Earnings season is upon us, and to many, it’s not looking awesome. Wells Fargo equity strategist Gina Martin Adams went as far as to say that it is “likely to be the most challenging earnings season for U.S. companies since the ‘Great Recession.’”
But it’s not all bad news. JPMorgan and Wells Fargo have beat expectations with their reports, and there’s no guaranteeing some “outside surprise” won’t come out of the woodwork.
Billionaire hedge fund managers like Carl Icahn, Bill Ackman and Warren Buffett are certainly keeping a close eye on how their investments fare this earnings season. They’re placing their chips accordingly as well.
Here are three sectors where billionaires are buying as earnings season kicks off.
Energy and oil have become bad words on Wall Street in recent months. Energy companies have slashed their earnings guidance by as much as 60%, and the sector is among the biggest drags on the first quarter’s growth picture. Despite a somewhat bleak picture, some billionaires are still buying – namely, Icahn.
Icahn raised eyebrows in March when a regulatory filing revealed he had purchased an additional 6.6 million shares of Chesapeake Energy on the 11th of the month, boosting his stake in the Oklahoma-based oil and gas company to 11%. The billionaire’s disclosure came in parallel with an announcement from Chesapeake that it would be reducing its 2015 capital budget and reducing its production outlook.
Carl Icahn is in deep on Chesapeake – and on energy overall – and by the looks of it, he’s not backing down. He left his stakes in CVR Energy, CVR Refining, Talisman Energy, Transocean and Seventy Seven Energy (a spinoff of Chesapeake) untouched in the fourth quarter of 2014.
At the start of 2015, the billionaire said in a CNBC interview that he believes oil prices would go lower. At the same time, he said he perceived a “tremendous opportunity” for when oil eventually rises. “I wouldn’t rush into oil now, and that’s talking against myself because I own a lot of oil stocks,” he said.
A big bet on Allergan drove much of Ackman’s incredible 2014 run. And when Actavis’ takeover of the Botox maker was confirmed, many thought the billionaire would be taking a time out on the health care sector. Instead, he’s done quite the opposite.
Even after the acquisition announcement, Ackman held onto most of his Allergan shares right up to the closure of the deal in March. And he’s been shopping around for other players as well.
Last month, Reuters reported that Ackman’s Pershing Square had made a $3.3 billion bet on Valeant. According to a regulatory filing, he picked up 19.47 million Valeant shares – a 5.7% stake.
Things are already starting to move in the activist investor’s favor on this one, as Valeant won its takeover bid of Salix Pharmaceuticals in March. In a CNBC interview, Ackman expressed confidence Valeant CEO Mike Pearson, calling him “the most disciplined buyer of companies.”
Bill Ackman has also been chalking up wins on Zoetis. He took a roughly $2 billion stake in the animal health company in late 2014 and made clear pretty early on that he wasn’t afraid to make pushes at Zoetis. Since then, he’s landed Pershing not one board seat but two.
Both Valeant and Zoetis are paying off well for Bill Ackman in 2015; the former has gained more than 45% year to date, and the latter 7%. Cars
Buffett’s 2006 Cadillac auctioned off for $122,500 in February — barely a fraction of the amount the billionaire is spending on (and making off) the car industry.
The Oracle of Omaha made big waves last October with the announcement that he planned to buy Van Tuyl Group, the largest privately held car dealership chain in the United States. “I fully expect we’ll buy a lot more dealerships over time,” he said in a CNBC interview.
He’s kept his promise. Van Tuyl — now Berkshire Hathaway Automotive — has expanded its pool of dealerships to 81.
But Buffett hasn’t stopped there. This month, news broke that Berkshire Hathaway had agreed to buy $560 million of stock in Axalta Coating Systems from Carlyle Group affiliates. The world’s biggest supplier of coatings to auto-repair shops and the second-largest provider to car and light truck manufacturers, Axalta has had a strong run in 2015, its share price climbing more than 20% year to date.
And, of course, you can’t forget General Motors. Buffett is a longtime GM shareholder, and as of his most recent regulatory disclosure holds 41 million of the automaker’s shares. It is worth noting he’s not the only billionaire hedge fund manager who seems to be a fan of GM – David Tepper and Marc Lasry like it as well. Perhaps even more now that it has agreed to a $5 billion buyback plan.
Follow the earnings season at ThinkAdvisor’s Q1 Earnings 2015 home page.