On Wall Street, investors are never hurting for data. We're currently kicking off a six-week period (affably known as "earnings season") where a majority of S&P 500 companies will lift the hood on their most recent quarterly operating performance. In addition to a barrage of operating results, economic data releases occur almost every day. It can be easy to miss something important.
On Aug. 14, you may have missed what can easily be described as the most pivotal data release of the third quarter. This date marked the filing deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F with the Securities and Exchange Commission. A 13F provides investors with a concise snapshot of what Wall Street's brightest and historically successful money managers purchased and sold in the latest quarter (in this case, the June-ended quarter).
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Although Berkshire Hathaway's Warren Buffett is arguably the most-followed of all billionaire asset managers, there are more than a dozen high-profile billionaire money managers that garner a lot of attention, including Coatue Management's Philippe Laffont.
Laffont's hedge fund, which is primarily focused on game-changing tech stocks, closed out June with approximately $25.7 billion in AUM spread across 74 holdings.
What might come as a bit of a surprise to investors is that Laffont was a big-time seller of one of Wall Street's hottest artificial intelligence (AI) stocks, Palantir Technologies(NYSE: PLTR). While Coatue's brightest minds, including Laffont, we're showing Palantir to the door, they were piling into a growth stock that stands out in a notoriously slow-growing sector.
Laffont completely exited Coatue's stake in Palantir
Let me preface the following discussion by pointing out that Coatue Management is an actively managed fund. The average top-10 holding has been held for less than a year. Further, Laffont reduced his fund's stake in 30 companies and completely sold out of 23 during the second quarter. In other words, Palantir was far from the only stock to be sent to the chopping block.
Nevertheless, the 4,816,195 shares sold by Coatue marked one of the largest shares sales of Palantir stock during the June-ended quarter.
Profit-taking is the most-logical reason Laffont and his team may have chosen to ring the register. Palantir had been a continuous holding for Coatue since the first quarter of 2023. At that time, shares could have been purchased for roughly $8. With Palantir's stock hovering in the low-$20s during the second quarter, it looks as if Coatue banked a triple-digit gain on its initial stake.
Laffont may have also been skittish about Palantir's premium valuation. On one hand, there is no substitute for the company's AI-driven Gotham platform, which helps federal governments plan missions and collect data, or its enterprise-focused Foundry platform. Irreplaceability at scale is a trait that investors will gladly pay a premium for on Wall Street.
On the other hand, Palantir's stock is currently near an all-time high and valued at almost 100 times forward-year earnings and 29 times forward-year sales. These are eye-popping multiples for a company growing sales by roughly 20% per year. Though Foundry has the potential to reaccelerate growth for Palantir in the future, the company's valuation premium right now is borderline unjustifiable.
Despite being an artificial intelligence bull, the third reason Laffont may have chosen to dump Coatue's entire stake in Palantir is the possibility of an AI bubble brewing.
Since the internet began going mainstream roughly three decades ago, there hasn't been a game-changing technology that's avoided an early stage bubble. Without fail, investors overestimate how quickly new innovations, trends, or technologies will be utilized by consumers and/or businesses. This recipe eventually leads to disappointment and a bubble-bursting event.
Although direct AI players, such as Nvidia, would be hit the hardest if the AI bubble bursts, Palantir is likely to be hampered by a slowdown in Ai-related spending.
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Laffont's Coatue Management is piling into this electrifying growth stock
But while Laffont and his team were busy sending shares of Palantir to the chopping block, they were avid buyers of America's leading electric utility, NextEra Energy(NYSE: NEE).
During the June-ended quarter, Laffont's fund gobbled up 282,544 additional shares of NextEra, which increased Coatue's stake by 36% in three months to 1,066,083 shares. If this position remained static during the third quarter, it'd be worth more than $88 million, as of the closing bell on Oct. 15.
Traditionally, the utility sector is slow-growing and, for lack of a better word, boring. Investors buy utility stocks for their dividends and the consistency of their cash flow. It's a sector that tends to outperform during periods of economic uncertainty and low interest rates.
However, seemingly none of this applies to NextEra Energy, which has delivered consistent high-single-digit earnings growth for more than a decade.
The factor that's differentiated NextEra from the dozens of other publicly traded, slow-growing utilities is its focus on renewable energy. Management laid out a plan to invest a cumulative $85 billion to $95 billion in American infrastructure between 2022 and 2025, a majority of which is tied to clean-energy resources.
As of June 2024, the company had 72 gigawatts (GW) in capacity, 34 GW of which can be traced back to its renewable energy portfolio. No electric utility in the world is generating more capacity from solar or wind power than NextEra.
While investing in the future hasn't been cheap, it's notably reduced the company's electricity generation costs and provided a tangible lift to the company's bottom line and dividends. If future policy proposals from Capitol Hill necessitate a green shift for America's electric utilities, NextEra would be miles ahead of the curve.
In addition to low-cost generation and a superior growth rate to its peers, NextEra still enjoys the advantages that come with being an electric utility. This includes being a monopoly or duopoly in the areas it services and generating predictable cash flow year after year.
The final thing worth mentioning about NextEra is that the other half of its 72 GW in capacity -- i.e., its traditional electric utility operations, via Florida Power & Light, which aren't powered by renewables -- is regulated by the Florida Public Service Commission (FPSC). The advantage of being a regulated utility and needing approval from the FPSC to raise rates is that it ensures no exposure to wholesale electricity pricing.
NextEra Energy may not be a traditional "growth" stock, but it has a lengthy track record of delivering for its shareholders.
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Sean Williams has positions in NextEra Energy. The Motley Fool has positions in and recommends Berkshire Hathaway, NextEra Energy, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
