This article analyzes the top five companies that super investors significantly reduced their holdings in during the first quarter of this year. We'll explore the reasons behind these moves and what it could mean for investors holding these stocks. Remember, this analysis aims to present potential concerns and points to consider, not to provide definitive investment advice. It is crucial to form your own opinions as a value investor.
Berkshire Hathaway (BRK.A): The Top Stock Sold
Buffett's Conglomerate Sees Significant Outflow
Berkshire Hathaway (BRK.A), Warren Buffett's conglomerate, topped the list of stocks sold by super investors in Q1. Data from Dataroma indicates that BRK.A holdings were reduced by 1.077% within these investors' portfolios. Furthermore, 15 super investors reportedly sold off their BRK.A shares.
Why the Sell-Off?
BRK.A is known for being a defensive stock that often outperforms the market. However, Berkshire's investment portfolio showed a trend of selling more than buying in the last quarter. A significant portion of the sales were in financial stocks like Citigroup and Bank of America. This has led to speculation about Buffett's outlook on the economy and the potential impact of a recession on financial institutions.
Cash Position and Valuation
Berkshire Hathaway maintains a high cash reserve, with a stated policy of keeping over $30 billion in cash. Currently, their cash position is at a record high, representing almost 30% of their total assets. Buffett has indicated that he's waiting for an opportune moment to deploy this capital, possibly during a recession. As for valuation, Berkshire's current price-to-book value is around 1.66, higher than the 1.2 multiple that historically triggered significant buybacks during Charlie Munger's tenure. This suggests that the stock may not be considered significantly undervalued at its current price.
Nike: A Brand Losing its Stride
Bill Ackman Exits Position
Nike was the second most sold stock, with Bill Ackman notably selling his entire position. Interestingly, Nike's stock performance over the past year and decade has lagged significantly behind the S\&P 500.
CEO Change and Guidance Revision
The departure of Nike's CEO last September and the subsequent appointment of a retired executive as the new CEO, along with lowered annual guidance, have raised concerns. Unlike some other companies in similar situations, there hasn't been significant insider buying following the CEO change.
Financial Challenges
Nike faces headwinds including declining EPS, margins, and operating income, according to its CEO. The upcoming quarter is expected to be the most challenging, with revenue projected to decline by more than ten percent and gross margins significantly declining. Despite currently trading at multi-year low multiples, the company's weakened financial outlook may deter investors.
Hilton: Trimming a Major Stake
Ackman Reduces Hilton Holdings
Bill Ackman significantly reduced his position in Hilton, a company that was previously one of his largest holdings. Despite Hilton's strong performance in recent years, Ackman cut his holdings by nearly 50 percent.
Business Model and Financial Structure
Hilton, along with competitor Sheraton, primarily operates through a franchise model rather than directly owning hotels. Hilton's balance sheet has historically shown negative equity, primarily due to acquisitions and spin-offs. The company's valuation is also not particularly attractive compared to its peers.
DCF Analysis
A Discounted Cash Flow (DCF) analysis, even with a high growth rate assumption, suggests that Hilton's current stock price may be overvalued.
Chinese Stocks: A Mass Exodus by Michael Burry
Selling Everything, Including Alibaba and Pinduoduo
Michael Burry, known for his famous "Big Short," drastically sold off all his holdings in Chinese stocks, including Alibaba, JD.com, and Pinduoduo. This is particularly notable as he had purchased many of these same stocks in the previous quarter.
Shorting the Same Stocks
Burry went a step further, not only selling his Chinese stock holdings but also shorting them, and also shorting Nvidia. This aggressive move suggests a strong bearish sentiment towards Chinese equities and the future prospects of even fundamentally strong companies like Nvidia. However, this decision has been questioned by some, considering the relatively low valuations of many Chinese stocks.
Trade War Concerns
One possible explanation for Burry's actions is the ongoing trade tensions and concerns about a potential global economic recession. However, shorting great companies has been viewed as a bad idea.
Apple: Reducing Exposure to a Tech Giant
Duan Yongping's Trim
Duan Yongping, often referred to as the "Chinese Buffett," reduced his Apple holdings by 16%. This is significant because Apple previously represented a very large portion of his portfolio.
Trade War Impact and Valuation
Apple has not rebounded to pre-trade war levels. Duan's decision to reduce his position may be influenced by concerns about the ongoing trade tensions, the potential impact of tariffs on Apple products, and the company's relatively high valuation compared to its growth prospects.
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