Tom Yeung here with this week’s Sunday Digest.
Last week, I discussed the contrarian bets that billionaire investors often make. By looking beyond basic corporate labels, successful fund managers like Joel Greenblatt often can recognize overlooked opportunities, like Marriott’s “toxic waste” spinoff in the early 1990s.
As I said last week:
Over the next three years, the “bad” Marriott would divest its airport and toll-road concessions, add 55 hotels to its portfolio, and complete the sale/leaseback of all Courtyard and Residence Inn hotels. By 1999, it became the largest U.S. hotel-based real estate investment trust (REIT).
These improvements also translated into share-price gains. Within five months of the spinoff, the “bad” Marriott’s stock more than tripled, and shares would rise another 80% by the end of the decade.
But billionaire investors can also make straightforward plays.
In the 1950s, money manager Philip Arthur Fisher shot to fame after investing in Motorola and publishing a book about growth investing. Morningstar has since called him “one of the great investors of all time.” And even historically contrarian investors like Bill Miller and Warren Buffett changed their strategy to buy popular growth stocks like Alphabet Inc. (GOOGL) and Apple Inc. (AAPL).
As they say, investors don’t earn points for style.
This week, I’ve been given permission to reveal three more stocks that our corporate partner’s quantitative system has flagged for investment. By analyzing and back-testing trades of over two dozen of the best billionaire stock pickers, the TradeSmith team has built a robust system that finds some of the best companies to invest in, no matter the labels investors place on them.
We call these stocks members of the “Billionaire’s Club.”
(Senior InvestorPlace Analyst Eric Fry recently talked about a different system from our corporate partner – a powerful tool that could help you determine an optimal time to sell your stocks before the next big crash occurs – in his latest video presentation. You can watch that here through September 30.)
You will notice that these companies look like the more “typical” buys than last week’s group. But don’t be fooled – these companies all share the same quantitative reasons to be bullish. Billionaires are buying shares, and they have good reasons for doing so.
The Self-Driving Winner
Earlier this month, Tesla Inc. (TSLA) CEO Elon Musk began promoting his firm’s October 10 “Robotaxi” event.
“This will be one for the history books,” Musk posted to X on Wednesday, along with a photo of the event announcement. Leaked concept renderings suggest the vehicle would be a futuristic two-seater vehicle with no steering wheel.
The electric vehicle pioneer has a lot of catching up to do. Companies from Google subsidiary Waymo to General Motors Co. (GM)-backed Cruise have far more testing miles under their belt. Waymo itself already offers taxi services in two different cities.
It’s important to note, however, that no matter who “wins” the race to building the first mass-market, fully autonomous vehicle… one company is almost guaranteed to come out ahead:
Uber Technologies Inc. (UBER).
The ride hailing firm currently operates America’s largest network of third-party drivers. Those seeking taxi services can log onto the app and access virtually every available driver in the area. Toyotas… Teslas… Fords… Uber doesn’t care what brand of car is on the road. If it’s the best-available car, it’s given the job.
This speed has helped Uber dominate the ride-hailing market. Many urban users wait less than two minutes for a ride to show up. Even my own relatively rural neighborhood averages a seven-minute wait to the delight of my houseguests.
This advantage will likely transfer to self-driving vehicles, especially if their owners are eventually able to rent out their vehicles to give rides. Third-party aggregators like Uber will be able to offer faster service than individual car companies, and history tells us that these online marketplaces can even succeed even in relatively concentrated markets like airlines and hotels.
That likely why Uber recently joined the Billionaire’s Club and earns a green-zone recommendation from our corporate partner’s quantitative system. Shares of the ride-hailing firm have recovered well from a post-pandemic slump, and this latest secular tailwind could keep sending shares higher.
The AI King
This month, Nvidia Corp. (NVDA) joins the list of our Billionaire’s Club of stocks to buy while also earning a green-zone recommendation.
I don’t take this recommendation lightly. Shares of Nvidia have already risen threefold in a year, and there’s always a fear that “what goes up must come down.”
Still, I’ve long maintained that Nvidia’s shares should hit a split-adjusted $160 by 2027. The company uses a proprietary standard known as CUDA to link its chips together, and so every piece of software optimized for Nvidia’s chips must get rewritten to run on anything else.
