Billionaire investors such as Warren Buffett, Carl Icahn, and Mark Cuban have amassed fortunes by investing in the stock market. Below, three Motley Fool contributors weigh in on why Netflix (NFLX -2.52%), Apple (AAPL -2.19%), and Mastercard (MA -1.20%) are three favorite stock picks among billionaire investors today.
Travis Hoium (Netflix): One of the most surprising billionaire acquisitions in the last few months was the revelation that Mark Cuban was buying shares of Netflix (NFLX -2.52%). He bought shares when they plunged after a disappointing third quarter earnings report.
Cuban thinks Netflix is in the driver's seat when it comes to new content and will eventually be an acquisition target for a larger company looking for growth. He hasn't built a big enough stake to warrant public disclosure, but he is certainly bullish, even touting his purchase of shares on CNBC.
Whether or not Netflix is acquired, it is starting to show some of the long-term profit potential of its business. You can see below that the last 12 months have resulted in a $232 million profit and that's growing quickly. If Netflix can continue to execute on its international growth strategy, the growth story could continue for many years to come.
Strategically, original content has reduced Netflix's reliance on content providers, and the company has been able to reign in costs. If high quality content continues to churn out of Netflix and content providers aren't able to successfully build out their own streaming networks, the company will be in an enviable position. Mark Cuban certainly thinks Netflix will be a good investment and given the momentum toward cord cutting he might be right.
Joe Tenebruso (Mastercard): Some of the largest hedge funds in the world are quietly building positions in MasterCard, and I can certainly understand why. MasterCard operates one of the largest credit card payment networks in the world across more than 200 countries, placing the company in an excellent position to profit from the massive global shift toward electronic payments and away from cash transactions.
The credit card titan enjoys powerful network effects, as each new merchant that accepts MasterCard makes the network more valuable to consumers, and each new consumer who carries MasterCard increases the potential pool of customers for participating merchants (thanks to an easier means of purchase and therefore likelihood of sale).
Risk-averse investors may also appreciate that MasterCard is not subject to repayment risk like the banks that issue its cards. Instead, MasterCard has a tollbooth-like business model in which it earns a small fee from every transaction that passes through its payment network. This produces a stream of steadily-growing cash flow, which MasterCard then passes on to shareholders in the form of share buybacks and rising dividend payouts.
That’s a trend I expect to continue for years -- and potentially even decades -- to come. That’s because more than 80% of global transactions are still made via cash or check. And so while the global move towards digital payments is well-underway, it’s still very much in its early innings, making now a great time to consider buying shares in MasterCard.
Tamara Walsh (Apple): Apple continues to be a favorite among billionaire and activist investors today. The iDevice maker is one of the largest holdings of the iBillionaire index, which tracks over $250 billion in assets managed by top billionaires including Warren Buffett, Carl Icahn, and David Einhorn. Icahn is now the largest stakeholder with as much as 15.8% of Icahn Enterprises funds invested in Apple. He has been growing his stake in the tech company since late 2013 and using his ballooning position to pressure Apple to buyback more stock. With shares of Apple currently trading around $106 a pop, Icahn believes the stock is wildly undervalued.
David Einhorn is currently runner-up to Icahn, with Apple accounting for 13.33% of his Greenlight Capital fund today. It's hardly surprising that so many billionaires continue to pile into Apple. The tech giant's latest upgrade cycle, after all, was hugely successful. Apple sold more than 10 million iPhone 6 and iPhone 6 Plus devices in the first weekend alone -- a record for the tech titan.
Apple's third-quarter results were also noteworthy. Not only did the company generate a record $37.4 billion in quarterly revenue, but it also delivered 20% growth in earnings-per-share during the period. With more exciting products barreling down the pipeline (think Apple watch) in the quarters ahead, billionaire investors will likely continue adding to their positions in Apple going forward.
