The first quarter of 2023 was quite eventful for investors, marked by several major bank collapses due to insufficient preparation for the rising interest rate environment and renewed fervor for artificial intelligence stocks following the rollout of OpenAI’s ChatGPT. The S&P 500 climbed 7.45% for the quarter, while the Nasdaq soared 21.34% and the Dow Jones Industrial Average was mostly flat, up just 0.41%.
According to GuruFocus’s Hot Picks, a feature which allows investors to screen for the stocks that had the highest number of guru buys or sells based on the most recent regulatory filings, the five most popular buys among gurus during the quarter (as determined by net buys) were Bank of America Corp. (BAC), Nvidia Corp. (NVDA), Newmont Corp. (NEM), Lululemon Athletica Inc. (LULU) and CVS Health Corp. (CVS).
Investors should be aware that the data in this article is based on 13F filings for investing firms and portfolio updates for mutual funds, which do not provide a complete picture of a guru’s holdings. The 13Fs include only U.S. common stocks, while the mutual fund updates typically include both U.S. and foreign common stocks. Neither include other assets or investments such as bonds, credit, etc. All numbers are as of the quarter’s end only; it is possible the gurus may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Bank of America
Bank of America (BAC) was bought by 20 gurus and sold by nine gurus during the first quarter, resulting in 11 net buys. Gurus buying the stock included Ken Fisher and John Rogers, while sellers included Chris Davis and Murray Stahl. Gurus have been mostly bearish on the stock in recent quarters, though not always.
During the quarter, shares of Bank of America traded for an average price of $33.01. As of this writing, shares went for around $29.19 apiece. The GF Value chart rates the stock as modestly undervalued.
Investors have generally been wary of bank stocks since the collapse of Silicon Valley Bank and a few other large banking institutions earlier this year. For many of the regional banks at risk of deposit runs as well as larger banks that exposed themselves to untenable interest rate risks, that wariness is certainly warranted.
However, as depositors have scrambled for a safer place to park their cash, Bank of America got an unexpected boost in deposits immediately following the Silicon Valley Bank collapse. It seems the “too big to fail” reputation is making it unlikely that Bank of America will see a sustained outflow of deposits, as outflows will be at least partially mitigated by depositors from riskier banks fleeing to perceived safety.
Nvidia Corp. (NVDA) had 18 guru buyers and seven guru sellers for the quarter for a total of 11 net buys. Jim Simons' Renaissance Technologies and Dodge & Cox were among those buying shares, while sellers included Baillie Gifford and Mario Gabelli. There has been an increasingly bullish trend among gurus for this stock over the past few years.
Nvidia traded for an average price of $216.14 per share during the first quarter, but it has skyrocketed since then, rising to $390.15 as of this writing. The GF Value chart rates the stock as significantly overvalued.
Nvidia is primarily known for designing graphics processing units and system on a chip units. It has a strong presence in the mobile computing and automotive markets and is a leader in artificial intelligence and internet of things chip designs.
Despite the recent downturn in the broader semiconductor industry, hype for AI has pushed Nvidia’s stock to new heights. AI applications need a lot of computing power, and as a leader in AI chips, Nvidia stands to gain a lot from companies aggressively investing in AI in an effort to improve their operational efficiency and achieve higher productivity.
Newmont (NEM) had 13 guru buys for the quarter compared to only two sells, for a total of 11 net buys. Gurus who were buying the stock included Ray Dalio and Baillie Gifford, and the two sellers were Simons' firm and Mario Gabelli. This quarter marks a huge bullish spike compared to the rest of the past few years.
Newmont’s shares averaged $48.47 apiece during the quarter. The stock price has fallen since then to $42.04 as of this writing. According to the GF Value chart, the stock is a possible value trap as the decline in share price coincided with a drop-off in earnings.
Newmont is the world’s largest gold mining company. With gold being the world’s traditional safe haven asset, it is easy to see why gurus are being attracted to the stock amid rising uncertainty in the global macroeconomic situation.
Newmont sports a unique dividend structure based on gold prices and free cash flow for the year. Its base dividend is $1 per year, assuming a gold price of $1,400 per ounce, but the actual dividend may end up being higher if gold prices or operational efficiencies are more favorable. There is no telling what the future dividend will be, but for the trailing 12 months, the yield was 4.52% based on today’s prices.
Lululemon Athletica (LULU) was bought by 11 gurus during the quarter and had only one guru sell, resulting in 10 net buys. Many of the buys were new buys, such as those from Simons' firm, Jefferies Group and Andreas Halvorsen. The sole seller was Ken Fisher. The overall trend for this stock has been bullish for the past three years, but buying picked up even more in the latest quarter.
Lululemon’s average share price for the quarter was $313.51, and shares have continued to rise since then, reaching $354.95 as of this writing. The GF Value chart rates the stock as significantly undervalued.
The reason the GF Value chart considers the stock undervalued despite its high price-earnings ratio of 47 is because of its even higher historical valuation multiples combined with rapid top and bottom-line growth rates. This is truly a company that has taken the retail market by storm.
Lululemon’s rise has been propelled by strong branding, innovative materials and tapping into a unique, previously unmet niche of fashionable athleisure clothing. Before Lululemon, customers typically had to pick between functionality, quality and looks when it came to athletic clothing, and a large part of the reason for that was due to the limitations of materials. Lululemon’s trademarked materials have played a key role in its rise to prominence.
CVS Health (CVS) had 17 guru buys during the quarter compared to eight guru sells, resulting in nine net buys. Chuck Royce and Robert Olstein were among those buying the stock, while sellers included Diamond Hill Capital and Chris Davis. The stock is regaining some bullish sentiment from gurus after a bearish 2022.
CVS Health’s average share price for the quarter was $83.86, which is higher than the $71.86 level as of this writing. The GF Value chart labels the stock as significantly undervalued.
The retail pharmacy company has been undergoing a long-planned business transformation due to changing market conditions. The advent of e-commerce has been gradually adding more competitors for the retail pharmacy business, chipping away at CVS Health’s market share and foot traffic. Thus, it has turned to its MinuteClinics and now primary care for growth.
The company recently closed its $10.6 billion acquisition of Oak Street Health to expand its primary care business. The whole venture has been expensive, but CVS Health believes it can make up for the cost by offering cheaper health care services in a market where health care is notoriously overpriced, thus growing its market share rapidly.
Originally published on GuruFocus.com
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