Following billionaires for investment ideas can help you avoid a lot of mistakes. These professionals usually have a long career of picking stocks that beat the market's average return, and importantly, they have access to resources to assist in their research that individual investors don't have.
David Tepper of Appaloosa Management, CEO Warren Buffett at Berkshire Hathaway, and Chase Coleman of Tiger Global Management all have built considerable wealth through the stock market. Here are three of their largest holdings in 2024.
1. Alibaba Group
David Tepper has an outstanding record of building wealth through his firm over the last 30 years. His own net worth has almost doubled since 2019 to $20 billion, and the largest holding in his fund is Chinese tech titan Alibaba Group(NYSE: BABA).
Tepper doubled his stake in Alibaba in the first quarter to over 11 million shares. He has often bought and sold the stock over the last decade, so he seems to follow a very opportunistic investing strategy that is grounded in business fundamentals and valuation.
There are a few things that stand out about Tepper's bet. First, Alibaba is dirt cheap. The stock is 75% off its previous highs and trading at a single-digit multiple of free cash flow.
Second, the last time Tepper made a bet this big in Alibaba was 2019 -- right before the stock soared over 40% in 2020.
The stars seem to be aligning for Tepper once again. Alibaba is getting more aggressive at fighting back against competitors, which pressured its growth last year and contributed to the stock sell-off. Its e-commerce business is seeing improving buyer frequency and purchasing behavior that drove an 8% year-over-year increase in revenue in the March-ending quarter.
Because Alibaba generates revenue from fees charged to merchants that sell on its e-commerce platforms, it is a very profitable business, and its long-term growth potential seems significantly underestimated right now.
The stock is a steal at its current price-to-free-cash-flow multiple of 8 and could deliver market-beating returns if it continues to show stable commerce revenue.
2. Occidental Petroleum
Warren Buffett is without a doubt the most closely watched billionaire investor. His net worth currently sits at $135 billion, according to Forbes, virtually all of it earned through his shares of Berkshire Hathaway that have a compound annual growth rate close to 20% since 1965.
Berkshire Hathaway has been dumping its massive position in Apple and buying shares of Occidental Petroleum(NYSE: OXY) instead.
He has a long history of making profitable bets on energy companies. In 2007, Buffett sold Berkshire's shares in PetroChina for $4 billion (he paid $488 million for the shares four years prior).
What's more, utilities and energy are among Berkshire's main business operations, generating 10% of the company's non-insurance operating earnings in 2023. Berkshire's acquisition of a majority interest in electric utility MidAmerican Energy in 1999 was a huge step in building Berkshire's energy business.
Suffice to say, Buffett knows a great value in energy when he sees one. Occidental stock has been flat over the last two years. The main concern is the potential for lower oil prices to pressure the company's financial results, and the impact this could have on the debt reduction plans.
However, the company's recent acquisition of CrownRock will add high-margin assets to its production business. This will pad the company's free cash flow, which could unlock significant upside in the share price.
On an enterprise value-to-EBITDA basis, the stock trades at a multiple of 5.8. That is a discount to other leading oil stocks that trade between 6.5 to 7.5 times trailing EBITDA (earnings before interest taxes, depreciation, and amortization).
Investors can still buy Occidental shares close to the $59 price that Buffett was recently paying in June.
3. Take-Two Interactive Software
Chase Coleman started Tiger Global Management in 2001 and earned 21% annualized returns through the first few decades of operation. His net worth currently stands at $5.5 billion, according to Forbes.
Tiger Global initially bought shares of video game producer Take-Two Interactive Software(NASDAQ: TTWO) in 2022, and except for one quarter when it sold a small amount of shares, it has been adding to its stake over the last few years. It bought more shares earlier this year in the first quarter.
Take-Two's Grand Theft Auto series is one of the best-selling video game franchises in history. The fifth and latest installment in the more than 20-year history of the series has sold 200 million copies since its 2013 release. The popularity of this title and the more than 10 years since the last release will lead to tremendous pent-up demand for the next installment.
Grand Theft Auto VI is scheduled to be released in calendar 2025. The official trailer on YouTube has been watched over 200 million times, which is pointing to massive sales numbers.
And this is just one title among several that Take-Two will launch over the next few years. Its current pipeline features 27 titles from core franchises and new versions of previously released titles. Releasing titles from existing series with established fan bases is a low-risk strategy to generate growth in the video game business, which has to be one reason Coleman likes Take-Two's growth strategy.
The Wall Street consensus has Take-Two's adjusted earnings per share reaching $9.25 in fiscal 2027. If the stock is trading at a price-to-earnings (P/E) ratio of 30, lower than its current 55 forward P/E, the share price could reach $276. That is roughly double the current share price and certainly lends to the likelihood that Coleman has picked another winner.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Take-Two Interactive Software. The Motley Fool recommends Alibaba Group and Occidental Petroleum. The Motley Fool has a disclosure policy.
