Last week, Wall Street kicked off earnings season. This marks a stretch of about six weeks where most S&P500 companies will lift their proverbial hoods and report their operating results on a quarterly basis for the most recent quarter. While these reports help paint a picture of the health of the U.S. economy and stocks, there is another group of data releases overall that are arguably even more important.
Each quarter, institutional investors with at least $100 million in assets under management (AUM) must file Form 13F with the Securities and Exchange Commission. With a 13F, investors can look over their shoulder to see what Wall Street’s smartest money managers bought and sold last quarter. August 14 marked the filing deadline for Q2 trading and may be the most important data release in recent months.
Image source: Getty Images.
While Berkshire Hathaway CEO Warren Buffett is by far the most watched of all asset managers, while other billionaire investors have amassed the following. One highly successful billionaire money manager that professional and ordinary investors are watching closely is Israel Englander of Millennium Management.
Englander and his team run one terribly active hedge fund, with thousands of positions and nearly $216 billion in assets under management, by mid-2024. Among the a lot of of the trades Englander and his team made during the quarter ended June, the most notable being decisive selling activity in ultra-popular artificial intelligence (AI) stocks Palantir Technologies(NYSE:PLTR).
Palantir has been an ongoing stake in Millennium Management’s massive portfolio since it became a publicly traded company in September 2020. But during the second quarter, Englander oversaw the sale of 7,074,815 shares of Palantir, reducing Millennium’s stake by 59% to 4,973,308 shares.
As of the second quarter, Palantir shares had more than doubled from an extended base that kept shares roughly between $6 and $10 between May 2022 and April 2023. Eleven quarters (ie less than three years), profit taking is certainly a feasible reason for this reduction of more than 7 million shares. But it’s probably not the only reason for this aggressive selling.
To put it bluntly, Palantir’s valuation has become a thorn in the side. In one respect, the company definitely deserves some valuation premium, as its services are irreplaceable on a large scale. These “services” include the AI-driven Gotham platform, which supports mission planning for federal governments, as well as the enterprise-focused Foundry platform that helps companies streamline their operations by making sense of their data.
On the other hand, Palantir’s is approaching a price-to-earnings (P/E) ratio of almost 100, and last week hit its balance sheet at about 30 times full-year sales. With the company’s annual revenue growth expected to fall to 21% by 2025, maintaining a near-triple-digit price-to-earnings ratio is unlikely to be sustainable.
Palantir also faces a natural growth ceiling for its Gotham platform. Although Gotham is responsible for making Palantir profitable on a recurring basis, and has helped the company win lucrative multi-year contracts from the US government, there are only a limited number of government agencies that can use Gotham (for example, Palantir does not allow China or Russia do this). access to its services).
With limited expansion potential from Gotham, Palantir will have to rely on Foundry for its long-term growth. While Foundry’s future is bright, this is still a relatively emerging business segment for the company.
But while Israel Englander and his team were busy knocking off more than half of their Palantir shares, they were avid buyers of a company close to the hearts of consumers worldwide.
Image source: Coca-Cola.
Despite adding to more than 2,100 existing positions in the quarter ending, the purchase Englander made for Millennium Management that really stands out is a consumer goods goliath. Coca-cola(NYSE:KO).
Millennium’s 13F shows that 5,444,678 Coca-Cola shares were purchased by the fund’s brightest investment minds, including Englander. As a result, Millennium’s stake in the drinks market increased by 347% to 7,009,050 shares in a three-month period.
The great thing about consumer staples stocks is that they perform well in almost any economic environment. Coca-Cola sells beverages, which are a basic necessity no matter how well or poorly the U.S. or global economy performs. The cash flow predictability that consumer staples leaders bring to the table is what makes them such popular investments.
But there’s more to Coca-Cola than just its ability to generate predictable operating cash flow. For example, it offers almost unparalleled geographical diversity. It has more than twenty brands that generate annual sales of at least $1 billion, with operations in all but three countries around the world (North Korea, Cuba and Russia). This leads to steady cash flow in developed markets and smooth organic growth in emerging markets.
Coca-Cola is also the world’s top brand among consumers. In May, Kantar released its annual Brand Footprint report, which was led by Coca-Cola for the twelfth year in a row. Kantar’s report notes that the percentage of households purchasing cola products in 2023 increased by 2.6% compared to the previous year, with the brand chosen by consumers almost 8.3 billion times.
Being a highly recognized brand is a reflection of Coca-Cola’s marketing efforts paying off. It has more than a century of history and well-known brand ambassadors to lean on to connect with adult consumers. Meanwhile, the company’s marketing team is relying on AI and digital media channels to reach younger audiences.
KO dividend chart
Let’s not forget that Coca-Cola also has one of the most impressive capital return programs. Although the company’s board occasionally authorizes share buybacks, it is the dividend that calls the shots. In February, the company’s annual base payout rose for the 62nd year in a row, definitively elevating Coca-Cola to Dividend King status. You only need the fingers of two hands to count how many publicly traded companies are currently on a longer streak of ongoing payout increases.
The final piece of the puzzle for Millennium’s investment team was likely Coca-Cola’s valuation. While the forward price-to-earnings ratio is currently in line with the five-year average, the shares traded at a significant discount to this average during the second quarter.
While Coca-Cola won’t blow investors away on the growth front, its well-defined competitive advantages and superior dividend continue to pay off for patient shareholders.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway and Palantir Technologies. The Motley Fool has a disclosure policy.
Billionaire Israel Englander sold 59% of Millennium’s stake in Palantir and has chosen to dive into a stock that consumers absolutely love, originally published by The Motley Fool