We know this is a near-priceless moat. COBOL, a 60-year-old programming language, still dominates the banking sector because no one wants to rewrite code that already works. And CUDA will remain a gold standard even if rivals begin to catch up to Nvidia’s chips. There’s simply too much AI code already written for Nvidia’s system.
In addition, a recent move by Apple into AI is a positive sign for Nvidia. As InvestorPlace’s Louis Navellier writes in a recent Market 360 update:
Once again, NVIDIA Corporation, the AI chip leader, will also benefit. In addition to onboard AI capabilities, the iPhone 16s will send more complex queries to offsite data centers, where they will be processed by higher-powered chips. NVIDIA is a leader in this field, and the iPhone’s performance demands will almost certainly funnel Apple’s investment to this GPU maker.
That means the best time to buy Nvidia was “yesterday.” In its most recent earnings release, Nvidia reported that revenues had surged 122% to $30 billion while earnings per share rose 151% thanks to insatiable demand for its AI chips.
The next-best time to buy Nvidia is “today.” The chipmaker is expected to see another 42% rise in revenues and profits in fiscal 2026, and its earnings power is expected to remain strong through at least the end of the decade.
Though shares will be volatile in the short run, billionaire investors are keeping their eye on the longer term.
The Dividend Aristocrat
Exxon Mobil Corp. (XOM) is one of the best-run integrated energy companies in the world. The firm spent decades assembling a portfolio of cheap upstream assets and has combined it with a strong downstream refining and chemical business to add value. Analysts believe Exxon can maintain its dividend even if oil prices drop to $40 per barrel.
Exxon is also investing wisely for the future. The company has concentrated its bets on some of the lowest-cost reserves available, particularly in Guyana and the U.S. Permian Basin. Analysts believe these sites will remain profitable even if oil prices drop to $35 per barrel.
The recent weakness in oil prices has now brought billionaires into the stock. Over the past several months, the energy firm has seen a cluster of buying by smart-money investors, even as mainstream ones opt for pricier tech and clean-energy firms. Our partner’s system additionally ranks XOM in the “green zone” category – a typical sign of upside to come.
This could be the start of a larger buying trend. This month, the U.S. Energy Information Agency (EIA) noted that global oil inventories continue to be drawn down; they forecast Brent crude prices should rise back above $80 per barrel in a month and that natural gas prices will rise over 55% through next year. In addition, a colder-than-expected winter could send European natural gas prices soaring – a factor that helped Exxon notch an 80% increase in share prices in 2022.
Please note that we do recognize the long-term risks of buying Exxon’s stock. Oil markets remain in secular decline, and Exxon’s chemicals business will not fully absorb lost demand. The firm also has an image problem that’s recently been made worse by a California-based lawsuit for alleged decades of deception around plastics recycling.
Nevertheless, Exxon remains a compelling bet for conservative investors seeking a dividend and near-term capital upside. Don’t let negative press persuade you otherwise… Exxon still has plenty of earnings power left.
Next Steps
In 2004, famed value investor Bill Miller put together a team to research Google, a company that was about to go public.
“You may remember internet stocks were doing poorly then,” said Michael Mauboussin, one of Millier’s key analysts. “And the popular press said not to touch this IPO with a 10-foot pole.”
But Miller’s Legg Mason Value Trust team made an enormous bid anyway, acquiring 2.3 million shares of the freshly public Google at $85. They reasoned that Google had enormous growth potential, and that it would be foolish to miss out. Over the next two years, their stake would surge from $196 million to $1.1 billion.
These are the kind of bets many billionaire investors make. And as Eric outlines in a recent presentation, these investments can be further improved by adding a layer of quantitative screening.
If you buy shares of UBER, NVDA, or XOM – or of any stock – you need to have a solid exit strategy in place for when the next major sell-off occurs. Something based on math and data, not emotion.
Which is why I want to direct your attention to a discussion that Eric had the other night.
He sat down with a special guest who revealed a powerful tool that could help you determine an optimal time to sell your stocks before the next big crash occurs.
You can watch their video conversation now.
We’ve secured a 90-day trial to for you, but you need to act before September 30.
Check it out… and I’ll see you back here next Sunday.
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace