You may not realize it, but what’s arguably the most important data release of the entire second quarter occurred just a few weeks ago — and it has nothing to do with inflation or economic growth.
May 16 represented the Form 13F filing deadline for money managers with at least $100 million in assets under management. Put simply, a 13F is a once-quarterly look under the hood at what the brightest minds on Wall Street have been buying, selling, and holding. Even though there are drawbacks to 13Fs (e.g., they’re 45 days old when filed), they can provide valuable insight into what stocks and trends are captivating successful money managers.
If there was one trend that clearly stood out during the first quarter, it’s that growth stocks were on the menu for many billionaire money managers. After perusing a veritable sea of 13Fs, it’s clear that billionaires can’t stop buying these four supercharged growth stocks.
First up is electric vehicle (EV) manufacturer Tesla (TSLA 1.19%), which was an especially popular buy for Jim Simons’ Renaissance Technologies. In the three months between the end of 2021 and March 31, 2022, Simons increased his fund’s stake in Tesla by 109%, or 811,900 shares.
The primary lure for Tesla bulls is the company’s competitive edge. For years, Tesla batteries have possessed superior power, capacity, and range. Tesla also sports a clear-cut production edge, with the company appearing to be on pace for more than 1 million EVs produced this year. This boost in output coincides with the company’s Austin, Texas, and German gigafactories coming online.
Simons may also be encouraged by Tesla’s bottom-line improvements. Even though regulatory credits continue to provide a boost to profits — regulatory emissions credits are viewed as an unsustainable source of long-term profits — Tesla was able to generate a record $3.74 billion in adjusted income during the first quarter on a nearly 33% automotive gross margin.
But Tesla’s success is far from a guarantee. The company’s battery advantages have narrowed considerably, and CEO Elon Musk has turned into a distraction as he attempts to acquire social media platform Twitter.
Furthermore, auto stocks are traditionally valued at low earnings multiples to account for the cyclical nature of the industry. Tesla’s multiple of 58 to Wall Street’s forecast earnings for 2022 is worrisome.
Another rapidly growing stock that found itself in the shopping cart of a highly successful billionaire fund manager is gaming company Skillz (SKLZ 8.33%). Israel Englander of Millennium Management gobbled up more than 3.1 million shares during the first quarter, which increased his fund’s stake by 376% from three months prior.
What makes Skillz such an intriguing company is its role within the fast-growing mobile-gaming industry. Rather than developing mobile games in a highly competitive and capital-intensive space, Skillz operates a platform that allows gamers to compete against each other for cash prizes. Portions of this cash are kept by Skillz and the developer of the game being played. It’s a relatively low-cost way to take advantage of growth in esports and casual gaming.
Something else to note is that Skillz forged a multiyear agreement with the National Football League (NFL) in February 2021. Football is the undisputed most popular sport in the U.S. This agreement will see NFL-themed games developed, with participants competing on Skillz’s mobile-gaming platform.
Yet, there are also concerns about the company’s longevity. Losses have come in substantially higher than anticipated, which has caused the company’s cash pile to shrink. Even with a reduced marketing budget, it’s not clear if or when Skillz will turn the corner to profitability.
Digital payments company Block (SQ 0.09%), formerly known as Square, was also a popular billionaire buy. Philippe Laffont of Coatue Management added close to 3.2 million shares of fintech stock Block in the first quarter, which more than doubled the fund’s prior stake.
For years, Block’s bread and butter has been its seller ecosystem, also known as the “Square ecosystem.” This is the segment that provides point-of-sale devices, loans, and analytics to small businesses. In the entirety of 2012, gross payment volume (GPV) tallied $6.5 billion. In the first quarter of 2022, Block saw $39.5 billion in GPV traverse its platform.
Best of all, larger merchants have grown into a sizable percentage of GPV on Square’s ecosystem. Since this segment is predominantly fee-based, bigger merchants should yield beefier gross profits for Block.
The other key driver is digital peer-to-peer payment platform Cash App. In a roughly four-year stretch beginning at the end of 2017, Cash App’s monthly active user count catapulted from 7 million to over 44 million. The acquisition of buy now, pay later company Afterpay allows Block to create a closed-loop payment ecosystem that connects Cash App with its Square ecosystem.
Arguably the biggest knock against Block is the vast amount of low-margin revenue tied to Bitcoin trading. With the world’s largest cryptocurrency hitting the skids in recent months, some of the luster that’s made Block shine could begin to wear off. Then again, Block’s future is about far more than just cryptocurrency trading.
The fourth supercharged growth stock that billionaires can’t stop buying is cancer-drug developer Exelixis (EXEL -1.54%). Steven Cohen of Point72 Asset Management purchased more than 2.6 million shares of Exelixis last quarter, which represents a 62% increase from Point72’s holdings at the end of 2021.
If you’re wondering “Why Exelixis?” the answer has both macro and company-specific implications.
On a macro level, buying profitable healthcare stocks is a smart move to make during stock market corrections and bear markets. Since we can’t control when we get sick or what ailment(s) we develop, there’s always going to be demand for prescription drugs, medical devices, and healthcare services. In other words, just because the stock market is struggling, it doesn’t mean cancer patients suddenly don’t need Exelixis’ therapies.
On a more company-specific basis, lead drug Cabometyx has been quite the success story. Cabometyx is approved to treat first- and second-line renal cell carcinoma, as well as advanced, previously treated hepatocellular carcinoma. These indications alone have helped push Cabometyx above $1 billion in annual sales. The thing is, Cabometyx is being studied in dozens of additional clinical trials. This suggests label expansion opportunities, coupled with drug-pricing power, should help Exelixis sustain a double-digit growth rate.
This is also a company swimming in capital. Exelixis ended March with approximately $2 billion in cash, cash equivalents, and restricted cash equivalents and investments. Being so well capitalized has allowed Exelixis to reignite its internal growth engine and conduct dozens of trials with the hope of expanding Cabometyx’s label.
Sean Williams has positions in Block, Inc., Exelixis, and Skillz Inc. The Motley Fool has positions in and recommends Bitcoin, Block, Inc., Skillz Inc., Tesla, and Twitter. The Motley Fool recommends Exelixis. The Motley Fool has a disclosure policy.
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