The first quarter of 2024 is drawing to a close. Within 45 days, money managers with more than $100 million in assets under management (AUM) will be required to file their 13F forms with the SEC disclosing their portfolio holdings. As a result, hedge fund investors are noticing some big buys and sells.
The filings give investors a granular look at where the smart money was placing its bets. Despite the dated information, you still get insight into the stocks hedge funds are buying and selling. You can see the trends they feel are coming into style or falling out of favor.
I wouldn’t blindly follow their lead without doing your own due diligence but riding their coattails can have benefits. Many times you can get a better price on a stock than they did. Other times they get out of a stock early and you can reap greater profits after having ridden the shares higher.
Looking at where these billionaire money managers were going last quarter a few surprising stocks were dumped en masse while others were scooped up. Here are two stocks the smart money sold and one they loaded up on.
Hedge Fund Buys and Sells: Microsoft (MSFT)
There were almost 60% more sellers than buyers of Microsoft (NASDAQ:MSFT), including some like Jim Simons at Renaissance Technologies who completely dumped his shares. Steven Cohen of Point72 Asset Management sold off more than three-quarters of his stake.
Microsoft is getting a lot of coverage over its integration of artificial intelligence (AI) into its products and services. The tech giant’s fiscal second quarter earnings report was also solid. MSFT stock is trading just below the all-time high it recently hit and shares are up 12% this year. The Magnificent Seven stock is 52% higher than where it stood 12 months ago.
Having fully infused OpenAI’s ChatGPT chatbot into its operations, AI contributed 600 basis points (bps) of growth to Microsoft’s Azure cloud computing business. That’s twice what it contributed in Q1. Microsoft offers hybrid cloud services, both on-site and off-premises. That allows clients to choose the option that best serves their needs and migrate data at their own pace. Expect to see the rate of AI growth and contribution accelerate in coming quarters.
I’m not sure selling off, or even selling down MSFT stock was the right move, no matter how high Microsoft’s shares moved. Microsoft is typically a safe bet, but you may want to follow the plays from a hedge fund just to be safe.
Alphabet (GOOG)
Alphabet (NASDAQ:GOOG) was another tech stock hedge funds were shedding last quarter. While Simons was using the money he got from the Microsoft sale and putting it into GOOG stock, others including Paul Tudor Jones from Tudor Investments and the Bill & Melinda Gates Foundation were offloading their entire stake. However, Bill Gates only briefly owned 14,000 shares before he sold off his position.
Google’s owner is also trading just below its all-time high reached at the end of January. The company still produces massive cash flows from its position atop the search engine market. The dominant player with a better than-90% market share should continue reining supreme despite Microsoft enhancing its Bing search engine with AI. Google did that too by introducing Gemini. How, was forced to beat a hasty retreat after its AI chatbot was programmed with discriminatory responses.
Even so, most analysts see it as a temporary setback for Alphabet. And Apple (NASDAQ:AAPL) recently signed on to include the AI technology into its next iteration of the iPhone. With many irons in the fire and being a cash-rich company, selling off GOOG stock seems premature. Make like a big hedge fund and drop Alphabet stock.
Target (TGT)
One place money managers were putting their money to work was in Target (NYSE:TGT). With the retailer’s stock down most of last year, it was a company offering a discount too good to be ignored. Joel Greenblatt at Gotham Asset Management increased his holdings 37% while Tom Gaynor at the Warren Buffett-like Markel (NYSE:MKL) boosted his stake by 46%.
Target subsequently reported third quarter earnings in November that indicated the business was recovering. From the 52-week low hit just before the financial report, TGT stock is up 77%. It’s 23% higher in 2024 as Q4 earnings released earlier this month were just as good. Target has established itself as a low-cost retailer offering customers trendy merchandise and attractive household and personal goods at reasonable prices. As good as its recent performance has been, though, the stock is still under pressure.
Because its assortment of merchandise isn’t especially unique, Target faces significant challenges from online and brick-and-mortar rivals. Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), and even warehouse clubs such as Costco (NASDAQ:COST) represent competitive threats to continued growth and profitability.
TGT stock simply got too cheap to ignore. Even after its runup, the retailer is still attractively priced. It goes for just a fraction of sales and 16 times next year’s earnings. With Wall Street expecting long-term earnings growth from Target of 18% annually, its stock still warrants a closer look. Don’t let a giant hedge fund be the only one cashing in on Target stock!
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
