Top 5 Superinvestor Buys for 2023

Incredibly strong balance sheet.

• The most bought stock among Superinvestors in the fourth quarter of 2022 was Google. Across both its Class A and Class C shares, Google caught the attention of 21 Superinvestors. The largest buy was from Dodge & Cox who picked up 3,015,700 new shares for their portfolio.
• Google saw their stock decline across Q4 and interestingly it actually hasn’t recovered all that much even sitting here at the start of March.
• Despite Google juggling various businesses like its Pixel phones, Google Maps, Google Play Store, Google Workspaces and Google Cloud Computing services, it still derives most of its profit from advertising that appears on Google Search and Youtube. Much like Facebook, Google is experiencing some harsh headwinds in the form of reduced advertising expenditure. Difficult macroeconomic conditions have meant the usual advertisers that Google derives most of its business from are cutting back on their advertising expense, impacting Google’s bottom-line.
• The macroeconomic environment causes less spending by consumers. This leads to less revenue for corporate America, which in the case of Google, leads to businesses spending less on marketing.
• In Google’s Q4 financials, we could see that advertising revenue actually shrunk year-over-year, and that’s pretty rare. So revenue didn’t grow at the 20-30% we’re used to. One thing to note is that Google’s headcount grew, up from 156,000 in 2021 to 190,000 at the end of 2022. On the surface this looks like a positive takeaway but you must consider this in the context of declining advertising revenue. This could be unsustainable headcount growth if there isn’t a reversal in trends.
• While recent news has spoken of several tech giants announcing lay-offs, it must be said that several of them still have greater headcounts year-on-year despite the reduced personnel.
• The lucky thing for Google is that they’re really not in a stressful financial position at all, which is because of their rock solid moat and what that has done for their balance sheet over time. For example, Google has US$113B of cash or short term marketable securities on the books right now, and while that is $26B less than they had last year… it’s still US$113 billion dollars. Compare that to US$13B in long term debt and actually only US$109B in total liabilities, and you start to get a sense of just how much of a financial fortress Google really is.

Amazon Web Services acting as a strong growth driver amidst soured consumer sentiment.

• The second hottest stock among Superinvestors in Q4, was Amazon. The online retail and web services giant enticed buys from 15 of the world’s most prominent investors. The most notable buy was from Chase Coleman at Tiger Asset Management who acquired 5,914,931 shares, increasing the portfolio’s holdings by 221%.
• Amazon, much like many tech companies, had its stock price battered down, hitting a high of US$170.83 in late March of 2022, before tumbling down as low as US$81.43 per share in December of 2022. While the stock price hasn’t recovered nearly as well as some of the other stocks in this list, our Superinvestors who may have timed the market well with their Q4 buys could see as much as a 16% return since then.
• But why is Amazon still down while much of the market has shown a stronger recovery? Well, the thing you have to appreciate with Amazon is that their business is very much dependent on the spending appetite of your average consumer. When lockdowns started and stimulus checks were handed out, Amazon really thrived. But, when disposable income drops, inflation spikes and costs rise, Amazon doesn’t do so well and consumer spending takes a while to recover.
• Another thing to consider is that we’ve seen Amazon investing really heavily in their business over the last few years to try and expand to accommodate that 2020/2021 level demand. In doing so, they’ve gone from US$16.9B in Capex in 2019 to now over US$60B in the last year. But as all that spending has occurred from Amazon, we’ve also seen a big drop off in consumer spending which makes life a lot more difficult.
• While Amazon’s retail side is in a trickier position, the one growth engine that’s chugging along nicely for them right now is Amazon Web Services (AWS). Amazon’s North American and International retail segments both saw a drop in operating income across 2022, their AWS segment reported 29% sales growth across the year to US$80.1B, so there are definitely still some positives for amazon, even in this environment.
• AWS has been able to secure some lucrative service contracts, namely the Nasdaq which completed the migration of its core trading system to AWS, Yahoo Ad Tech and Brookfield Asset management are all using AWS as their preferred cloud platform.

Cheap Q4 2022 valuation saw investors pounce.

