The first quarter of 2024 is wrapping up, marking the deadline for money managers with over $100 million in assets under management (AUM) to submit their 13F forms to the SEC, divulging their portfolio holdings. In the keen eyes of hedge fund investors, significant buys and sells are surfacing.
These filings unveil a detailed snapshot of the investment decisions made by the elite. While the information might be dated, it provides valuable glimpses into the stocks that hedge funds are embracing or shunning. While copying their moves blindly is unwise, riding on their coattails can offer rewards. Often, investors are able to secure a more favorable price on a stock, or leverage profits after the shares have risen significantly.
This past quarter saw billionaire money managers making some eyebrow-raising moves, unloading certain stocks while eagerly amassing others. Here’s a peek at two stocks that experienced a mass exodus and one that captured the fancy of the elite.
Hedge Fund Insights: Microsoft (MSFT)
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The exit doors witnessed nearly 60% more sellers than buyers of Microsoft (NASDAQ:MSFT), as exemplified by heavyweights like Jim Simons at Renaissance Technologies who dumped his shares entirely. Steven Cohen of Point72 Asset Management followed suit, offloading over three-quarters of his stake.
Microsoft is garnering attention for integrating artificial intelligence (AI) into its products and services. The tech behemoth’s fiscal second-quarter earnings report was robust. Presently, MSFT stock is trading just below its recent all-time high, with shares up 12% this year. The stock, part of the Magnificent Seven, has surged by 52% compared to its standing a year ago.
By incorporating OpenAI’s ChatGPT chatbot fully into its operations, Microsoft saw AI contribute 600 basis points (bps) of growth to its Azure cloud computing division—double what it brought in Q1. Microsoft’s provision of hybrid cloud services, both on-site and off-premises, allows clients to select the option that suits them best and transfer data at their own pace. The growth and impact of AI are poised to accelerate in the upcoming quarters.
The decision to sell off, or even reduce, MSFT stock might not have been the wisest, despite its soaring value. Microsoft usually represents a safe bet, but following a hedge fund’s lead could offer a layer of security.
Alphabet (GOOG)
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Alphabet (NASDAQ:GOOG) was another tech giant shedding skin last quarter as hedge funds cast off their GOOG
shares. While Simons redirected his proceeds from the Microsoft sale into GOOG stock, others such as Paul Tudor Jones from Tudor Investments and the Bill & Melinda Gates Foundation divested their entire holdings. Nonetheless, Bill Gates relinquished his modest 14,000 shares shortly after acquiring them.
Google’s parent is currently hovering just below its record high set in January’s closing days. With substantial cash flows from its dominance in the search engine sector—claiming over 90% market share—Google is poised to maintain its supremacy, despite Microsoft enhancing Bing with AI. While Google faced setbacks, as seen with the introduction of Gemini leading to a retreat post issues with its AI chatbot, analysts view such hiccups as temporary. Furthermore, Apple (NASDAQ:AAPL) recently inked a deal to incorporate this AI technology into its next iPhone iteration. With a broad portfolio and ample liquidity, selling off GOOG stock prematurely might not be prudent.
Target (TGT)
Target Stock: Hitting the Mark Despite Challenges
Money Managers Bet Big on Target
Despite a lackluster year, money managers like Joel Greenblatt of Gotham Asset Management and Tom Gaynor of Markel showed confidence in Target by significantly increasing their stakes in the company. This move came as a surprise to many, considering the downward trend in the retailer’s stock value throughout the past year. However, these seasoned investors saw an opportunity too good to pass up.
Target’s Road to Recovery
In November, Target announced its third-quarter earnings, signaling a positive turn in the company’s financial health. Since hitting a 52-week low before the earnings report, Target’s stock has soared by an impressive 77%. The upward trajectory continued into 2024, with a 23% increase following the release of Q4 earnings earlier this month. The company’s success can be attributed to its ability to offer customers trendy merchandise, household essentials, and personal goods at competitive prices.
Challenges on the Horizon
Despite its recent successes, Target continues to face stiff competition from both online giants like Amazon and traditional retailers like Walmart. The ubiquitous presence of warehouse clubs, including Costco, adds further pressure on Target’s growth and profitability. As the company’s product offerings are not particularly unique, sustaining its market position remains a challenge.
An Attractive Investment Opportunity
While concerns linger about competitive pressures, Target’s stock remains appealing to investors due to its discounted valuation. Even after the recent surge, the stock is trading at a fraction of sales and a modest 16 times next year’s projected earnings. Analysts are optimistic about Target’s long-term earnings growth potential, forecasted at 18% annually. This positive outlook positions Target as a compelling investment opportunity that should not be overlooked.
Closing Thoughts
Despite the uncertainties in the retail landscape and the challenges Target faces from its competitors, the company’s resilience and strategic positioning have not gone unnoticed by savvy investors. The stock’s impressive performance in the face of adversity is a testament to Target’s ability to adapt and thrive in a dynamic market environment. For those looking to dive into the world of retail stocks, Target presents a tantalizing option worth exploring further.
