2 billionaires in Dow stock are absolutely piling up, and 1 can’t sell fast enough

By | February 29, 2024

For almost 128 years, the Dow Jones Industrial Average (DJINDICES: ^DJI) has served as Wall Street’s most watched barometer of health. The index has evolved from an index of twelve companies that was heavily weighted towards industrial companies at the end of the 19th century, to an index that now consists of thirty diverse, proven multinational companies.

The long-term success of the Dow Jones components has been a major draw for investors. It just so happens that everyday investors have access to the portfolios of Wall Street’s brightest minds to see what they’ve been up to.

A three-level digital board displaying business news and stock quotes on the side of a tall building.

Image source: Getty Images.

Each quarter, money managers with at least $100 million in assets under management must file Form 13F with the Securities and Exchange Commission. A 13F provides a detailed snapshot of what top asset managers have bought and sold over the past three months. Despite the disadvantage that this insight doesn’t become visible until 45 days after the end of a quarter, 13Fs still provide invaluable insight into the stocks, sectors and trends that capture the attention of Wall Street’s most successful investors.

The latest round of 13Fs (filed on February 14) was particularly important for three components of the Dow Jones Industrial Average. While billionaire investors have absolutely piled into two outperforming Dow stocks, 13F filings also show one Dow stock was sent to the chopping block.

Dow stock No. 1 that billionaire investors are flocking to: Walt Disney

The first Dow component to really grab the attention of billionaire money managers during the quarter ending in December was theme park operator and media giant Walt Disney (NYSE: DIS). Five prominent billionaires added to the stakes of their respective funds, including (total shares purchased in brackets):

  • Ken Griffin of Citadel Advisors (6,340,344 shares)

  • Jim Simons of Renaissance Technologies (1,100,700 shares)

  • John Overdeck and David Siegel of Two Sigma Investments (563,685 shares)

  • Ken Fisher of Fisher Asset Management (309,376 shares)

The appeal of the House of Mouse for these billionaires appears to be a combination of improved operating performance and Disney’s unmatchable intangibles.

On the former, Disney’s management team remains committed to its previous forecast that the company’s streaming segment will be profitable in the fourth quarter of the current fiscal year (ending at the end of September 2024). After years of significant operating losses in the streaming segment, Disney has expanded its direct-to-consumer offering with an ad-inclusive offering, and it hasn’t been afraid to raise its prices.

I will also add that Disney is seeing increased growth in its theme park and entertainment divisions as we move further away from the worst of the COVID-19 pandemic. Let’s not forget that China is just over a year away from abandoning its strict COVID-19 containment measures.

The other big catalyst for Walt Disney is the uniqueness of its brand. There is no other media company that has the depth of characters or stories that Disney brings. Few companies can bridge generation gaps so easily with their products and services.

Having a strong brand gives the company exceptional pricing power. Admission prices to Disneyland in Southern California have exceeded prevailing US inflation by a factor of 10 since 1955. It’s also why Disney can comfortably raise streaming prices without the fear of driving away too many of its subscribers.

Dow stock No. 2 that billionaire investors are piling into: Amazon

The second Dow stock billionaires seemingly stumbled upon to buy in the fourth quarter was an e-commerce company Amazon (NASDAQ: AMZN). The newly added Dow component caused eight billionaire investors to hit the buy button, including (total shares purchased in brackets):

  • Ken Griffin of Citadel Advisors (4,321,477 shares)

  • Jim Simons of Renaissance Technologies (4,296,466 shares)

  • Chase Coleman of Tiger Global Management (947,440 shares)

  • Ken Fisher of Fisher Asset Management (888,369 shares)

  • John Overdeck and David Siegel of Two Sigma Investments (726,854 shares)

  • Steven Cohen of Point72 Asset Management (462,179 shares)

  • Israel Englander of Millennium Management (85,532 shares)

While Amazon is best known for its industry-leading e-commerce marketplace, online retail sales generate subpar margins and little operating cash flow or revenue. Chances are, billionaires joined Amazon because of the robust growth of its support segments.

No operating division is more important to Amazon than its cloud infrastructure services platform, Amazon Web Services (AWS). AWS is responsible for nearly a third of global spending on cloud infrastructure services, based on estimates from technology market analyst Canalys. Despite AWS accounting for only one-sixth of the company’s net revenue, the high margins associated with cloud services have helped AWS consistently generate 50% to 100% of Amazon’s operating revenue.

Amazon’s advertising and subscription services are also fast-growing segments. In April 2021, then-CEO Jeff Bezos noted that his company had surpassed 200 million global Prime subscribers. This figure has likely increased as Amazon is now the exclusive streaming provider Thursday night football.

Finally, Amazon is a natural beneficiary of the artificial intelligence (AI) revolution. For example, generative AI solutions within AWS can be used by sellers to tailor messages to potential buyers. As long as AI remains a red-hot investment trend, Amazon is likely to benefit and attract the attention of billionaire money managers.

A person with an open laptop on their lap using a smartphone in their right hand.A person with an open laptop on their lap using a smartphone in their right hand.

Image source: Getty Images.

The Dow component billionaire investors can’t sell fast enough: Verizon Communications

However, not every Dow Jones Industrial Average stock was embraced by billionaires in the fourth quarter. One heavily owned stock that ended up on the chopping block was telecom titan Verizon Communications (NYSE: VZ). Seven successful billionaires were sellers, including (total shares sold in brackets):

  • John Overdeck and David Siegel of Two Sigma Investments (3,314,607 shares)

  • Israel Englander of Millennium Management (2,830,060 shares)

  • Ken Griffin of Citadel Advisors (2,106,623 shares)

  • Jeff Yass of Susquehanna International (1,844,350 shares)

  • Steven Cohen of Point72 Asset Management (1,458,200 shares)

  • Jim Simons of Renaissance Technologies (834,522 shares)

The reason prominent billionaires dumped Verizon en masse likely had to do with a July report The Wall Street Journal that putative legacy telecom companies could face significant environmental and health-related liability costs associated with their use of lead-sheathed cables. In general, Wall Street hates uncertainty.

The Federal Reserve’s historic rate hike cycle was another potential sales catalyst for billionaire asset managers. Older telecom companies have quite a bit of debt on their balance sheet. If the nation’s central bank were to increase the Federal Funds Rate by 525 basis points in less than two years, it could make future refinancing and borrowing more expensive.

Verizon is also a mature company that is expected to grow at a low single-digit rate for the foreseeable future. With AI stocks soaring, active funds have likely reallocated capital to faster-growing companies with more robust long-term expansion prospects.

But despite this selling pressure, Verizon and its 6.7% yield still seem like a bargain. Upgrading the network to handle 5G download speeds has increased wireless data consumption and is leading to a wave of broadband additions.

Additionally, Verizon has made it clear that lead-coated cables play only a minor role in its network. If the company had any financial liability, it would likely be determined by the notoriously slow U.S. legal system. In other words, many of the reasons to be skeptical of Verizon lack substance.

Should You Invest $1,000 in Walt Disney Now?

Before you buy stock in Walt Disney, consider the following:

The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Walt Disney wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor service has more than tripled the return of the S&P 500 since 2002*.

View the 10 stocks

*Stock Advisor returns February 26, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions at Amazon. The Motley Fool holds and recommends positions in Amazon and Walt Disney. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

2 Billionaires in Dow Stocks Are Absolutely Piling Up, and 1 Can’t Sell Fast Enough was originally published by The Motley Fool

Leave a Reply

Your email address will not be published. Required fields are marked *