Billionaire hedge fund manager Israel Englander co-founded Millennium Management in 1989 with $35 million. Today, Millennium has more than $70 billion in assets under management and is one of the largest hedge funds in the world. Englander has done well and has one of the best investing minds in the game. That’s why investors eagerly await Millennium’s quarterly 13F filing, a form required by the Securities and Exchange Commission (SEC) that discloses a fund’s holdings.
Investors should understand that Millennium is a ‘pod shop’, meaning it allocates capital to different teams (or ‘pods’) each with their own strategies and a lot of autonomy. So an investment at Millennium may not have been made directly on Englander’s orders. However, as CEO, Englander likely still has some degree of control and influence over major hiring decisions, so he certainly has confidence in his portfolio managers. So don’t blindly follow these managers, but they can serve as a source for picking up new ideas and checking investment hypotheses.
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In the third quarter, Millennium sold large portions of its stakes in artificial intelligence (AI) companies. Nvidia (NASDAQ: NVDA) And Palantir (NYSE:PLTR) and bought a new stock that Wall Street thinks could go up.
Millennium isn’t the only major fund selling chipmaker Nvidia and analytics platform Palantir; it’s definitely been a trend in the third quarter. Millennium sold 13% of its stake in Nvidia in the third quarter, although it still owns 11.15 million shares and put and call options. Millennium sold 90% of its shares in Palantir, but increased the company’s call and put options on the stock, which could be a straddle options strategy. The selling appears to be more of a valuation call in a market considered by many to be overbought and frothy. The market has risen over the past two-plus years, largely driven by themes such as technology, growth and AI.
As you can see above, these are astronomical valuations, despite AI’s ability to disrupt life as we know it. I don’t think institutional fund managers doubt the potential of AI, but an important but difficult lesson for investors is that valuation does matter. The best companies with unlimited potential can be bad buys if bought at extremely high valuations. On the other hand, bad, highly leveraged companies can make large investments if they are bought at low enough valuations.
It’s hard to let down companies you believe in, but sometimes it can be the right choice. When stocks trade at high values, even if the company is performing well, there is a smaller margin for error. For example, Nvidia’s third-quarter earnings report saw revenue nearly double year over year, but the stock fell the next day after expectations failed to impress.
During the third quarter, Millennium bought more than 3.2 million shares in the electric aircraft manufacturer Sagittarius Aviation (NYSE: ACHR) for a total value of approximately $9.8 million, making Millennium the eleventh largest holder of the shares.
Archer is one of two companies trying to launch air taxis for commercial use in select U.S. cities to help ease traffic congestion. The company’s Midnight electric aircraft can fly consecutive flights of 20 to 50 miles with minimal charging time and carry up to four passengers in addition to the pilot. They would also make minimal noise.
Archer has already achieved a number of significant regulatory milestones, including receiving final airworthiness criteria from the Federal Aviation Administration (FAA) and conducting 400 test flights ahead of schedule. In August, Archer also announced a planned air taxi network in Los Angeles that could replace one- and two-hour rides with 10- and 20-minute flights. The company has also made deals to help develop a network Southwest Airlines. The timing will be uncertain, but the launch of commercial flights and networks in selected cities is not excluded in 2025.
Wall Street seems to like the company’s plan, with an average price target of $9.38 among four analysts covering the stock, implying an upside of 88% from current levels. The most bullish analyst has a price target of $12.50, implying an upside of 151%. Understand that investing in a stock like Archer Aviation is like investing in a late-stage startup. The company is not yet profitable. However, the risk-reward profile is favorable, so investors can make significant profits if all goes well. If Archer can get off the ground, it could gain a significant share of a potentially lucrative market.
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Bram Berkowitz has no positions in the stocks mentioned. The Motley Fool holds and recommends positions in Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
Billionaire Israel Englander is selling Nvidia and Palantir and buying a new stock that Wall Street thinks could rise as much as 151%. originally published by The Motley Fool
