The fourth quarter of 2022 was the light at the end of the tunnel for equity markets as they recouped some of their losses from the rest of the year. The S&P 500 climbed 7.6% for the quarter to end the year with a loss of 18.11%, while the Nasdaq narrowed its loss to 0.8% for the quarter to end the year down 32.5% and the Dow Jones Industrial Average popped 15.3% for a full-year drawdown of just 8.7%.
According to GuruFocus’s Hot Picks, a feature which allows investors to screen for the stocks that had the highest number of guru buys or sells based on the most recent regulatory filings, the five most popular buys among gurus during the fourth quarter (as determined by net buys) were Qualcomm Inc. (QCOM, Financial), Amazon.com Inc. (AMZN, Financial), Meta Platforms Inc. (META, Financial), Stellantis NV (STLA, Financial) and Splunk Inc. (SPLK, Financial).
Investors should be aware that the data in this article is based on 13F filings for investing firms and portfolio updates for mutual funds, which do not provide a complete picture of a guru’s holdings. The 13Fs include only U.S. common stocks, while the mutual fund updates typically include both U.S. and foreign common stocks. Neither include other assets or investments such as bonds, credit, etc. All numbers are as of the quarter’s end only; it is possible the gurus may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Qualcomm
Qualcomm (QCOM, Financial) had 20 guru buys and seven sells in the fourth quarter, resulting in 13 net buys. Buyers included Murray Stahl (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Jefferies Group (Trades, Portfolio), while sellers included Dodge & Cox, First Pacific Advisors (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)'s Bridgewater Associates. This marks a noticeable uptick in guru buying compared to recent years, as shown in the chart below:
Shares of Qualcomm traded for an average price of $117 during the fourth quarter. As of Feb. 27, the GF Value chart rates the stock as significantly undervalued. The price-earnings ratio of 11.9 is fairly cheap and below the stock’s historical median of 18.13.
Qualcomm is a multinational semiconductor company with a main focus on communications technology, particularly for use in smartphones, 5G and artificial intelligence. It is seeing increasing demand for its wireless and high-performance, low-power processor technologies. Due to its patents, the company profits from virtually every smartphone sold, even if said phone does not use Qualcomm’s chips.
Its stock price has suffered due to the semiconductor selloff and the game of chicken it is playing with Arm in regard to its intentional violation of Arm’s license agreements with recently-acquired Nuvia. Apple is also planning to start transitioning away from Qualcomm’s modem chips that it uses in iPhones in favor of its own in-house chips as early as 2024. These are all headwinds that cannot be ignored, but the chart below shows how Qualcomm’s return on invested capital has exploded in recent years, which should give the company more dry powder to invest in other growth opportunities.
Amazon.com
Amazon.com (AMZN, Financial) had 27 guru buys and 17 sells in the quarter for a total of 10 net buys. The gurus who were buying the stock included Baillie Gifford (Trades, Portfolio), Seth Klarman (Trades, Portfolio) and Steve Mandel (Trades, Portfolio), while sellers included Mark Hillman (Trades, Portfolio), Frank Sands (Trades, Portfolio) and Primecap Management. Overall, guru sentiment for the stock has trended positive for the past couple of years:
Amazon traded for an average price of $98.78 per share during the quarter. Since the decline in share price has been steep and accompanied by a drop to unprofitable territory, the GF Value chart flags the stock as a possible value trap.
Amazon is a leader in U.S. e-commerce that got its start as a humble online bookseller. Since then, it has grown tremendously by focusing on offering a wide variety of products delivered to customers’ doors much faster than traditional ground shipping if they pay for a Prime subscription. This convenient and highly sticky business model propelled it to success, but because of its low margins, it has been struggling in the current high inflation environment.
The good news is, even though the Federal Reserve is aiming for a higher inflation target than in the past, inflation should still come down somewhat going forward. Additionally, Amazon’s main growth engine these days is its cloud segment, Amazon Web Services, which is still reporting strong growth numbers. AWS accounted for 15.6% of Amazon’s revenue in 2022, up from 11.8% in 2020.
Meta Platforms
There were 30 gurus buying shares of Meta Platforms (META, Financial) during the quarter while 18 gurus sold the stock, resulting in 12 net buys. Richard Pzena (Trades, Portfolio), Bestinfond (Trades, Portfolio) and Prem Watsa (Trades, Portfolio) were among the buyers, while the sellers included Frank Sands (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio) and Mario Cibelli (Trades, Portfolio). With the exception of the third quarter, gurus were loading up on the stock throughout 2022:
Shares of Meta traded for an average of $117.43 apiece during the fourth quarter. As of this writing, the GF Value chart labels the stock as significantly undervalued. The price-earnings ratio of 19.76 is also lower than the stock’s historical median of 33.67.
Formerly known as Facebook and home to other major global social media platforms such as Instagram and WhatsApp, Meta sent a tsunami through the investing world when it rebranded to its new name in late 2021 to represent that it is pinning its hopes for future growth on the Metaverse, a 3D interactive version of the internet.
Meta wants to become the “Apple (AAPL, Financial) of the Metaverse” so that it can have a sweet deal like what Apple has on its IOS platform, where it can charge developers a chunk of their profits as a “platform fee.” This could be hugely lucrative if the Metaverse takes off, but the new direction does require careful re-assessment as it changes the long-term outlook for the company. For now, the company still makes most of its profits from its traditional advertising business, which suffered due to the struggling economy in 2022.
Stellantis
Stellantis (STLA, Financial) had 11 guru buyers during the quarter while only one guru sold the stock, resulting in 10 net buys. The buyers included Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Ken Fisher (Trades, Portfolio), while the sole seller was Steven Cohen (Trades, Portfolio). Gurus have begun paying attention to Stellantis after initial tepidness when the company was first formed from a merger between Fiat Chrysler and PSA Group in 2021:
Stellantis’ shares averaged a price of $13.92 during the fourth quarter, though the stock price has trended up since then to fairly valued territory on the GF Value chart. The price-earnings ratio of 3.31 may look dirt cheap, but we also have to consider that this is an automotive stock, and cyclical stocks like this tend to have cheap valuation ratios when business is booming.
Fiat Chrysler and PSA Group merged to form Stellantis in 2021 to save on research and development costs and have one less major competitor in their quest to become a top player in the global electric vehicle market. After the merger, the company became the fourth-largest automaker in the world by volume, though it still has a long way to go to achieve its ambitious EV plans as it mostly produces gas-powered cars for now.
By 2030, Stellantis aims to cut its carbon footprint in half and have a 100% battery electric vehicle sales mix in the European Union as well as a 50% EV sales mix in the U.S. Even so, investors are not giving it the same growth stock valuation multiple as peers such as General Motors (GM, Financial), BYD Co. (BYDDF, Financial) and Tesla (TSLA, Financial). Granted, Tesla is already fully electric and has been from the beginning, but General Motors and BYD are transitioning from internal combustion engines. This could leave room for multiples to expand if Stellantis’ EVs sell well.
Splunk
Splunk (SPLK, Financial) recorded 10 guru buys during the fourth quarter and only one guru sell, resulting in nine net buys. Jefferies Group (Trades, Portfolio), Larry Robbins (Trades, Portfolio) and Baillie Gifford (Trades, Portfolio) were among the buyers, while Lee Ainslie (Trades, Portfolio) sold out of the stock. This marks a spike of renewed bullish sentiment after gurus mostly sold the stock in the first three quarters of 2022:
Splunk traded for an average price of $80.74 per share during the fourth quarter. Despite the price being lower than it’s been since 2017, the company is unprofitable and its bottom line has been declining, earning it a possible value trap warning from the GF Value chart.
Splunk is a San Francisco-based technology company that produces software for searching, monitoring and analyzing machine-generated data. Its customers are primarily in the cybersecurity, IT and DevOps fields. Like other unprofitable, growth-focused tech stocks, Splunk’s stock has gotten a well-deserved haircut after the Covid stock bubble popped.
However, the bubble-and-bust does not negate the fact Splunk still holds tough-to-replicate advantages in data processing and the analysis of real-time streaming data. As more companies look to gather and analyze massive amounts of data in the cloud, Splunk should continue growing as well. It is also encouraging that the company’s bottom line has finally begun to recover.
