Following the stock selections of famous investors can be a great way to find future winners. These investors generally have excellent track records of beating the market’s average returns, and because some of these professionals oversee billions of dollars in assets for their clients, they conduct exhaustive research before investing in a company.
Three Motley Fool contributors were asked to identify three high-octane stocks that they favor and that billionaire investors have been buying recently. Their picks: Alibaba Group (NYSE: BABA), Coupang (NYSE: CPNG), and Chipotle Mexican Grill (NYSE: CMG).
A fallen growth stock that could spring back to life
John Ballard (Alibaba): Alibaba shares are trading well off their peak today. Economic headwinds from COVID-related issues weighed on consumer spending in China last year, which significantly impacted Alibaba’s revenues, and the stock’s moves reflected that. But this once fast-growing e-commerce and cloud computing leader could be turning a corner.
One billionaire investor who has acquired a sizable stake in the company is Appaloosa Management’s David Tepper, who has an estimated net worth of $20 billion, according to Forbes. Tepper is a highly successful hedge fund manager, and his firm more than doubled its stake in Alibaba to $814 million during the first quarter.
While Alibaba doesn’t look like a high-octane stock right now, the opportunity it has to expand internationally through its AliExpress cross-border retail business, in addition to meeting the rising demand for artificial intelligence (AI) services through Alibaba Cloud, could see the company’s revenue growth improve in the coming years.
Alibaba’s revenue jumped 7% year over year in the March-ending quarter, driven by its market-leading Taobao and Tmall online retail businesses. It also reported strong demand for AI services in Alibaba Cloud. These results show the worst is likely behind the company now. Management noted in the last earnings report that the improved shopping experiences in Taobao and Tmall should help the retail group return to healthy growth in its fiscal 2025 (which will end in March 2025).
With the shares trading at a cheap forward price-to-earnings (P/E) ratio of 9.4, the stock could double in value if it moves closer to the market’s average P/E of 21.
This e-commerce company is making all the right moves
Jeremy Bowman (Coupang): E-commerce presents one of the biggest growth opportunities in global business, and one of the more intriguing ways to get exposure to it is through Coupang, South Korea’s leading e-commerce operator.
Coupang is growing rapidly, expanding its profit margins, and borrowing liberally from the playbook that made Amazon into the titan it is today. It’s expanding into new businesses like food delivery and video streaming, and it recently acquired Farfetch, the luxury online fashion marketplace. It’s also investing in AI technology to help run its warehouses with robots.
In Coupang’s most recent quarter, revenue jumped 28% on a currency-neutral basis to $7.1 billion, and its gross profit soared 36% to $1.9 billion, thanks in part to its recent price hike on its Prime-like Rocket Wow membership service.
Not surprisingly, the stock has caught the attention of some billionaire investors. Stanley Druckenmiller, the mastermind behind Duquesne Capital Management, the hedge fund that delivered average annual returns of roughly 30% for nearly 30 years, counts Coupang as the second-largest holding in his family office, behind Microsoft.
Druckenmiler hasn’t explained why he likes Coupang, but the stock’s combination of growth potential at a reasonable valuation is intriguing. The shares sport a P/E of 33.
Some other billionaires who bought Coupang in the first quarter include Marc Stad, whose Dragoneer Investment Group fund purchased nearly 2 million shares, and Israel Englander of Millennium Management, who bought nearly 1 million shares.
Given the past success of e-commerce companies like Amazon and MercadoLibre, and Coupang’s own growth potential, improving profitability, and reasonable valuation, it wouldn’t be surprising to see more billionaire investors buy Coupang stock in the coming quarters.
A perennial winner that could still make millionaires
Jennifer Saibil (Chipotle Mexican Grill): Chipotle has probably minted a few millionaires over its years on the stock market, and it has been a mainstay in billionaire Bill Ackman’s Pershing Square Capital equity portfolio.
In the first quarter, Ackman actually sold some shares, but it might have been to rebalance the portfolio. Pershing Square only owns eight stocks, and even after the sale, Chipotle stock is up from 18% of the total to 20%.
While Ackman sold, other billionaire investors were buying in. Ken Griffin of Citadel Investors, for example, bought 135,356 shares in the first quarter. Chipotle stock is up 35% this year, and it’s been a reliable gainer for most of its time as a public company.
Investors love Chipotle, and for good reason. It regularly reports double-digit percentage increases in revenue, driven by strong comparable sales growth. Earnings per share (EPS) consistently grow. That trend was on display in Q1, with a 14% year-over-year increase in sales and a 7% boost in comparable sales. EPS rose from $10.50 to $13.01.
Plus, there’s another reason Chipotle stock has been off to the races this year. In March, management announced a 50-for-1 stock split that will take place in June. Stock splits usually indicate that a company’s management team is confident about its future, and even though they don’t do anything to alter the value of the underlying business, investors love them. Chipotle shares have been trading above $1,000 for a while, so this split was probably overdue.
This fast-casual chain is an all-weather winner with plenty more growth ahead. Retail investors should join the billionaires in adding Chipotle shares to their portfolios.
Should you invest $1,000 in Alibaba Group right now?
Before you buy stock in Alibaba Group, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alibaba Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $677,040!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of May 28, 2024
Jennifer Saibil has positions in MercadoLibre. Jeremy Bowman has positions in Chipotle Mexican Grill and MercadoLibre. John Ballard has positions in MercadoLibre. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Coupang, MercadoLibre, and Microsoft. The Motley Fool recommends Alibaba Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
3 High-Octane Stocks That Billionaires Are Buying was originally published by The Motley Fool
