GDRX - 5 Stocks to Watch That Institutional Investors Are Buying Right Now
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Retail investors can learn a lot about stocks to watch by looking at the activity of institutional investors. An institutional investor is defined as “a company or organization that invests money on behalf of other people.” So, while hedge funds and investment banks operate as different business entities, they both fall under the institutional investor basket. Insurance companies, pension funds, and endowment funds are also considered institutional investors. Today, institutional investors make up more than 90% of all stock trading activity.
Institutional investors are seen as having a strong advantage over retail investors. This is because institutional investors have access to resources that aren’t available to your average retail investor. Take Whale Rock Capital, a top-performing hedge fund, for example. In an interview, CEO and founder Alex Sacerdote explained that:
“We do 1,000 face to face meetings a year despite being only a team of five. I think we travelled something like 250k miles last year. We go to Asia three or four times a year. We recently travelled to India to meet with 30 private and public Indian internet companies.”
As a hedge fund with $24 billion in assets under management (AUM), Whale Rock can afford to visit each company and speak with its executives before making an investment. This provides enormous value, as company executives will most likely offer more details in a face-to-face meeting with a potential billion dollar investor than in a quarterly conference call.
So, why should retail investors care about institutional investors if we can’t travel thousands of times a year to personally interview executives? That’s where the 13D and 13G forms come in. Institutional investors must submit either a 13D or 13G form when acquiring beneficial ownership of a company of 5% or more. The institutional investors have up to 10 days to submit the form from the date of the transaction. A 13D form signifies that the acquiring company seeks to take an activist position in the acquired company. Meanwhile, a 13G form signifies that the acquiring company seeks to take a passive position. In addition, institutional investors must file an amended 13D or 13G form if its ownership of a company changes by more than 1%.
As retail investors, we can take advantage of the 13D/G forms by seeing what top-performing institutions have been buying, although with a slight delay.
With that in mind, let’s take a look at five stocks to watch that institutional investors have been buying recently.
- Moderna (NASDAQ:MRNA)
- Netflix (NASDAQ:NFLX)
- Jumia Technologies (NYSE:JMIA)
- GoodRx Holdings (NASDAQ:GDRX)
- Warner Music Group (NASDAQ:WMG)
Stocks to Watch: Moderna (MRNA)
First up on the list of stocks to watch that institutional investors are buying is Moderna.
After a blockbuster 2021 that saw the mass distribution of the Moderna Covid-19 vaccine, 2022 is off to a slow start. Shares of MRNA stock are down over 30% year to date as the world tries to shrug off the pandemic.
However, Moderna is working to stay busy. CEO Stéphane Bancel recently announced that Moderna’s omicron vaccine candidate is “being finished,” and that the vaccine should enter clinical development in the coming weeks. Bancel added that Moderna expects to share data with regulators as soon as March.
The biotech company is also working on a vaccine that combines a Covid-19 booster with its flu shot. In the best-case scenario, this vaccine will be available by the fall of 2023.
Now, a billion-dollar institutional investor is taking notice of these plans.
In an amended 13G filing from Jan. 26, Baillie Gifford increased its existing MRNA position by 1,080,693 shares, or 2.42%. After the purchase, Baillie Gifford now owns 45.7 million shares of MRNA stock, which represents 11.29% ownership of all shares outstanding.
Baillie Gifford is an asset-management firm based in the United Kingdom. Based on the latest 13F filing, Baillie Gifford manages a whopping $182 billion in assets under management (AUM). The firm has gained notoriety in recent years for buying Tesla (NASDAQ:TSLA) in 2013 for $41 per share.
Netflix (NFLX)
After reporting Q4 earnings, shares of NFLX stock plummeted more than 25%. Meanwhile, Netflix received a slew of analyst downgrades from firms such as Piper Sandler, Jefferies and Goldman Sachs. Investors were extremely disappointed, partly because the success of shows like Squid Game and Tiger King did not directly translate into an above-average earnings report.
The one statistic that haunted NFLX investors was new subscriber guidance for Q1. Netflix announced that it expects to add 2.5 million new paid subscribers during Q1, which is lower than the 3.98 million new paid subscribers from Q1 of 2021. Furthermore, analysts were expecting 6.93 million additional paid subscribers for Q1 of this year. Netflix’s Q1 new paid subscriber guidance was a massive miss.
On the bright side, it isn’t the end of the world for Netflix. During Q4, the streaming leader added 8.28 million new paid subscribers, which beat analysts’ estimates of 8.19 million. Netflix also reported $1.33 in earnings per share (EPS), which beat the consensus analyst estimate of 82 cents. These numbers were satisfactory enough for a billionaire activist firm to make a substantial purchase of NFLX stock.
Last Wednesday, activist investor Bill Ackman disclosed via Twitter that his hedge fund, Pershing Square, had bought 3.1 million shares of NFLX stock. Assuming a purchase price that correlated with Wednesday’s close near $360, Ackman’s purchase amounted to well over $1 billion. After the purchase, Pershing Square will be a top-20 shareholder of NFLX stock.
