -0.23%). Since hitting their all-time high of $45 in January 2021, shares of Palantir have retraced 83%.
Despite the stock losing tens of billions of dollars in market value, two billionaires have aggressively bought shares of Palantir. The aforementioned Simons of Renaissance Technologies more than doubled his fund's stake to 28.2 million shares during the second quarter, while Israel Englander's Millennium Management opened a nearly 1.9-million-share position.
The buzz surrounding Palantir likely has to do with its unique operating model. The company primarily relies on two key platforms: Gotham and Foundry. Gotham is an artificial intelligence (AI)-driven solution that helps federal governments gather data and oversee missions. Foundry is an enterprise-focused software solution designed to help businesses better understand their data. Although there are competitors to bits and pieces of what Palantir offers as a company, there isn't a direct competitor that's anywhere near the same scale as Palantir.
For years, Gotham has been Palantir's key revenue driver. Winning large contracts (primarily from the U.S. government) that span four or more years has helped it sustain a revenue growth rate of 30% or higher. However, Gotham's ceiling is limited in the sense that not all global governments are suitable as clients (e.g., management wouldn't approve allowing China to use Gotham). This means Foundry is the company's long-term golden ticket.
Over the trailing year, ended June 30, Palantir saw its commercial customer count grow by 250% to 119. With only 119 enterprise clients, it's readily apparent that Foundry is just scratching the surface with regard to its potential.
But keep in mind that Palantir is still three years away from recurring profitability, based on comments made by CEO Alex Karp during the company's latest conference call with analysts. Without profits, Palantir's share price could remain volatile in an uncertain economic environment.
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Upstart Holdings: Down 94% from its all-time high
The third and final phenomenal growth stock billionaires can't stop buying is cloud-based lending platform Upstart Holdings (UPST 0.79%). Upstart is the disaster du jour of this list, with a peak-to-trough decline of 94% in a little over 10 months.
But not even a 94% drubbing can scare away billionaire Philippe Laffont of Coatue Management. Laffont's fund initiated a 2.36-million-share position during the second quarter, which made Upstart a top-30 holding for Coatue.
What makes Upstart such an intriguing investment is the company's reliance on AI for its cloud-based lending platform. Whereas the traditional loan-vetting process can take weeks, nearly three-quarters of all Upstart loans are approved on an entirely automated basis. That's far more convenient for consumers, and it significantly reduces costs for lending institutions.
But it's not just about expediting loan approvals for Upstart. It's about expanding opportunities for a larger swath of the population. People approved for Upstart-vetted loans have had lower average credit scores than the traditional loan approval process. Yet in virtually all instances, Upstart's approvals have led to similar delinquency rates as the traditional process. This implies that Upstart can bring banks and credit unions more loan applicants without increasing their credit risk.
What's more, Upstart has an exceptionally long runway to expand its solutions. With the acquisition of Prodigy Software last year, it's only recently begun moving into the auto loan origination space. Between auto loans and small business loans, Upstart's addressable market is now over 10 times the size of just personal loans.
However, Upstart hasn't proved itself during a true drawdown in the U.S. economy, like the current conditions. With the Federal Reserve rapidly increasing interest rates to curtail historically high inflation, it's unclear how much the delinquency rate of Upstart-vetted loans will rise. What is clear is that financial institutions have become a lot pickier about taking on new loans in the current environment. Though Upstart does look to have the tools to succeed during long-winded economic expansions, the next couple of quarters could be rough.
