If you want to improve your stock-picking skills, you'll be glad to know the government is here to help. Every three months, the Securities and Exchange Commission requires just about anyone managing more than $100 million in assets to report their holdings and their trading activity over the prior quarter.
While you can learn a lot from successful fund managers, they will be the first to remind you that their stock picks can't all be zingers. Instead of blindly following billionaires into the stocks they have been buying, let's take a closer look to see why those companies were so attractive to them in the first place.
Shares of Block(NYSE: SQ) are down around 39% from the 52-week high they reached in February. More than a few billionaire fund managers took advantage of the stock's decline to scoop up millions of shares.
John Overdeck and David Siegel of Two Sigma Investments bought more than 1.5 million shares of Block in the second quarter, and they weren't alone. Steve Cohen at Point72 Asset Management, James Simons at Renaissance Technologies, and Israel Englander at Millennium Management each bought over 1 million shares of the stock.
Block made its mark in the early 2010s with the Square card reader that turned anyone with a smartphone into a small business capable of accepting credit card payments. By expanding into banking products like loans and debit cards, Square was able to boost its profits. In the second quarter, its gross profit rose 18% year over year to $888 million.
In addition to the Square payment platform, Block owns the Cash App peer-to-peer payment service. Heaps of transactions drove Cash App's gross profit 37% higher year over year in Q2 to $968 million.
Billionaire investors are likely encouraged by Block's somewhat successful attempts to rein in spending. In the first half of the year, its sales and marketing expenses were flat compared to the prior-year period.
Its revenues are rising faster than expenses, but the company still lost $139 million in the first half of 2023. If you're going to put this stock in your portfolio, it would probably be best to follow the lead of the fund managers who chose to make their Block stakes only a small part of their diversified portfolios.
Shares of Palantir(NYSE: PLTR) have soared 143% year to date as investors reacted to a bottom line that has grown for three straight quarters. This more than likely influenced billionaire fund managers to buy millions of shares of the stock.
During the second quarter, Ark Invest, the investment firm managed by Cathie Wood, bought 6.8 million shares. Overdeck and Siegel at Two Sigma scooped up 10.6 million shares.
Palantir is famous for helping organizations analyze data from multiple sources that usually don't communicate with each other. The company got started by developing tools that help the intelligence community conduct counterterrorism investigations, but it believes every institution faces challenges of the sort that its platform is built to address.
Businesses and government agencies appear to agree with Palantir's view of the general usefulness of its data management services. In the 12-month period that ended in June, its customer count climbed 38%. At 421, though, it still has a lot of room to grow.
The second quarter of 2023 was the third consecutive quarter that Palantir was able to report positive earnings on a GAAP (generally accepted accounting principles) basis. The billionaires who bought the stock hand over fist are expecting the company to earn heaps more in a relatively short time frame. The stock trades at a sky-high valuation of 69 times forward earnings expectations.
While we can reasonably expect Palantir to continue growing, the stock's premium valuation makes it risky. Investors who want to open positions should ensure that they are adding it to well-diversified portfolios. If Palantir's earnings growth stalls before the business grows into its valuation, the stock price could take a beating.
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