For both new and tenured investors, it's easy to be overwhelmed by the number of data releases that drive trading activity in the stock market. A seemingly never-ending sea of earnings releases and economic data can allow an important data release to slip through the cracks.
One of the most important data dumps of the entire quarter occurred earlier this week. May 15 was the deadline for institutional money managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F provides an under-the-hood look at what Wall Street's smartest investors chose to buy, sell, and hold during the most recent quarter.
Although 13Fs have their drawbacks -- they're often a 45-day-old snapshot when filed -- they can give investors clues about the stocks and trends that are piquing the attention of Wall Street's most successful investors.
During the first quarter, 13Fs show that billionaire money managers were particularly active. A notable bounce in the Nasdaq Composite encouraged fund managers to lighten their loads on a number of growth stocks. In particular, billionaire money managers kicked three ultra-popular growth stocks to the curb in the March-ended quarter.
Two Rivian R1Ts climbing a hill. Image source: Rivian.
Rivian Automotive
The first supercharged growth stock billionaire money managers wanted seemingly nothing to do with in the first quarter is electric-vehicle (EV) manufacturer Rivian Automotive (RIVN 1.85%). George Soros' Soros Fund Management jettisoned nearly 10.77 million shares of Rivian; Philippe Laffont of Coatue Management dumped 5.62 million shares; and Ken Griffin's Citadel Advisors sold 5.37 million shares, which represented most of the fund's stake.
Although renewable energy-powered transportation represents the future in the U.S. and globally, investors are waking up to the reality that building an auto company from the ground up is an expensive venture. Despite Rivian surpassing 35,000 total EVs produced since inception (as of March 31, 2023), it's still generating net losses of more than $1 billion per quarter.
The biggest concern for Rivian, and what may have coerced Soros' fund, Laffont, and Griffin to bail on a sizable portion of their respective stakes, is Rivian's balance sheet. While it did close out the first quarter with approximately $12 billion in cash, cash equivalents, and restricted cash, the company, as noted, is losing more than $1 billion per quarter.
It's also outlaying $5 billion to build a manufacturing plant in Georgia that'll be up and running by sometime next year. There's a real concern that Rivian may need to turn to dilutive capital-raising options to fund its ongoing production expansion.
But there's intrigue here, as well. Rivian's R1T truck has an opportunity to occupy a potentially lucrative niche in the EV space. Though Ford Motor Company and General Motors have all-electric heavy-duty trucks of their own, none fit into the luxury, yet still able to go off-road, category that Rivian's R1T provides.
The two keys moving forward for Rivian are: 1) minimizing its cash burn wherever it can, while 2) maintaining the quality of its EVs. Reducing recalls and demonstrating to consumers the reliability of its R1T truck and R1S SUV are important to growing sales and reducing its cash outflow.
All told, Rivian is an extremely risky investment that's probably best observed from the sidelines.
Meta Platforms
A second ultra-popular growth stock billionaire fund managers chose to kick to the curb during the first quarter is social media stock Meta Platforms (META 0.14%).
Billionaires Ken Griffin of Citadel, Ken Fisher of Fisher Asset Management, Steven Cohen of Point72 Asset Management, and Seth Klarman of Baupost Group all pounded the sell button. Griffin, Fisher, Cohen, and Klarman oversaw the respective sale of approximately 4.15 million shares, 3.81 million shares, 2.18 million shares, and 1.73 million shares.
The likeliest reason we witnessed a billionaire exodus from Meta during the first quarter was the magnitude of the rebound the stock enjoyed. Meta's stock bounced 76% during the first quarter and has practically doubled since the year began, as of May 15, 2023. Seeing billionaires who had been purchasing Meta as a value play take some chips off the table isn't too surprising.
Another possible reason these four billionaires kicked Meta Platforms to the curb is the belief that a U.S. recession is on the horizon. The minutes from the Federal Open Market Committee's March meeting call for a "mild recession" in the U.S. economy later this year. Since Meta generated 98.1% of its revenue in the first quarter from advertising, and businesses tend to pull back on their ad spending during a recession, money managers may view Meta as more exposed to a downturn than other megacap companies.
However, selling Meta Platforms doesn't look like the smartest idea, given how dominant the company is within the social media space. Meta's core social media assets, which include Facebook, Instagram, WhatsApp, and Facebook Messenger, helped attract 3.81 billion unique monthly active users in the first quarter.
Businesses are well aware that Meta offers them the best chance to get their message in front of as many eyeballs as possible. For that reason, Meta's ad-pricing power should remain strong more often than not.
Additionally, investors are discovering that Meta Platforms has levers it can pull to improve its operating performance. Even with CEO Mark Zuckerburg wanting to spend aggressively on metaverse innovations, Meta has more-than-enough cash on hand and is generating enough capital from its operations to conduct a hefty share buyback. The company can also modestly reduce its expenditures to lift earnings.
My suspicion is these four billionaires will eventually regret reducing their positions.
A Tesla Model S charging. Image source: Tesla.
Tesla
The third ultra-popular growth stock billionaire money managers kicked to the curb during the first quarter is EV maker Tesla (TSLA -3.40%).
Ken Griffin's Citadel Advisors dumped 7.09 million shares of the world's most valuable automaker. Meanwhile, John Overdeck and David Siegel's Two Sigma Investments and Steven Cohen's Point72 Asset Management respectively sold around 1.47 million shares and 877,800 shares. Cohen completely exited his fund's stake, while Citadel and Two Sigma jettisoned 94% and 98% of their respective Tesla positions.
These four billionaires may have been eager to press the sell button, given the velocity of Tesla's rebound during the first quarter. After shedding roughly half of its value in the fourth quarter and attracting plenty of attention from billionaire money managers, a 68% bounce during the first quarter looks to have coerced some folks to ring the register.
But the more pressing concern for Tesla might be its pricing activity. Through mid-April, Tesla had cut EV prices in the U.S. on six separate occasions. It's been a similar story in key overseas markets.
Although optimists would claim this price cut has to do with improving production efficiency, the company's rising inventory levels would suggest otherwise. Having to reduce prices to ensure that inventory levels don't become unmanageable is typically bad news for automotive gross margin.
If you want another reason why Tesla became a popular stock to sell in the first quarter, look no further than the company's controversial CEO, Elon Musk. While there's no denying Musk is an innovator, he also has a habit of drawing the ire of securities regulators. What's more, Musk has built his company on a mountain of promises and innovations, many of which remain unfulfilled to this day.
Even recessionary fears could be to blame. Auto stocks are highly cyclical, which means demand for new vehicles would be expected to taper off during a downturn. Whereas most auto stocks trade at a single-digit price-to-earnings (P/E) ratio, Tesla commands an otherworldly P/E ratio of nearly 50. It's not uncommon for investors to be more mindful of valuations during an economic downturn and/or bear market.
Although Tesla is decisively profitable and looks to be on its way to producing 1.8 million EVs this year, it has far too many red flags to support its lofty valuation.
