Tracking buying and selling transactions of hedge funds and billionaire money managers can be entertaining, but it can also be an enlightening exercise to try and understand the moves. Let's be honest: would you rather listen to your friend's advice about stocks while sipping an adult beverage and playing cards, or would you rather listen to a billionaire?
You went with the billionaire's advice, didn't you? I thought so. If investors better understand these moves, they could provide clues on some stocks worth watching, and some worth avoiding. With that said, here are some of our contributing writers with three interesting stocks being dumped by billionaire money managers.
Ken Griffin's Citadel Investment Group is one of the largest alternative asset management funds in the world, and one that I often track. The fund was founded in late 1990 and as of the end of the first quarter 2016 has regulatory assets of about $150 billion; its size can make finding major moves a little more difficult.
However, the fund sold its entire stake in Zoetis Inc. (NYSE:ZTS) during the first quarter. It owned 3.03 million shares of Zoetis, worth a little more than $145 million at the end of 2015. It was an interesting move in the sense that the company had reported its first-quarter earnings of $0.48 on revenue of $1.2 billion, which handily beat analysts' estimates of $0.41 per share on revenue of $1.1 billion.
About the company: Zoetis is a leader in the global animal-health industry and it has a cost advantage over its competitors. One of the reasons it does well is because its animal-business customer base is fragmented, which gives the company significant pricing power.
So why sell the stock? Without asking Mr. Griffin, there isn't a definitive answer, but one lingering question could provide a clue: How will growth from emerging markets impact margins?
Part of the company's growth story is that as emerging markets improve their standards of living, animals will increasingly be seen as companions as they are in the U.S., which will increase the need for Zoetis' products. However, sales in emerging markets will likely create a headwind for its total margins, at least for the medium term.
According to recent SEC filings from Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), Warren Buffett has completely disposed of his position in AT&T (NYSE:T). The company is on the wrong side of major technological trends, so there are strong reasons to be cautious when analyzing an investment position in the telecom giant.
The telecom industry has always been aggressively competitive. Making things worse for companies in the sector, Internet and related technologies are rapidly reducing communication costs across the board, and this is putting additional downside pressure on pricing and profitability.
In July of last year, AT&T closed the acquisition of DirecTV for $49 billion. This deal made AT&T a major player in pay TV, and DirecTV offers attractive growth opportunities in Latin America. Nevertheless, the cord-cutting revolution is a major threat for pay TV operators, and adapting to technological change can be both difficult and expensive.
On the other hand, many of these concerns are already incorporated into valuation to a considerable degree, and AT&T stock looks quite cheap at current prices. The stock is trading at a big dividend yield of 4.9%, making the company a tempting bet for dividend investors hunting for opportunities.
If management proves to investors that it can generate consistent growth in the face of challenging conditions, then AT&T could offer substantial upside potential from currently depressed prices. However, that's quite a big "if."
Per the latest 13F filings, in the first quarter of 2016, billionaire George Soros' fund dumped 60% of its stake in the common stock of Botox maker Allergan (NYSE: AGN) -- a position Soros Fund Management initiated roughly two years ago. Now, to be honest, the reason for the fund's sudden change of heart isn't much of a mystery. After all, Allergan saw dozens of funds hit the exits once its proposed merger with pharma giant Pfizer fell through for tax reasons. In short, a fair number of money managers were clearly playing the merger-arbitrage game, and got burned in the process by Allergan's failed merger, which triggered a spectacular decline in its share price:
But I think this hefty decline in Allergan's share price is way overdone, for a couple of reasons. First off, Allergan still sports a strong portfolio of branded drugs that are generating double-digit sales growth at the moment, and that trend should continue for the foreseeable future, as the drugmaker gears up to launch several additional products soon.
Next up, the company's management recently pledged a massive $10 billion worth of share buybacks in the near future -- that is, once its deal with Teva Pharmaceutical Industries Ltd. for its generic drug unit finally closes. Besides boosting its bottom line, this proposed deal with Teva will also give Allergan plenty of ammo to pursue a handful of value-creating, bolt-on acquisitions, as well as reduce its monstrous debt load. Bottom line, Allergan looks, to me, like a great pickup at current levels -- despite the recent exodus of some billionaire superinvestors.
Andrés Cardenal owns shares of Berkshire Hathaway. Daniel Miller has no position in any stocks mentioned. George Budwell owns shares of Allergan PLC, Berkshire Hathaway, and Pfizer. The Motley Fool owns shares of and recommends Berkshire Hathaway. The Motley Fool recommends Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.