"Scary headlines (Europe, a "rigged" marketplace, Fed policy, earnings worries, China, emerging markets, Congressional bickering), two bear markets still fresh on investors' minds, and multiple short-term pullbacks since the 2009 lows (five significant pullbacks in the past 18 months alone) have all combined to push potential investors out of the market. These sidelined investors represent a future source of buying power," (Todd Salamone, Feb.15,2014, Schaeffer's Investment Research).
The above quote speaks to one reason why the "Smart Money" thinks now is a fortuitous time to focus on certain companies that are under big-time accumulation.
The Smart Money includes Leon Cooperman, the Chairman and CEO of Omega Advisors, John Paulson, the CEO of his own investment firm, and the most famous living investor of them all,Warren Buffett.
Important Disclaimers: You need to remember that none of us know which companies these legendary investors will be buying next.
It's through the process of regulatory disclosures that we learn what they and their firms have accumulated. On Dec. 31, 2013, investors who manage more than $100 million have to confess their holdings to the SEC. They have to do this each quarter throughout the year.
When David Einhorn of Greenlight Capital or Daniel Loeb of Third Point LLC confesses what they're stocking up on, I pay attention. Yet it doesn't mean they're buying more of these companies now.
Those who have read my recent articles know that I look for companies with rising earnings that generate lots of free cash flow and are generous to shareholders. I also value transparency and the reliability of both the officers and boards of these outstanding companies.
That's why I've reduced my exposure to Linn Energy (NASDAQ:LINE) while increasing my holdings in Chevron (NYSE:CVX), Occidental Petroleum (NYSE:OXY) and ConocoPhillips (NYSE:COP). You know which companies you trust more and which ones have "burned" you in the past, so I encourage you to use that discretion.
Some of the Companies Purchased as of Dec. 31, 2013
I'll focus on a variety of the disclosed purchases and a sale that these titans of the investment world started 2014 with. This is a partial list.
1. David Einhorn of Greenlight Capital has at least $1 billion invested in Micron Technology (NASDAQ:MU). It's impressive to note that Micron's CEO D. Mark Durcan owns nearly $42 million of shares of his company.
2. Daniel Loeb of Third Point LLC has joined the ranks of other Smart Money movers and invested in T-Mobile US (NYSE:TMUS), which is doing all it can to lure customers from its competition. T-Mobile, which will report its latest quarterly earnings before the market opens on Feb. 25th, is frequently seen as a takeover target. As of Dec. 31, 2013, Deutsche Telekom disclosed it owns 535,286,077 shares of TMUS. This makes it a "beneficial owner" as D.T. owns 10% or more of the outstanding shares of TMUS. Loeb also disclosed that his firm bought shares of Hertz Global Holdings (NYSE:HTZ) worth over $172 million at the time.
3. George Soros of Soros Fund Management LLC had accumulated around $119 million of Citigroup (NYSE:C) and over $166 million in JPMorgan Chase (NYSE:JPM). At $58 a share, JPM offers a dividend yield of 2.62% which is likely to be increased in the year ahead.
4. John Paulson of Paulson & Co. was smart enough to increase his investment in Time Warner Cable (NYSE:TWC) from $446 million to $810 million. As you know the stock skyrocketed after Comcast (NASDAQ:CMCSA) announced intentions to buy TWC for over $45 billion. At $146 a share TWC has a 2.06% dividend yield and trades at a relatively low price-to-earnings-to-growth (PEG) ratio (5-year expected) of less than 1.4. I want to own shares myself. Paulson, who hasn't always been correct, didn't increase the size of his holdings in SPDR Gold Shares ETF (NYSEARCA:GLD), but he didn't decrease exposure either. GLD is up about 5% so far in 2014.
5. Warren Buffett of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), which I wrote about in my last article, is also a big believer in owning cable company stocks. He and Berkshire like Liberty Global (NASDAQ:LBTYA). It is a European-centric cable business and is separate from Liberty Media (NASDAQ:LMCA). Buffett disclosed that Berkshire owned 2.95 million shares of Liberty Global, but reduced its exposure to Liberty Media by around a million shares. Yet it still owns a whopping 4.5 million shares valued at around $780 million.
6. Leon Cooperman of Omega Advisors reported that he took a position of more than 1 million shares of General Motors (NYSE:GM) .Cooperman joins the ranks of a number of other institutional investors like Capital Research Global Investors which as of last report owned more than 2.6 million shares of GM. Yahoo Finance reports that 42% of GM's outstanding shares are held by "Insiders and 5% Owners." GM shares look relatively undervalued with a forward PE ratio of just above 7 and a PEG ratio of only 0.52. At $36-a-share the dividend yield is a tempting 3.33%, and the ex-dividend date is March 14, 2014.
An Investment Idea Worthy of Your Consideration
Since none of us know which of these companies are most likely to go higher and bring us sweet capital gains, here's an idea: Why not buy a little of each which reduces risk while putting you in position to benefit from many kinds of lucrative corporate events.
Those events (spin-offs, buyouts, dividend increases, special dividends, takeovers) can come suddenly and by the time we hear about them the stocks have already priced in the good news.
Since all of the Smart Money buys are "old news" from the end of last year, many of the companies have corrected from 52-week highs. As I pointed out, some look underpriced to me and also offer adequate dividends.
You can buy a few shares of each one and you don't have to buy round lots or even a hundred shares. Buy what you can afford and put a little extra in the companies you believe have the best upside potential.
It has been my experience that buying the companies that the most successful investors are buying not only pays off in time but also helps us have more confidence and less sleepless nights.
As the quote from Todd Salamone reminds us, there are still plenty of ..."sidelined investors (which) represent a future source of buying power" for the stock market. Guess which stocks they'll pursue?
From past bull markets I've learned that the herd is likely to pursue the stocks of companies that are owned by insiders, beneficial owners and famously smart investors like the ones I've presented to you. Let's buy our shares before the sidelined investors jump in.