Furthermore, Ackman released a letter to investors detailing the rationale behind Pershing Square’s NFLX purchase. In the letter, Ackman highlights Netflix’s exceptional management team, reoccurring revenue model and strong pricing power. Ackman also mentioned that the Netflix’s Q4 earnings decline allowed Pershing Square to purchase NFLX stock “at an attractive valuation.” After the recent Netflix purchase, Pershing Square owns a total of seven positions in its equity portfolio.
In order to fund the NFLX purchase, Pershing Square reduced its interest rate hedge by 80%, which generated proceeds of $1.25 billion. Investors should be pleased that Pershing Square reduced its interest rate hedge because it suggests that Ackman is bullish on the overall market. Ackman explained that:
“We invest in hedges not to protect the funds from a short-term mark-to-market loss, but rather because they can become a large source of potential liquidity at precisely the time stocks become cheap.”
According to WhaleWisdom, Pershing Square has an average holding period of 19.33 quarters. It’s safe to say that Bill Ackman and Pershing Square are bullish on Netflix’s long-term growth potential.
Stocks to Watch: Jumia Technologies (JMIA)
JMIA stock seems to be a shell of its former self. Last year, JMIA hit an all-time high of $69.89. Today, shares are trading in the $8 range.
Jumia was a direct beneficiary of the pandemic, as investors rationalized that shoppers would make more purchases online to curb the spread of Covid-19. However, the African e-commerce company remains largely unprofitable. During Q3, Jumia reported revenue of $42.7 million, along with a $64 million operating loss.
Nonetheless, the growth potential for Jumia remains extremely high. It currently operates in 11 African nations that have a combined population of over 600 million people. On top of that, the IFC estimates that internet connectivity in Africa is a meager 22%. For context, over 90% of the U.S. and European Union (EU) have internet connection.
As the internet connectivity in Africa slowly improves, Jumia has the opportunity to increase its sales as well. This primes Jumia as a risky investment that should somewhat trend in correlation with the improvement of technological innovations in Africa. It seems Baillie Gifford is willing to take that risk.
According to an amended 13G filing received by the SEC on Jan. 20, Baillie Gifford purchased an additional 1,929,806 shares of Jumia. After the purchase, Baillie Gifford now owns 19.8 million shares of JMIA stock, which accounts for 10.06% of all shares outstanding. Furthermore, Baillie Gifford is known as a long-term investor and holds each position in its portfolio for an average of 10.97 quarters. It seems that the United-Kingdom based fund is willing to play the long game with JMIA stock.
GoodRx Holdings (GDRX)
Next on the list of stocks to watch that institutions are buying is GDRX.
Since the start of the year, shares of GDRX stock have declined by more than 30%. GoodRx operates as a digital healthcare platform that seeks to find customers the best price possible for medications. While the platform is free to use, GoodRx collects revenue in the form of referral fees and advertisements. Since its inception, GoodRx has helped consumers save $35 billion on healthcare and prescription drugs.
During Q3, GoodRx reported revenue of $195.1 million, up an impressive 39% year over year (YOY). Furthermore, monthly active customers totaled 6.4 million, up 31% YOY. However, the company still remains unprofitable. Now, a major investment bank is capitalizing on GoodRx’s price decline.
Based on an amended 13G form received by the SEC on Jan. 24, Goldman Sachs purchased 1,957,214 shares of GDRX stock. As of Q3, Goldman Sachs manages $471 billion in AUM. Furthermore, the investment firm has an average holding period of 29.29 quarters.
Investors should note that Goldman Sachs analyst Eric Sheridan has a $43 price target for GDRX stock. Sheridan sees GoodRx as an “emerging multi-sided and multi-product platform” that delivers savings and conveniences to customers in a “fragmented” healthcare market. Sheridan’s price target implies a staggering upside of 95% from current prices.
Stocks to Watch: Warner Music Group (WMG)
Last on the list of stocks to watch that institutional investors are buying is Warner Music Group.
Warner Music Group operates as a music label and publisher for some of the biggest artists in the world. Labels that fall under its belt include Atlantic, Warner Records and Elektra. However, Warner Music Group recently announced a new venture that has fans of WMG stock very excited.
Last week, Warner Music Group confirmed that it would be taking steps to enter the Sandbox (CCC:SAND-USD) metaverse. WMG will focus on creating a virtual theme park that will feature artists like Ed Sheeran, Bruno Mars, and Cardi B. WMG’s chief digital officer, Oana Ruxandra, added that: “We are deeply focused on Web 3 right now and the impact it will have on music. It’s incredibly difficult to put value against fandom right now.”
Now, a billion-dollar hedge fund is primed to reap the rewards from WMG’s metaverse venture.
According to an amended 13G filing received on Jan. 18, Melvin Capital purchased 900,000 shares of WMG stock. This is Melvin Capital’s second WMG purchase within the past month. Previously, the hedge fund acquired 829,991 shares of WMG in an amended 13G form received on Jan. 3.
2022 is an extremely important year for Melvin Capital to regain lost reputation. Last year, Melvin Capital was hit with a massive 53% loss during January on its GameStop (NYSE:GME) short position. Melvin Capital ultimately finished the year down 39% after receiving a $2.75 billion bailout from Ken Griffin and Steve Cohen. In contrast, the hedge fund was a top earner during 2020.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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