Every time an investing legend invests, you can count on their expertise, experience, and undeniable track record to assume that there is some gold in the name they selected to allocate some of their assets. Whether for piggybacking or learning a valuable lesson, it pays to follow these moves closely.
You should not buy a stock or plunge into a trade just because someone more prosperous and experienced has done it; there should always be a reason that makes sense to you and your situation or portfolio. Warren Buffett's reputation lies in his newest buys in Sirius XM Holdings Inc. (NASDAQ: SIRI).
Other super investors like Michael Burry, yes, the guy who called the 2008 housing bubble and got a book and movie made about the events, have been buying into Booking Holdings Inc. (NASDAQ: BKNG) lately. And who could ignore the former head of the world's largest hedge fund, Ray Dalio, and his latest move into Broadcom Inc. (NASDAQ: AVGO).
Great minds think alike
You can use the old saying here, with one minor addition: "Great wallets think alike." In case you didn't catch the trend here, these mega investors are all looking to increase their exposure to the technology sector, perhaps feeling like the outperformance seen on a year-to-date basis has a new set of lungs to go on.
Following the Technology Select Sector SPDR Fund (NYSEARCA: XLK) and its performance gap of 31.7% over the broader S&P 500 during 2023 can give you a sense of how superior this sector is. However, the lessons lie within these specific stocks within the space.
Starting with Sirius XM, it is a classic Buffett move to get into this name; it carries all the fundamentals of a business model like Spotify Technology S.A. (NYSE: SPOT) without all the volatility of an up-and-coming firm. But more than trying to invest in the tried and tested name, there's something about its price today.
The broadcasting and radio industry is trading at an average of 79.8% of its 52-week highs. In contrast, Sirius XM is sitting at 66.0% of its 52-week high, making it the worst performer in the space and a prime subject for Buffett to come sweeping in.
With Booking, Burry may have been fishing for something other than underperformance, considering this stock is flirting with its 52-week high prices today. What makes it attractive to him could be an answer in the company's financials.
You can find Dalio's signature with ink similar to his Broadcom decision; he just wrote it backward. You see, while he is still in the stock, he recently reduced his position after a massive rally. It is now at its 52-week high so asset allocation mandates could have caused the reduction rather than a change of conviction.
Decoding success
Buffett does love a well-managed business, and Sirius XM is proving itself to be one very quickly. Despite its third-quarter 2023 financials reporting a 1.0% decline in revenues, net income rose by 47% over the year, consequently driving earnings per share up by 50%.
Remember, the rates of return on capital a business can generate are usually the main foundations that attract Buffett to an investment. In the case of Sirius, each additional dollar of equity invested into the business (stock bought) will generate a return of roughly 20%.
Far from a dying business, Sirius is a proper fit for the stocks that allow you to compound your wealth. Now, you must be wondering if Burry's momentum buy checks off the financial boxes as well here, so there it goes:
When you dig into the company's financials, you will notice its margins immediately pop out of your screen. Gross margins of 86.1% allow more flexibility for the business to move around and pivot to market trends.
What really matters to Burry as an investor:
Net income margins have been 25.7% for the past twelve months, highly competitive by industry standards. And when it comes to rates of return, Booking brings back close to 30% for every investment dollar you throw at it.
There's a reason that analysts see double the rate of EPS growth for the next twelve months when compared to its closest competitor, Airbnb Inc. (NASDAQ: ABNB).
Now, remembering that Dalio's reduction in Broadcom likely came as an adjustment of his portfolio after the stock's aggressive rise, the question becomes: is there still any upside?
The company's near 40% net income margin during the past twelve months can be a testament to the future upside potential in this firm, especially when you consider that this performance came from a year full of tribulations for the semiconductor space.
Three different strategies and styles come to your disposal, whether for learning or a potential piggyback; in either case, there is a common trend and a few gems to take away from these latest portfolio updates.
