Investing concepts can get complicated, but picking the best stocks to buy can be fairly straightforward. That's because the U.S. Securities and Exchange Commission (SEC) makes billionaire money managers disclose their trading activity to the public four times a year.
Whether you've been buying stocks for a few weeks or you've been at it for decades, you can learn a lot by studying the habits of the world's most successful investors.
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Billionaire hedge fund managers recently bought millions of shares in these two companies, but everyone makes mistakes from time to time. Instead of blindly following their lead, let's kick the tires on these stocks to see if they belong in your portfolio too.
Palantir
Businesses and governments collect heaps of data, but integrating raw data into their operations can be challenging. Palantir's (PLTR 3.73%) Gotham platform employs artificial intelligence (AI) to help organizations recognize patterns hidden in their data. The company's Foundry platform works as a central operating system that allows clients to experiment and test new ideas.
Palantir was initially developed with government funding, and government clients are still responsible for 55% of total revenue. Too much reliance on government clients could be a problem down the road. At least one agency, Immigration and Customs Enforcement (ICE), is developing a data-mining solution of its own.
Despite heavy reliance on government contracts, Philippe Laffont and the fund he runs, Coatue Management, bought more than 2.1 million shares of Palantir in the first quarter.
PLTR Total Operating Expenses (TTM) data by YCharts.
Laffont is likely encouraged by revenue that has handily outpaced operating expenses since the company went public in 2020. The first quarter of 2023 was the second quarter in a row that the company reported positive earnings according to generally accepted accounting principles (GAAP).
At the moment, Palantir stock trades at 15.5 times trailing-12-month sales. This multiple is a little too high for a company that grew total Q1 revenue by just 18% year over year. Following Laffont into this stock now means you'd be paying significantly more than Coatue Management did. It's probably best to wait for a better entry point.
Match Group
James Simons and Renaissance Technologies bought 1.6 million shares of Match Group (MTCH 0.63%) during Q1 2023. Now, the hedge fund has around 2.3 million shares of the dating app provider.
At first glance, it's hard to see why Simons is interested in Match Group. Tinder is responsible for more than half of total revenue, but the flagship dating app appears to have stopped growing. Both revenue per payer and the number of payers during Q1 were flat compared to the previous year's period.
Tinder's lack of growth is disappointing, but Simons was likely attracted to the stock by Hinge. The company claims this app is "designed to be deleted" because it connects members with perfect matches that lead to long-term relationships.
The Hinge app isn't getting deleted very fast. It finished Q1 with over 1 million payers, and it's significantly more expensive than the company's average, which worked out to $16.26 per payer in Q1. Revenue per Hinge payer exceeded $25 during Q1, and new pricing that went into effect in March means this figure is on the rise.
Match Group stock has fallen nearly 80% from the peak it set in 2021. Now you can buy the stock for just 16.1 times forward-looking earnings. At this modest valuation, investors who buy now can come out way ahead over the long run as long as earnings keep growing by a low single-digit percentage each year.
Soaring demand for Hinge on its own could deliver more than enough earnings growth to make this stock outperform. If ongoing efforts to refresh Tinder succeed, it could shoot higher still. Adding some shares to a diversified portfolio now is probably the right move.
