If you want to become a better tennis player you should probably spend some time watching the pros compete. The same concept applies to investing, but you can't monitor the actions of billionaire hedge fund managers on your television.
Institutional investors don't attract many TV cameras, but the U.S. Securities and Exchange Commission (SEC) pays close attention to their actions. Every quarter, investors with over $100 million in assets have to disclose their trading activity, and the SEC makes those filings available to all of us.
According to the latest disclosures, some highly successful funds made big purchases of StoneCo (STNE 3.50%), Amazon (AMZN 1.70%), and Fiverr International (FVRR 1.72%) during the last three months of 2022. Here's why they've been buying these stocks hand over fist lately.
StoneCo
StoneCo is a Brazillian fintech that helps e-commerce companies conduct business across international borders. Steven Cohen and the fund he manages, Point72, acquired 7.9 million shares in the last quarter of 2022.
Cohen's likely encouraged by StoneCo's rapidly growing business. In the fourth quarter, adjusted earnings before taxes rose 50% year over year. At just $51 million, there's clearly a lot of room to keep growing.
StoneCo isn't the only international e-commerce business out there but it will likely remain the most popular option for Brazillian businesses in the foreseeable future. That's because it's the only Brazilian e-commerce software provider that also has a significant financial services footprint. The company's banking client base rose 41% last year to 693,000 accounts.
StoneCo's currently trading at around 18.9 times forward-looking earnings estimates. If it can continue growing at a fraction of its current pace, long-term investors will come out miles ahead.
Amazon
During the last three months of 2022, James Simons and the fund he manages, Renaissance Technologies bought 8.2 million shares of Amazon. The company is famous for its e-commerce business, but this isn't necessarily the operating segment attracting big institutional investors.
The operating segments that house Amazon's e-commerce businesses reported a $10.6 billion operating loss last year. Simons is more than likely attracted to Amazon Web Services (AWS) and the enormous $22.8 billion operating profit it generated last year.
Amazon reported a net loss of $2.7 billion in 2022, but investors can expect a big earnings rebound up ahead. Rapid investments in its North American fulfillment network during the lockdown phase of the pandemic caused operating expenses to explode.
| Metric | 2020 | 2022 | Increase |
|---|---|---|---|
| Net sales | $197 billion | $220 billion | 12% |
| Operating expenses | $228 billion | $319 billion | 40% |
Amazon's North America segment data source: Amazon.
It could take a few quarters for the enormous rounds of layoffs Amazon announced this year to show up on its bottom line. With help from high-margin digital advertising sales that keep soaring, investors can look forward to profits that grow way past early pandemic levels.
It's highly unusual to see Amazon trading below 60 times trailing 12-month earnings. Right now, the stock is trading at just 31.6 times 2021 earnings. That was a great year, but it won't be a high-water mark for very long. Right now is a good time to buy this stock and tuck it away for the long run.
Fiverr International
Hundreds of thousands of freelancers and millions of businesses connect through Fiverr International's platform. Attracted to the company's role in the long-running trend toward remote work, Israel Englander and his hedge fund, Millennium Management, bought more than 380,000 shares of the stock during the fourth quarter.
Late last year, businesses in fear of a possible recession dialed back spending on freelance work. This challenge didn't stop Fiverr from posting fourth-quarter revenue that rose 4% year over year.
A deep global recession could make 2023 a challenging period for Fiverr. With a large addressable market to grow into, though, the long-term prospects for this stock look terrific. The annual market for global freelance platforms like Fiverr is expected to grow from $5.1 billion in 2022, to reach $18.3 billion by the end of 2031.
Fiverr's trading at around 29.4 times forward-looking earnings which makes it the riskiest stock on this list. With a strong position in the rapidly expanding market for freelance services, though, it's probably worth the risk right now.
