Billionaire managing investors have the great responsibility of managing tremendous wealth for their clients, which necessitates the need for meticulous research into every investment.
Andreas Halvorsen of Viking Global Investors and Bill Ackman of Pershing Square Holdings are both prominent billionaire fund managers who started positions in two members of the Dow Jones Industrial Average(DJINDICES: ^DJI) in the second quarter and proceeded to buy more shares in Q3. Here's why the following stocks are excellent buys.
1. Nvidia
Andreas Halvorsen's Viking Global Investors continued loading up on Nvidia(NASDAQ: NVDA) shares in the third quarter. The firm increased the size of its stake by over 2.2 million shares at the end of the quarter. Another notable billionaire, David Tepper, was selling Nvidia last quarter, but several other investment managers were either holding or buying shares, including Lee Ainslie of Maverick Capital and Samantha McLemore of Patient Capital Management.
It's understandable for investors who bought Nvidia shares at lower share prices to take profits after a monstrous run. Still, the demand for faster graphics processing units (GPUs) to handle data processing is a huge opportunity that should provide Nvidia at least a few more years of robust revenue growth, and therefore, returns for investors.
On the Aug. 28 earnings call, CEO Jensen Huang said, "In the future, every single data center will have GPUs." There is $1 trillion worth of data center infrastructure switching to accelerated computing, or GPUs. Data centers need to accelerate computing to handle the demanding workloads of training AI models, particularly generative AI. These models are powering new tools that are making it easier for companies to increase productivity and develop new products at breakneck speed.
Because of this opportunity, Huang expects Nvidia's data center business to grow significantly next year. Nvidia's total revenue has increased at triple-digit rates over the last year, with the data center segment contributing 87% to the company's top line in the most recent quarter.
The Wall Street consensus has Nvidia's revenue and earnings growing 47% next year, according to Yahoo Finance. Meanwhile, the stock is trading at a forward price-to-earnings (P/E) ratio of 33 on next year's earnings estimate. It's clear Viking Global believes the valuation is low enough to fuel more returns for Nvidia investors in 2025.
2. Nike
Bill Ackman's Pershing Square has been in and out of Nike(NYSE: NKE) stock in recent years. Pershing Square bought a position in Q4 2017 before selling out the very next quarter in early 2018. But Nike's recent troubles in growing sales amid a challenging retail environment has driven the share price down to its lowest level in four years. Ackman clearly believes that Nike's share price undervalues its long-term potential, as Pershing Square started a new position in Nike in Q2 and increased its stake to more than 16.2 million shares in Q3.
Nike is struggling to grow sales in this environment and lagging competitors like Lululemon Athletica. Nike reported a 10% year-over-year decline in revenue in the most recent quarter, with earnings down 26%.
The leading sportswear brand in the world is capable of performing much better. While the apparel industry is intensely competitive, sportswear is attractive from an investor's perspective because it's generally not susceptible to the latest fashion trends like the average clothing retailer. This is why Nike delivered excellent returns for investors for decades prior to the recent stumble.
While a turnaround will take time, Nike's focus on doubling down on innovation in sports products should get the brand back on its feet over the next few years and drive higher sales. It's a good sign that Nike is turning to 32-year company veteran Elliott Hill as its new CEO. Introducing a new leader with fresh ideas at a pivotal moment for the company could potentially boost the company's shares within the next year or so. With the stock's P/E hovering around 21 at the time of writing, Nike stock offers its best value in over 10 years.
Should you invest $1,000 in Nvidia right now?
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John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Lululemon Athletica, Nike, and Nvidia. The Motley Fool has a disclosure policy.
