Following the stock picks of the world's wealthiest investors can work to your advantage. Just about all of them use a value approach to stock selection like Warren Buffett. When billionaire investors buy a stock, it's because they see a wide gap between the share price and the actual worth of the business.
Three Motley Fool contributors recently combed through the holdings of billionaires to find promising candidates that any investor can understand. Here's why they chose Walt Disney (DIS -0.04%), LVMH Moët Hennessy Louis Vuitton (LVMHF 0.94%) (LVMUY 0.82%), and Nike (NKE 0.19%).
Value investors are lining up for Disney
John Ballard (Walt Disney): Shares of Walt Disney are trading at levels not seen in more than five years. Naturally, several well-regarded investment managers are buying shares, including billionaire activist investor Nelson Peltz, who runs Trian Partners. CNBC reported that Peltz's firm has accumulated a stake worth about $2.5 billion, making Trian one of Disney's largest shareholders.
CEO Bob Iger returned last year to cut costs and improve Disney's finances. Through the first nine months of fiscal 2023, the company reported a decline in adjusted earnings of 9% year over year. The entertainment giant is suffering from a weak advertising market, while losses in the direct-to-consumer business are chewing away at the bottom line.
Disney has plenty of options to grow the value of the business over the long term. Peltz clearly sees a wide gap between its long-term value and its current trading price. He is pushing for multiple seats on the board of directors, but it's unclear what changes he would make to Iger's plan, which includes spending $60 billion over the next several years to enhance Disney's theme parks.
The market has very low expectations for the company at this point. But investors should look at the interest from Peltz as a good sign that there is more value in Disney than its current share price suggests. Good things will happen for investors who hold the stock for at least a few more years.
Invest in style
Jeremy Bowman (LVMH): Buying the stocks that billionaires are buying makes sense, but why not take that approach one step further and invest in a company that was founded and is run by one of the world's richest people, Bernard Arnault.
That's LVMH, the world's biggest luxury goods company and the parent of Louis Vuitton, Moët, Hennessy, Tiffany, Sephora, and other well-known brands.
The luxury goods segment offers a number of benefits. It tends to carry high margins due to the high prices customers are willing to pay for these products, and no one has executed this strategy better than LVMH. As a result, the stock has consistently outperformed the S&P 500 and is now one of the most valuable companies in the world.
LVMH has benefited from its global reach and a successful acquisition strategy. However, the stock is trading at a discount, down 30% from its recent high, following its third-quarter update, and that presents an attractive buying opportunity.
In its third-quarter earnings report, LVMH posted decelerating growth numbers due to economic uncertainty in China and the U.S., but the overall results were still solid. Organic revenue was up 9%, with particular strength in selective retailing (its segment made up of retail brands), where organic sales were up 26%. Wine and spirits sales were down 14% as it faces difficult comparisons with the pandemic reopening period.
LVMH didn't report profits; we'll have to wait for the full-year report to see the bottom line. But its portfolio of timeless brands should return to stronger growth once the global economy is healthier. Investors can take advantage of the sell-off and buy this reliable luxury stock at an off-the-rack price.
Sticking with the winners
Jennifer Saibil (Nike): You don't need to have a portfolio of hot tech stocks to succeed in the stock market. Many companies you know and love have delivered incredible gains for long-term investors.
Most billionaire hedge fund managers have a varied portfolio including top consumer goods companies, and they're still buying established leaders. James Simon of Renaissance Technologies bought Nike stock in the second quarter, adding to a long list of stocks in many industries.
Nike has been feeling the impact of inflation, and sales increased only 2% over last year in the 2024 fiscal first quarter (ended Aug. 31). That was entirely from the digital segment, while wholesale revenue remained flat. Earnings per share inched up 1% to $0.94.
Wall Street hasn't been enamored with Nike this year. In fact, it hasn't been enamored with most consumer goods and retail stocks, which on the whole have been struggling through inflation. Nike stock is down 12% so far in 2023. But sometimes the best opportunities are in stocks down on their luck.
I wouldn't say the only way to go is up; Nike could certainly slide further. But it has incredibly valuable assets that make it a winner for the long term. It's the largest U.S. apparel maker by sales, even though it has an active-wear focus. It has maintained its spot as the most popular brand among teens in the annual Piper Sandler Taking Stock With Teens survey for both clothing and footwear, with Nike-owned Converse taking the No. 2 spot in footwear.
The company constantly launches popular new lines and products, and its lead in active wear is so vast that it would be nearly impossible for any competitor to catch up anytime soon.
Nike is going through a rough patch, and it might not be the right stock for risk-averse investors at the moment. But it has a forward one-year price-to-earnings ratio of 24, which doesn't look too rich in light of its potential.
