Sometimes, Wall Street gives investors a lemon. In 2022, each of the major U.S. stock indexes dipped into a bear market, while the bond market is on pace for its worst year ever. There simply haven't been many safe-havens.
But when Wall Street gives investors lemons, billionaire money managers turn those lemons into lemonade. Despite a decline of as much as 38% for the tech-focused Nasdaq Composite from its November 2021 peak, billionaires have stood their ground and put their money to work on Wall Street.
Based on the latest round of 13F filings with the Securities and Exchange Commission, billionaire money managers clearly want to own the following five stocks in 2023.
Image source: Getty Images.
Nvidia
The first stock billionaires want in their investment portfolios heading into 2023 is graphics processing unit (GPU) and semiconductor solutions specialist Nvidia (NVDA 4.35%).
During the third quarter, billionaires Ken Fisher of Fisher Asset Management, Philippe Laffont of Coatue Management, and Jeff Yass of Susquehanna International oversaw the respective purchases of approximately 4.52 million shares, 3.33 million shares, and 3.21 million shares of Nvidia stock. For Coatue Management, Nvidia has climbed to its fifth-largest position by market value.
The likeliest reason for this optimism from billionaires is Nvidia's position as a key player in GPUs. It controls almost a fifth of the worldwide GPU market and 80% of discrete graphic cards. Everything from the rise of cryptocurrencies to gaming demand has bolstered the company's GPU operations.
However, Nvidia is facing a mountain of headwinds. For example, U.S. regulators banned exports of its artificial intelligence (AI)-powered A100 GPUs to China in early September, which forced the company to develop a slower GPU to meet the specifications of export to China. It's not clear if this slower GPU will generate anywhere near the same amount of revenue as the A100 would have.
Additionally, a significant recent drop-off in gaming demand in the wake of the COVID-19 pandemic, coupled with a steep bear market for cryptocurrencies that have reduced digital currency mining profits, could spell trouble for Nvidia in the new year.
PayPal Holdings
The second stock billionaire fund managers very clearly want to own heading into 2023 is fintech-giant PayPal Holdings (PYPL 1.41%).
According to 13F filings in mid-November, billionaires Stephen Mandel of Lone Pine Capital, Laffont of Coatue Management, Ole Andreas Halvorsen of Viking Global Investors, and Steven Cohen of Point72 Asset Management respectively purchased roughly 4.01 million shares, 3.47 million shares, 1.71 million shares, and 1.25 million shares of PayPal stock. For Mandel, PayPal represents his fund's third-largest holding.
Even though PayPal has been crushed in 2022 by historically high inflation and a weaker crypto market, the important thing to note is that engagement on its digital-payment platforms is increasing. Since the end of 2020, the average active account on PayPal has gone from completing 40.1 transactions over the trailing-12-month (TTM) period to 50.1 transactions over the TTM, as of Sept. 30, 2022. Put simply, more transactions will put more gross profit in PayPal's pockets.
Billionaire investors also seem pleased with CEO Dan Schulman's efforts to make the company more efficient and attractive to investors. PayPal is expected to reduce its annual spending by $900 million this year, with a target of at least $1.3 billion in cost savings in 2023. But just because PayPal is paring back its spending in the interim, it's not cutting costs when it comes to new digital-payment innovations.
Image source: Walt Disney.
Walt Disney
Media-powerhouse Walt Disney (DIS -0.55%) is the third stock billionaire money managers seemingly can't get enough of for the new year.
The latest round of 13F filings showed that billionaires Fisher of Fisher Asset Management, Yass of Susquehanna International, and Dan Loeb of Third Point bought in the neighborhood of 4.65 million shares, 3.25 million shares, and 400,000 shares of Disney stock, respectively. For Third Point, the House of Mouse has climbed to its 10th-biggest position by market value.
Although Walt Disney has had an incredibly rough year, marked by an ongoing COVID-19 pandemic hangover at its theme parks and in movie theaters, it presents with clear-cut competitive advantages that investors appreciate. For instance, the nostalgia and entertainment Walt Disney's theme parks, movies, and original shows provide can't be duplicated by competitors.
The sentiment Walt Disney evokes from multiple generations of park-goers and movie-watchers is another reason it's able to easily outpace the prevailing rate of inflation. Since 1955, the price of admission at its Disneyland theme park in Southern California has risen from $1 to $104. That's 10 times the U.S. inflation rate over the same period -- yet park-goers willingly pay this premium to be entertained.
With acquisition-specialist Bob Iger now back with Walt Disney as CEO, there's a lot of reason to be excited about the future.
Social media stock Pinterest (PINS 1.02%) is a fourth company billionaire fund managers can't stop buying for 2023.
Based on 13F filings last month, billionaire activist investor Paul Singer of Elliott Investment Management, John Overdeck and David Siegel of Two Sigma Investments, Israel Englander of Millennium Management, and Cohen of Point72 respectively purchased 10 million shares, 3.98 million shares, 2.41 million shares, and 1.89 million shares of Pinterest stock.
Even with the likelihood that ad spending will be weak in the first half of 2023 due to growing fears of a U.S. recession, billionaires have piled into Pinterest because of its readily apparent advantages. For example, even though the company's monthly active user (MAU) count has stagnated a bit (mostly due to the rollout of COVID-19 vaccines and life returning to some semblance of normal), Pinterest's average revenue per user keeps climbing by a double-digit percentage. This plainly shows that advertisers are willing to pay a premium to reach Pinterest's 445 million MAUs.
The other key point about Pinterest is that it won't be hurt by data-tracking changes implemented by app developers. While most social media sites rely on data-tracking tools to help advertisers target users, Pinterest's entire model encourages its MAUs to share what things, places, and services interest them. This allows it to serve up pertinent info to advertisers and maintain significant ad-pricing power.
With Pinterest sitting on $2.67 billion in cash, cash equivalents, and marketable securities, it's in great shape to weather the storm.
Amazon
The fifth stock billionaire money managers have made clear they want to own in 2023 is e-commerce stock Amazon (AMZN 1.49%).
Though there is a laundry list of billionaires that purchased shares of Amazon in the third quarter, three larger buys stand out. Billionaires Yass of Susquehanna, Ken Griffin of Citadel Advisors, and Jim Simons of Renaissance Technologies respectively added 9.6 million shares, 4.48 million shares, and 3.15 million shares of Amazon stock.
The halving of Amazon shares in 2022 has to do with concerns about retail-sales weakness in the short-run, as well as the company's lofty valuation, relative to its earnings. Bear markets are usually unkind to stocks that have a premium valuation.
However, these billionaires rightly recognize that Amazon's ancillary operations continue to fire on all cylinders -- and these ancillary segments are what generate the bulk of its operating cash flow. By signing up well over 200 million people worldwide to Prime, Amazon's subscription service is pacing nearly $36 billion in annual run-rate sales.
Meanwhile, Amazon Web Services (AWS) accounted for an estimated 32% of global cloud infrastructure service spending in the third quarter, based on a report from Canalys. Although AWS amounts to "only" a sixth of Amazon's net sales, this segment consistently produces most of its operating income.
AWS, subscription services, and even advertising services are the higher-margin segments that have the ability to triple Amazon's operating cash flow by 2025.
