Stocks Billionaires Are Buying: With the stock market continuing to slide, billionaire hedge fund managers are grabbing off shares in potentially undervalued companies at massive rates.
Even though the market’s current volatility presents risks, it also gives both large funds and individual investors the opportunity to buy shares at steep discounts.
Here are three stocks billionaires have scooped up in large quantities in recent trading sessions.
SaaS cloud monitoring company Datadog (NASDAQ:DDOG) is one of several stocks that stands to benefit from a long-term shift toward eCommerce sales.
While it has encountered difficulties amid the general tech selloff that has defined 2022, Datadog is expected to achieve revenue growth of over 30 percent on average over the next several years. These growth prospects were likely the driving factor behind a recent decision on the part of billionaire investor Ken Griffin to add 614,200 shares of Datadog to the portfolio of his fund, Citadel Advisors.
Datadog’s biggest selling point is its appeal to larger customers. While many small businesses require cloud services, enterprise-scale clients are by far the most lucrative.
Last year, Datadog successfully grew its base of clients generating at least $100,000 in revenue by 60 percent. This ability to market its services to large, established businesses should help Datadog ride out short-term market turmoil
The median 12-month analyst price forecast for Datadog is $167, a gain of 88.2 percent from its current price of $89.12. There is, of course, a strong chance that Datadog will miss this target due to current market conditions.
Over time, though, the company appears to be in a very strong position to grow and produce healthy returns for investors willing to buy and hold.
The one major concern for Datadog is its valuation. The company currently trades at a forward P/E ratio of 123.4, with a price-to-sales ratio of 22.7 and a price-to-cash-flow ratio of 423.7. Bearing in mind that these ratios are still so high after Datadog has lost nearly 50 percent of its value YTD, it’s clear that this stock is a risky one.
As long as the company delivers on its seemingly strong growth prospects, though, its valuation should begin to look more reasonable in the coming years.
While Griffin aggressively scooped up Datadog, billionaire investors Stephen Mandel, Jeff Yass and Jim Simons all made even larger plays on Facebook parent company Meta Platforms (NASDAQ:FB).
The social media giant’s sites currently have over 3.5 billion monthly visitors in total, making Meta one of the world’s most widespread and valuable advertising platforms.
Unlike Datadog, the tech sector crash this year has actually made Meta look quite cheap. With a forward P/E of just 15.6, Meta is potentially undervalued, given its high rates of overall revenue growth. Even with the headwinds of early 2022, the company reported revenue growth of 7 percent in Q1.
It also delivered an earnings beat of $2.72 per share, compared to a consensus estimate of $2.56. Given that the company is performing as well as it is, the YTD selloff of over 45 percent has almost certainly left the stock undervalued.
Over the next 12 months, analyst price targets place the stock at a median of $290, 57.1 percent higher than the current price of $184.60. Tellingly, even the lowest target would have the stock trading at $185.
This asymmetrical spread of risk and reward, paired with likely undervaluation, almost certainly played a role in the decision of multiple billionaires to buy Meta before a recovery begins.
Much of Meta’s future does depend on the success of Metaverse technology, introducing a degree of risk into the stock. At its current valuation, it’s likely a good buy just on the strength of its social media platform. However, to achieve the kind of growth it has in the past, Meta will likely have to commercialize the emerging technology successfully.
While bulls argue that the technology will revolutionize the business world, more skeptical analysts believe that the metaverse is overhyped. In either event, however, Meta appears to be a reasonable buy at the moment.
Finally, billionaires John Overdeck, David Siegel and Ray Dalio added millions of shares of electric vehicle manufacturer NIO (NYSE:NIO) to their funds. Simons also took out a large stake in the company, buying over 5 million shares for his Renaissance Technologies fund.
As a potential competitor to Tesla, NIO has understandably attracted a great deal of investor attention. The stock has sold off by more than half this year, leading investors to consider taking a risk on the struggling stock.
Once supply chain issues begin to resolve, the thinking goes, the company will likely be able to rebound. NIO has also rolled out a battery system capable of going head-to-head with Tesla’s. NIO vehicles are able to get up to 620 miles per charge.
Currently trading at $14.70, NIO has a 12-month price target of $31.26, giving it a median potential upside of 112.1 percent. Even the lowest price target of $23.09 would allow investors to realize a single-year gain of over 55 percent. As such, NIO has a great deal of room to underperform these targets while still delivering solid gains for investors at today’s prices.
While Datadog is likely overvalued and Meta is likely undervalued, NIO appears to be trading at roughly a fair value at its current price. NIO trades at 4.36 times its sales, which is hardly out of line for a fast-growing company in the early stages of its development.
NIO’s risks aren’t insignificant, as rising inflation and ongoing supply issues could dampen the company for the foreseeable future. However, the compression of the stock’s valuation may make it worth taking a chance on. Like the funds mentioned above, individual investors looking for potential Tesla (TSLA) competitors may do well over the long run with shares in NIO.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.