If these companies are good enough for some of the world’s richest investors, why wouldn’t they be good enough for the rest of us?
There’s an old saying that success breeds success. When it comes to investing, many folks take that saying to mean that it might make sense to pay attention to what other successful investors are buying, and then follow their leads into the same investments. After all, even if you don’t get entirely the same return as those other folks do, you might be able to ride their coattails to get some decent gains.
Fortunately for folks looking to follow in the investing footsteps of billionaires, many of the world’s biggest investors need to disclose what they buy and sell, every quarter. To see what those potentially market-moving money managers are buying, three Motley Fool contributors went looking for signs of what transactions those major investors have been reporting. They uncovered that billionaire investors have been buying Nvidia (NVDA -2.68%), Starbucks (SBUX -1.14%), and Chevron (CVX -1.81%). Read on to find out why, and decide for yourself whether following those investors’ leads might help you build your own wealth.
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This Magnificent Seven stock is hot, hot, hot these days
Eric Volkman (Nvidia): Billionaire Ray Dalio’s monster hedge fund Bridgewater Associates is clearly all in on the future of artificial intelligence (AI). That’s the strong signal being sent by Bridgewater’s more than quintupling of its position recently in one of the Magnificent Seven stocks more readily associated with AI, Nvidia.
Nvidia’s stock in trade is graphics processing units (GPUs), many of which are used to power AI functionalities in data centers. The rush to develop these functionalities has sharply increased demand for all sorts of hardware needed to support them, and Nvidia GPUs are front and center in this drive.
It’s no wonder that the company’s latest set of quarterly figures was so impressive. Do you think a year-over-year doubling of revenue is a feat? Well, that’s nothing compared with Nvidia’s 265% top line improvement in its fourth quarter, not to mention the nearly 500% surge in non-GAAP (adjusted) net income.
AI is a technology with a very long runway, and since it can be applied to a great many processes and systems, it has the potential to produce many revenue streams. If Nvidia’s products remain central to this — a likely scenario — we can expect the company to have more blowout quarters in the future.
The one serious caveat with Nvidia is that it’s on a lot of investor radar screens these days; it seems almost every individual and institution on the market wants the stock in their portfolio. Even with those out-of-this-world recent fundamentals, the company is very pricey on its valuations, so its explosive share price growth might be a thing of the past.
More than a quick jolt
Jason Hall (Starbucks): While perusing SEC form 13-F filings recently, I noticed something interesting for Starbucks: Two of the largest and most successful quantitative trading firms, D.E. Shaw, and Renaissance Technologies, both bought shares in their most-recently reported quarter. For those who don’t know, David Shaw and Jim Simons, the two founders of the former and latter, are worth nearly $40 billion combined, with their two firms easily the two most successful quantitative trading funds operating.
Both Shaw and Renaissance make most of their money relatively quickly. Their business is at least partly high-speed trading and leveraging data to make lots of bets on lots of stocks. For example, D.E. Shaw opened almost 594 new stock positions last quarter, added to another 1,607, and completely sold out of another 535 stocks. That’s more than 2,700 stocks in a single quarter.
We don’t know exactly when Shaw or Renaissance bought, held, or sold some of its Starbucks shares. But we do know that at the end of the quarter, they both still owned some. And with shares of the global coffee giant down over 6% since the beginning of the fourth quarter of 2023, and 20% off the high, there’s likely some short-term opportunity for a profit for these firms.
But that’s their game. For individual investors, we can’t win there.
However, Starbucks looks very appealing for the long term. Its business in China has recovered, with comps up 10%, and strong 5% same-store growth in the U.S., too. Management is looking for 15%-20% earnings-per-share growth this year as well. Combine that growth with a reasonable price below 23 times earnings and a dividend yield above 2.5%, and long-term investors can profit by owning Starbucks, too.
Buffett Thinks There’s Still a Future In Oil
Chuck Saletta (Chevron): Warren Buffett’s Berkshire Hathaway recently elected to buy nearly 16 million shares of oil company Chevron, according to its most recently published filings of its quarterly holdings. This is yet another clear signal — on top of Berkshire Hathaway’s massive investments in energy pipelines — that Buffett and his crew believe there’s still a future in hydrocarbon-based fuels.
They’re not exactly alone on that front. According to the U.S. Energy Information Administration’s most recent Annual Energy Outlook, net demand for oil and natural gas is expected to hold relatively consistent at least through 2050. And of course, in a world where that demand is consistent over the next couple of decades, it’s unlikely that people will simply stop using those fuels entirely as soon as 2051 rolls around.
The reality is that even if you assume a limited future for carbon-based fuels, at the right price, an investor can make a decent return by owning shares of companies involved in them. It’s a value investing strategy based on good-old-fashioned practice of looking at what the company’s cash flows will look like over time.
Trading at around 14 times its earnings, an investor doesn’t have to project massive growth to have a chance at decent returns from Chevron. That’s particularly true when you recognize that Chevron pays its investors a decent dividend yield of around 4%.
Even looking simplistically, with a 4% yield that holds steady, an investor would get his or her money paid back over the course of 25 years. That provides a potential path to a complete return of invested capital over that time, while the investor would still own the shares that generate those dividends. And of course, since demand is likely to continue beyond that point, there’s a chance to earn even more.
Net — even in the absence of a massive growth story, there’s good reason to believe there’s still value to be extracted from the oil patch. And if that’s good enough for Buffett, it just might be good enough for us mere mortals.
Are you ready to follow these leading investors?
Ray Dalio’s purchase on Nvidia, D.E. Shaw’s and Renaissance’s ownership of Starbucks, and Buffett’s Berskhire Hathaway’s buy of Chevron showcase that there are many ways to look to profit from the market. These leading investors appeared to follow three very different approaches to determine which stocks looked worthy of their money.
That should give you good reason to believe that you, too, should be able to find a path to decent returns from investing. Nobody — not even successful billionaires — can guarantee what you’ll earn in the stock market, but as their successes over time has shown, a big part of making money in the market comes from simply showing up and following a reasonable strategy over time.
So get started now, and make today the day you decide to follow these great investors into the market, whether or not you actually buy the exact same investments that they do.
