Though earnings season -- the roughly six-week period each quarter where a majority of S&P 500 companies reveal their latest operating results -- provides plenty of juicy data for investors to sift through, there's arguably no data release more important than quarterly filed Form 13F filings with the Securities and Exchange Commission.
A 13F offers investors an under-the-hood look at which stocks Wall Street's most-successful asset managers were buying and selling in the latest quarter (in this case, the fourth quarter), and is a required filing for institutional investors with at least $100 million in assets under management (AUM). The deadline to file Form 13F for the fourth quarter was Feb. 14.
Even though 13F data can be more than six-weeks old when filed, it clues investors into which stocks, industries, sectors, and next-big-thing trends have the full and undivided attention of Wall Street's top money managers.
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While Warren Buffett's trading activity tends to dominate the headlines, there are plenty of other billionaire asset managers that rightly garner attention. For instance, billionaire Stanley Druckenmiller of Duquesne Family Office oversees more than $3.7 billion in AUM and has been a wildly successful investor.
Because Druckenmiller runs a very active fund -- the average holding time for all positions is less than seven months -- what he's buying and selling tells an important story. During the December-ended quarter, Duquesne's chief completely sold out of one of the leaders of the artificial intelligence (AI) revolution and more than 6X'd his stake in a historically cheap drug stock.
Stanley Druckenmiller bids adieu to AI networking solutions provider Broadcom
Despite completely exiting or reducing Duquesne's position in roughly three-dozen holdings during the fourth quarter, the move that arguably stands out the most is the 239,980-share sale of AI networking solutions specialist Broadcom (AVGO +4.80%).
Last year, Broadcom became one of only 11 publicly traded companies globally to have reached a nominal $1 trillion market cap. Its nearly parabolic ascent is a reflection of its networking solutions being the preferred choice in high-compute data centers. The company's Jericho3-AI fabric is being used to connect up to 32,000 GPUs, with the goal of maximizing GPU computing capacity and reducing tail latency. Minimizing lag is especially important when AI software and systems rely on split-second decisions.
NASDAQ: AVGO
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There's also a lot of excitement surrounding Broadcom's custom application-specific integrated circuits. Broadcom getting into custom AI chips is a potential game-changer that CEO Hock Tan believes could lead to between $60 billion and $90 billion in cumulative sales from its top three hyperscaler customers from 2025 through 2027.
But there are viable reasons for billionaire Stanley Druckenmiller to bid adieu to one of Wall Street's top AI stocks.
As noted, Druckenmiller runs an active hedge fund and ringing the register when a stock moves notably higher is commonplace. During the fourth quarter, Broadcom's stock gained 34%, or close to $300 billion in market value. Simple profit-taking is a very real possibility.
However, Duquesne's billionaire money manager might have also been worried about history running its course. Since (and including) the advent of the internet in the mid-1990s, every next-big-thing innovation has worked its way through an early innings bubble-bursting event.
Put another way, investors have consistently overestimated the utility and consumer/enterprise adoption rate of every game-changing technology for three decades. There's nothing to suggest artificial intelligence will be an exception to this rule. If the AI bubble bursts, it would undoubtedly weigh on Broadcom.
The final concern that may have encouraged Druckenmiller to dump Broadcom is the company's valuation. Although Broadcom's forward price-to-earnings (P/E) ratio of 31 isn't egregiously high amid a historically pricey stock market, it represents an eye-popping 81% premium to the company's average forward P/E over the trailing-five-year period.
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Druckenmiller more than sextupled his fund's stake in this scorching-hot drug stock
On the other end of the spectrum, Duquesne's chief newly purchased or added to around four dozen positions. Among these, the one that stands out the most is brand-name and generic-drug developer Teva Pharmaceutical Industries (TEVA 3.52%). Druckenmiller oversaw the purchase 7,569,450 shares of Teva, which increased his fund's stake by 530% and made it Duquesne's fourth-largest holding.
It's been quite some time since Teva was in the good graces of Wall Street and its top money managers. Between August 2015 and May 2023, shares of the company declined by close to 90%. This drop-off is related to a multitude of factors, such as litigation regarding its role in the opioid crisis, the end of sales exclusivity for blockbuster multiple sclerosis drug Copaxone, and the company's sizable debt load in the wake of its acquisition of generic-drug developer Actavis.
But in less than two years, Teva's stock has more than doubled. With quite a few catalysts in its sails, this hot drug stock is garnering attention for good reason.
NYSE: TEVA
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One of the top reasons for Teva's turnaround has been its ability to put litigation in the rearview mirror. For instance, the company settled its opioid lawsuits with 48 states for $4.25 billion two years ago. Though this might sound like a staggering figure, Teva will pay this sum over 13 years, it includes up to $1.2 billion in generic Narcan (the opioid overdose reversal drug) provided to the 48 states. In other words, it's not all cash directly out of Teva's coffers. With this legal liability lifted, the company's earnings multiple is free to expand.
Speaking of earnings, Teva's management team has begun placing more emphasis on novel-drug research. Even though brand-name drugs have a finite period of sales exclusivity, they generate substantially higher margins than generic drugs and provide Teva with plenty of pricing power. For example, sales of tardive dyskinesia therapy Austedo jumped 34% in the U.S. to $1.64 billion in 2024, with migraine-prevention therapy Ajovy enjoying 34% sales growth in Europe last year.
Being able to resolve key litigation and return the company to positive sales growth has resulted in a meaningful improvement in the company's balance sheet. Following the Actavis acquisition in August 2016, Teva had north of $35 billion in net debt on its balance sheet. But as of the close of 2024, net debt was down to less than $14.5 billion. As the company's financial flexibility improves, so will opportunities to invest in higher-growth initiatives.
Last but certainly not least, Teva Pharmaceutical Industries remains historically cheap. Shares can be purchased for less than 6 times forward-year earnings, which is a steal for a drug stock with rising sales and a bright outlook.
