Whether you realize it or not, the most important day of the quarter was February 16, as it marked the deadline for fund managers with at least $ 100 million in assets under management to deposit. Form 13F with the Securities and Exchange Commission. A 13F provides insight into what the most successful institutional investors, hedge funds and billionaire investors held at the end of the most recent quarter (December 31, 2020, in this case).
While the 13Fs provide dated material, they can nonetheless help Wall Street and investors identify stocks and trends that fund managers like or may want to avoid. In the fourth quarter, three popular stocks fell into the latter camp and were sold off massively by billionaire fund managers.
Producers of sundials
First off, one of the most popular Reddit rally actions on the planet, Canadian marijuana stock Producers of sundials (NASDAQ: SNDL). During the fourth quarter, all 13F depositors reduced their stake in Sundial by 28%, with hedge funds relinquishing 61% of their previous holdings from the third sequential quarter. Specifically, Jim Simons’ Renaissance Technologies abandoned its entire 1,681,000-share stake in Sundial in the fourth quarter.
Although Sundial had a monstrous run higher to start 2021, there doesn’t seem to be much substance behind its rally. Looks like it was based on the idea that the US federal government could legalize cannabis at the federal level, which would give Sundial the free and clear way to enter the more lucrative US pot market. The point is, President Joe Biden has promised to do nothing more than decriminalize and reprogram marijuana and previously avoided the possibility of legalizing it at the national level.
Another major problem with Sundial is the way the company has improved its balance sheet. I would estimate – following a recent investment in Indiva and the exercise of warrants – the company has $ 680 million in cash. That’s a lot of capital to push into the United States if the federal government reforms its current stance on cannabis.
but sundial raised this money by trampling on existing shareholders. She has undertaken countless stock offerings and debt-for-stock swaps. In less than five months, its number of shares has skyrocketed to over 1.1 billion shares.
The sundial is also far from profitable at a time when more and more pot stocks are preparing to go green. Management’s decision to focus on the retail market and move away from low-margin wholesale will place Sundial well behind its Canadian peers.
Long story short, I don’t blame billionaires at all for run to the exit.
Another title that really lost its luster with billionaire fund managers in the fourth quarter is Gold Miner Barrel gold (NYSE: GOLD). Overall ownership of Barrick by 13F depositors fell by 84 million shares (about 8%), with hedge funds reducing their stakes by more than 15%.
In particular, Warren Buffett Berkshire Hathaway left its stake of 12 million shares. Meanwhile, Renaissance Technologies and Larry Fink’s Black rock reduced their positions by 7.33 million shares and 4.88 million shares, respectively.
The most likely reason for this pessimism is the steady decline in the spot price of gold since the summer. Gold stocks are inextricably linked to the product they sell, so a drop in the price of gold will negatively affect cash flow and profitability. I suspect that the rise in Treasury yields has taken some of the luster from the precious metals.
However, the the outlook for precious metals remains good. Even after a surge in Treasury yields, investors still won’t beat inflation if they buy bonds. There is also a high likelihood that we will see another round of fiscal stimulus from Washington, as well as ongoing quantitative easing from the country’s central bank. This is a recipe for an expanding money supply, which is generally good news for the price of gold.
More specifically for Barrick, the company made a excellent job of reducing its outstanding debt and focusing on the efficiency of its main mines. After years of multi-billion dollar net debt, Barrick is now showing slightly positive net cash. He also expects an all-inclusive mid-point sustaining cost of $ 995 per ounce of gold out of the 4.4 million ounces to 4.7 million ounces expected to be produced this year. That’s an $ 800 / oz. margin, based on the current price of gold.
Suffice it to say that fund managers may regret having sold.
Billionaires also didn’t hesitate to hit the sell button when it came to pharmaceutical stock Pfizer (NYSE: PFE) in the fourth quarter. Total 13F depositors’ ownership decreased by 360 million shares (nearly 9%), with 74% of additional funds decreasing their holdings in the fourth quarter, compared to the sequential third quarter. Among billionaires, BlackRock has sold nearly 40.2 million shares of Pfizer, while Warren Buffett and his team completely ditched a stake of 3.91 million shares.
It’s hard to say for sure why the big money backfired on Pfizer in the fourth quarter, but I have two ideas. First, billionaire fund managers may have taken a “buy the rumor, sell the news” approach for the company’s 2019 coronavirus disease (COVID-19) vaccine program. As many of you are probably aware, Pfizer has announced the results of its late stage study in the fourth quarter, with its vaccine. 95% efficiency. It is currently one of two COVID-19 vaccines to have received emergency use authorization in the United States
The second possibility is that successful fund managers were disappointed with cancer drug Ibrance flop in the treatment of early breast cancer. There is no denying that Ibrance has been a multi-billion dollar drug for Pfizer, but there was a lot of hope that its label could be extended to earlier more lucrative indications. This will not be the case.
No matter the reasoning, Pfizer is starting to look like a good deal. Even excluding the $ 15 billion in expected revenue in 2021 for the company’s COVID-19 vaccine, mid-term sales could increase by a high figure this year. The growth of drugs in oncology and rare diseases has been particularly impressive.
Now that Pfizer is valued at around 11 times this year’s profit forecast, buying the stock – not selling it – would likely be the prudent move.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.