Investors rarely need to look for clues about the health of corporate America during earnings season. For a six-week period each quarter, a majority of the most influential companies on Wall Street raise their proverbial hoods to investors.
But what you might not realize is that one of the most important fourth-quarter earnings came last week, in the middle of earnings season. On November 14, institutional investors with at least $100 million in assets under management (AUM) were required to file Form 13F with the Securities and Exchange Commission. A 13F is the record that breaks down which stocks Wall Street’s top money managers bought and sold in the last quarter (in this case, the quarter ending September).
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While Warren Buffett op Berkshire Hathaway has Wall Street’s most loyal following, there are plenty of other billionaire money managers whose 13Fs are closely watched. This includes Ray Dalio of Bridgewater Associates, who ended the third quarter with nearly $17.7 billion in assets under management.
What’s particularly notable about Dalio’s active hedge fund is that he was the only prominent buyer of shares of a cloud-based data mining specialist. Palantir Technologies(NYSE:PLTR) in the quarter ending September.
While Bridgewater opened 79 new positions and added to 260 existing holdings in the third quarter, perhaps none will raise more eyebrows than the 437,268 shares Dalio bought of artificial intelligence (AI)-inspired stock Palantir Technologies. As billionaire investors have cashed in their chips on Palantir, Dalio’s fund has increased its holdings by 507% from the quarter ending in June.
Palantir shares have skyrocketed more than 725% in the past two years ending Nov. 19, with four well-defined catalysts leading the charge.
For starters, Palantir’s software-as-a-service (SaaS) business model isn’t replicable at scale by any other company. The AI-powered Gotham platform is tailored to federal governments, helping with everything from data collection to mission planning and execution. Additionally, Palantir’s Foundry platform leans on AI and machine learning capabilities to help companies make sense of their data. Companies with sustainable moats often receive a valuation premium on Wall Street.
Second, there’s a level of consistency in Palantir’s business results that few other high-growth tech stocks can offer. Palantir is profitable on a recurring basis and generates significant profits and operating cash flow from the contracts it signs with the U.S. government. These contracts often have a term of four or five years, which leads to predictable business results year after year.
The third catalyst for Palantir Technologies is the Foundry platform. While Gotham’s ceiling is obviously limited by the fact that it is only open to the US and its immediate allies, Foundry’s big data analytics platform could be useful to a broad spectrum of companies. Global commercial customer base growth was 51% in Q3 (498 in Q3 2024 vs. 330 in Q3 2023) and represents just the tip of the iceberg for Foundry.
Finally, Palantir is flush with cash. It ended the quarter ended September with nearly $4.6 billion in cash, cash equivalents and marketable securities, without debt. This treasury gives Palantir the flexibility to make deals or comfortably navigate short-lived periods of economic turbulence.
While there’s no doubt that Dalio is in good shape after increasing his fund’s stake in Palantir, there are also serious questions to be answered about the company’s valuation. Interest income on Palantir’s cash accounts for about 35% of the $408.6 million in pretax revenue the company generated in the first nine months of 2024. With Palantir recently reaching a market cap of $150 billion, it’s coming up with just $400 million in pre-tax revenue. income, without interest income, provides a Real pricey stock.
At the other end of the spectrum, billionaire Ray Dalio oversaw the outright sale of 183 stocks during the third quarter, and the downgrades of 428 others. One of the most surprising is the 195,086 shares of Media Goliath sold by Bridgewater Associates Walt Disney(NYSE: DIS). This selling activity removed Disney shares from Dalio’s fund.
Walt Disney has certainly endured his fair share of struggles since the beginning of this decade. While the COVID-19 pandemic posed a challenge for most businesses, it temporarily crippled two key revenue segments for Disney. The company was forced to close some of its theme parks, while studio production ground to a halt as movie attendance fell.
Additionally, continued consumer cutbacks forced Disney to spend heavily on building out its content library and aggressively marketing its Disney+ streaming service. Although Netflix has been profitable for years, legacy media companies like Walt Disney discovered that building a streaming segment from the ground up can be expensive.
But despite these problems, there are reasons to believe that Dalio will regret giving up the House of Mouse.
Most notably, Disney’s streaming segment has successfully transitioned to recurring profitability. In fact, Disney’s streaming services, which includes Hulu, collectively became profitable a full quarter ahead of schedule. Given the company’s exceptional pricing power, it should have no trouble improving this segment’s earnings potential in the coming years.
Another reason Walt Disney is such an impressive company is its irreplaceability. Just as Palantir’s business model cannot be replicated at scale, Disney’s entertainment moat is in a league of its own. No other media company comes close to the storytelling or depth of characters. This contributes to the brand’s appeal and the company’s strong pricing power.
The other factor that really stands out as Disney finds its footing in a post-pandemic world is the relative cheapness of its stock. Opportunistic investors can now buy shares of Walt Disney for less than 19 times expected earnings per share (EPS) in fiscal year 2026 (the company’s fiscal year ends at the end of September). This represents a 29% discount to Disney’s average price-to-earnings ratio over the past five years.
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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, Netflix, Palantir Technologies and Walt Disney. The Motley Fool has a disclosure policy.
Billionaire Ray Dalio increased Bridgewater’s stake in Palantir by more than 500%, completely exiting his position in a top media stock. originally published by The Motley Fool
