What do the best investors do when their favorite stocks are down? They buy more, of course.
Successful investors know that during market meltdowns, like the one we're experiencing, shares of the best companies can fall just as quickly as the lousy ones. They also know that when markets enter recovery mode, shares of businesses with strong market positions come roaring back stronger than ever.
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During the second quarter, as markets were tanking, billionaire hedge fund managers were buying shares of these stocks hand over fist. Here's why they expect them to outperform.
1. PayPal
Shares of digital payments platform PayPal (PYPL -1.67%) soared in the early days of the pandemic, but they've tumbled around 71.8% from the high they reached in 2021. Smelling a bargain, Ray Dalio and the fund he manages, Bridgewater Associates, bought up more than 1.1 million shares of PayPal during the second quarter.
Dalio is attracted to PayPal as a long-term holding because its ubiquitous payments platform has a strong competitive advantage that should endure. The company benefits from an unbeatable network effect over smaller, less established payment platforms.
Consumers are more likely to install and keep a payment application on their phone when they know it's accepted everywhere they shop. With an industry-leading 35 million merchants signed up, hardly any of PayPal's 429 million active member accounts have a reason to leave.
With an all-digital business, PayPal also benefits from strong cash flows that are growing by leaps and bounds. The company generated a whopping $1.3 billion in free cash flow during the second quarter, which was 22% more than a year earlier. The company returned $750 million to shareholders in the form of share buybacks in the second quarter.
2. Pinterest
Pinterest (PINS -2.86%) was another stay-at-home stock that soared during pandemic lockdowns. Now that many of us have less time to find lifestyle inspiration online, the stock is tanking. Shares of Pinterest have collapsed about 74.7% from the peak they reached in 2021.
Undaunted by the collapsing price, Elliott Investment Management and its billionaire CEO, Paul Singer, bought 5 million shares of the social media stock in the second quarter. Elliott is one of Pinterest's largest investors because the firm believes the company's unique position at the intersection of social media, search, and commerce will yield immense gains over time.
The company's international opportunities alone give it plenty of room to grow. In the U.S. and Canada, where e-commerce infrastructure is already well established, Pinterest realizes $5.82 in revenue per user annually. That figure is just $0.86 in Europe and $0.10 throughout the rest of the world.
3. Take-Two Interactive
Shares of gaming industry giant Take-Two Interactive (TTWO -1.34%) are down 48.3% from a peak they reached in early 2021. Sensing a bargain, Steven Cohen and Point72 Asset Management boosted their stake in the company by 1.4 million shares during the second quarter.
Take-Two is the publisher behind the hit franchises NBA2K, and Grand Theft Auto, (or GTA as it's also known). To reduce reliance on a small number of extremely popular titles, the company acquired mobile gaming giant Zynga this May.
The plan is already working. During the current fiscal year, the company expects Zynga games to deliver 45% of net bookings while the NBA2K franchise is expected to contribute 37% of total net bookings.
First released in 2013, GTA V has sold a whopping 170 million units, and its successor is on the way. The recent unauthorized leakage of in-game video clips from the next installment of GTA VI suggest the company is on track to release the highly anticipated title in the foreseeable future.