• Meta was the third most popular stock to buy among Superinvestors, where 13 of some of the world’s most astute investors thought it was high time to buy the previously downtrodden social media conglomerate. The largest single buy was once again Chase Coleman at Tiger Asset Management, but Seth Klarman at Baupost Group increasing his holdings by 151% was noteworthy.
• Meta investors didn’t have the greatest fourth quarter, sinking to a 52 week low of US$88.09 per share. Spectacularly though, Meta has seemingly recovered almost all of the ground it lost over the last year as it shot up over 108% since the lows of November to sit practically level with the stock prices we saw in early March of 2022. So goes without saying, if our Superinvestors were buying heavily in November, they are sitting very pretty now with the stock currently at just over US$185 per share just a few months later.
• Even with investors seeing a reversal of fortunes, Meta is still facing a lot of headwinds right now. Of course, Mark Zuckerberg is still very committed to his metaverse VR/AR project, which isn’t so good for investors at the current moment. Meta’s losses from reality labs hit $3.7B in Q3 last year and in Q4, those losses widened to $4.3B. What’s more is that their annual capital expenditures in 2022 hit US$32B, up from US$19.2B the year before. So a lot of money is being invested right now, with nothing to show for it… yet.
• Beyond that, the current macroeconomic environment hit Meta pretty hard. As mentioned previously for Google, we’re seeing many advertisers pulling back on marketing budgets, which reduces Meta’s revenue. Their 2022 revenue only grew 4% (on a constant currency basis) vs 2021, and while they saw an 18% year-over-year increase in ad impressions, cost per ad fell 16%. This is largely due to two main factors, less advertisers spending less money, and then also the shift in content consumption towards short form video, which is a lot more difficult for Meta to monetise.
• So there’s a lot of short term headwinds, but that obviously hasn’t scared our long term focused superinvestors who bought up in Q4.

Microsoft’s OpenAI investment has caught the attention of investors.

• Microsoft was bought by 11 of our 79 Superinvestors last quarter, with Chris Hohn at TCI Fund Management taking the largest bet when he added 2,391,274 new shares this quarter.
• Now it’s difficult to speculate on the reasons for these buys, but it seems that the broader market sell off was dragging these technology stocks down, and these long-term minded Superinvestors saw an opportunity to capitalize on entering at lower valuations. To put it simply, if they think Microsoft trades below intrinsic value, then they’re going to buy it, because it’s a solid business.
• Peak to trough, Microsoft didn’t suffer as bad as some of its peers. Over the last year, the stock fell only as much as 32% and that’s not to mention the company has recovered some 19% since the 52-week low in November 2022.
• But beyond the share price movement, of course there was some big news for Microsoft during Q4 and that was the release of OpenAI’s ChatGPT on the 30th of November, which Microsoft has a decent stake in. Microsoft invested US$1B in Open AI back in July 2019 and have just recently announced a further US$10B investment.
• Their investment in OpenAI is a strategic partnership aimed at advancing the development and deployment of artificial intelligence technologies - so through its investment in OpenAI, Microsoft gains access to some of the most advanced AI research and development capabilities in the world. The partnership allows Microsoft to leverage OpenAI’s expertise in AI research and development to improve its own products, namely Bing Search but also the services Microsoft offers too, like Microsoft Azure cloud services.
• ChatGPT’s functionality has already been integrated into Bing which has had a noticeable increase in its popularity since it was first announced. And while it’s note specifically related to Microsoft, OpenAI has already announced their pilot subscription service ChatGPT Plus which will further monetise the software and empower further development.
• So while a lot of the hype around Microsoft is AI related at the moment, we must remember it’s also just a great business with many software-based switching moats Teams, Office 365, Xbox Game Pass and Windows operating systems; keeping revenue sources diverse in times where other businesses struggle.

Recognisable American brand with high quality credit.

• The fifth most bought company in Q4 2022 was Disney. 9 of major Superinvestors added to or opened positions. Nelson Peltz of Trian Fund Management made the largest bet on Disney, opening a new position with 9,029,800 shares purchased. This purchase was so significant that it now makes up 16.1% of Trian’s portfolio.
• Disney stock fell to a 52 week low of US$84 towards the end of Q4, which is a likely reason why it’s made its way onto this list. Lower valuations presented a tempting buy for Superinvestors who are bullish on the long-term strategy for the company.
• One of the most important pieces of news that came out of Disney during Q4 was the announcement that former Disney CEO, Bog Iger, would be returning to the top position for 2 years, replacing Bob Chapek. This news was well received by most Disney shareholders as unfortunately Disney suffered a very turbulent few years under Bob Chapek’s leadership. Although, in fairness, it’s hard to attribute this turbulence to him as it was a difficult period to manage one of the largest media businesses in the world.
• Nonetheless, Bob Iger is back and he has a very big job to do over the next two years. While Disney does seem to have put the worst of the "COVID blues" behind it, they’re still faced with a macroeconomic environment that’s encouraging consumers to cut back on discretionary spending. Unfortunately for Disney, this seems to encapsulate almost all the products and services Disney offers, from TV shows, movies, Disney theme parks, Disney+ to even Disney cruises.
• To provide some solace to shareholders, Iger recently announced they’ll be lowering costs by cutting over 7000 jobs, but also announced the potential to restore Disney’s dividend at some point in 2023 which would be a nice way to improve investor sentiment, but not necessarily the actions of a company who could be facing a tough short-term outlook.
• So all eyes are now on Bob Iger’s plan to restructure the company for the future. These plans may also include the decision to sell off some of Disney’s businesses to reduce overhead and cut back on diluted strategy. There seems to be some speculation recently that ESPN could be a likely candidate, as Bob Iger recently announced that Disney’s two revenue segments (Disney Media, Entertainment and Distribution, and Disney Parks, Experiences and Products) will now become three, with ESPN forming its own revenue segment.