Though you probably don't need the reminder, 2022 was a difficult year for much of the investment community. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all entered a bear market and produced their worst full-year returns since 2008.
But not all stocks have fared equally. Some former high-flying stocks have been taken the woodshed, with losses easily exceeding 90%. Yet for a select group of downtrodden highfliers, optimism remains -- at least among billionaire investors.
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No later than 45 days following the end of a quarter, fund managers overseeing at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what Wall Street's brightest money managers have been buying and selling. According to the latest round of 13Fs, three former highfliers, which are down between 92% and 99%, have been popular buys among billionaire money managers.
Teladoc Health: Down 92% from its all-time high
The first beaten-down former highflier that billionaires haven't been able to stop buying of late is telehealth kingpin Teladoc Health (TDOC -0.07%). After hitting an all-time high of $308 in February 2021, shares of the company have plummeted all the way back to $25 and change.
Despite this tumble, billionaires Israel Englander of Millennium Management and Ken Griffin of Citadel Advisors have been active buyers. Millennium added more than 2.3 million shares of Teladoc during the fourth quarter, while Citadel increased its existing stake by more than 30% with a nearly 316,000-share purchase.
The reason Teladoc shed more than 90% of its value primarily has to do with it grossly overpaying for applied health signals company Livongo Health in late 2020. Last year, Teladoc took three sizable writedowns tied to this $18.5 billion deal, resulting in a full-year loss of $84.60 per share! Just over $83 of this per-share loss is from impairment charges.
In hindsight, Teladoc grossly overpaid for Livongo. However, the bright side that is that it took its lumps and correctly recognized that it would be virtually impossible to recoup the goodwill associated with this deal. By taking hefty non-cash impairment charges in 2022, Teladoc should have much cleaner operating comparisons moving forward.
What's more, Teladoc Health has shown that it's not just a fad stock that benefited from the COVID-19 pandemic. While virtual visit demand certainly picked up during the pandemic, average annual sales growth in the six years leading up to declaration of a global pandemic was 74%. That's not a fluke. Rather, it's representative of an ongoing shift in personalized care.
Telemedicine is making it easier than ever to connect patients with physicians, as well as allowing physicians to keep closer tabs on their chronically ill patients. The expectation is we'll see improved patient outcomes and less money coming out of the pockets of health insurers. Anything that saves health insurers money is something they're going to promote and support.
Lastly, don't overlook the long-term potential of Livongo Health, even if Teladoc overpaid to acquire the company. Livongo's chronic care program enrollment grew by a healthy 16% in 2022 and now tops 1 million. Cross-selling opportunities between the two platforms, coupled with mindful spending, can help move Teladoc closer to profitability in 2023.
Aurora Cannabis: Down 99% from its all-time high
The second former highflier that's been absolutely decimated, yet continues to draw attention from billionaire investors, is Canadian marijuana stock Aurora Cannabis (ACB -2.96%). On a split-adjusted basis, shares of Aurora have plunged more than 99% from their all-time high.
In spite of its poor performance, Aurora Cannabis had two notable billionaire buyers during the fourth quarter. The aforementioned Israel Englander of Millennium Management scooped up roughly 6.24 million shares, while billionaire Jim Simons of Renaissance Technologies purchased almost 1.68 million shares.
The biggest issue for Aurora Cannabis is that it grossly overestimated domestic and international demand. At one point in 2019, Aurora owned 15 production facilities that, if fully developed, would have easily topped 600,000 kilos of annual cannabis output. Comparatively, Canadians consumed an estimated 391,000 kilos of weed all of last year. Aurora's projections weren't even close, and the company was forced to write down billions of dollars in goodwill tied to multiple overpriced acquisitions.
Another sizable problem is that Canadian consumers have favored value-based dried cannabis flower, rather than higher-margin derivatives, such as oils, vapes, and edibles. While Aurora has had modest success supplying medical cannabis domestically and abroad, its role in the recreational marijuana market has been nothing short of a disappointment.
Profits have also remained elusive for Aurora Cannabis. Even though the company finally made good on its bid to reach positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and it's delivered approximately $340 million in annualized cost savings from where things stood in February 2020, adjusted EBITDA isn't the same as a profit. Through the first six months of fiscal 2023, Aurora has an operating loss of 125.4 million Canadian dollars ($93.8 million U.S.) and doesn't appear to be particularly close to recurring profitability.
But arguably worst of all, Aurora Cannabis is a serial diluter. Since the company continues to lose money, it's been selling stock via registered offerings and at-the-market issuances for nearly a decade. Between June 30, 2014 and Dec. 30, 2022, Aurora's split-adjusted outstanding share count has risen from about 1.3 million to just shy of 341 million. Suffice it to say, there's little reason to be optimistic about Aurora Cannabis stock.
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Novavax: Down 97% from its all-time high
The third former beaten-down highflier that billionaire investors can't stop buying is biotech stock Novavax (NVAX -0.95%). After hitting nearly $332 on an intra-day basis a little over two years ago, shares of Novavax have shed 97% of their value.
Yet even with this poor performance, select billionaire money managers have been willing to take the plunge. This includes Jim Simons' Renaissance Technologies, which purchased 1.94 million shares during the fourth quarter, Israel Englander's Millennium Management, which bought 1.02 million shares, and John Overdeck's and David Siegel's Two Sigma Investments, which opened a 1.01-million-share position.
Novavax gained its fame during the COVID-19 pandemic. The company's phase 3 clinical study involving NVX-CoV2373 (known as Nuvaxovid internationally) was one of only three COVID-19 vaccines to reach the psychologically important 90% vaccine efficacy level. Superficially, it looked like a slam-dunk to become a key player in fighting the pandemic.
However, two big miscues caused Novavax to miss out on most of the proverbial low-hanging fruit (i.e., initial series vaccines in high-margin developed markets). The company delayed its filing for emergency-use authorization in the U.S. on numerous occasions, and it ran into manufacturing issues when trying to ramp production. The end result for Novavax was $1.98 billion in peak annual sales when its peers were netting closer to $20 billion annually from COVID-19 vaccines.
Perhaps the biggest dilemma for Novavax now is whether the company can keep the lights on. Although Novavax would appear to have plenty of cash on hand to navigate near-term turbulence, ongoing arbitration with vaccine relief organization Gavi could lead to the company having to return $700 million. This arbitration is what coerced the company to issue a going concern warning with its fourth-quarter operating results, despite ending 2022 with $1.34 billion in cash and cash equivalents.
If Novavax makes it through 2023 and receives a favorable arbitration ruling, its pipeline could be intriguing. Even with the worst of the COVID-19 pandemic in the rearview mirror, the potential for combination vaccines (influenza/COVID-19) is meaningful. But this is all a big "if" that's completely dependent on the future arbitration ruling.
