Whether you realize it or not, the most important day of the quarter was February 16 because it marked the deadline for money managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what the most successful institutional investors, hedge funds, and billionaire investors were holding at the end of the most recent quarter (Dec. 31, 2020, in this instance).
Although 13Fs provide dated material, they can nevertheless help Wall Street and investors identify stocks and trends that money managers love or perhaps want to avoid. During the fourth quarter, there were three popular stocks that fell into this latter camp and were sold heavily by billionaire money managers.
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Sundial Growers
First up is one of the most-popular Reddit-rally stocks on the planet, Canadian marijuana stock Sundial Growers (SNDL +0.69%). During the fourth quarter, aggregate 13F filers reduced their ownership in Sundial by 28%, with hedge funds dumping 61% of their previous holdings from the sequential third quarter. More specifically, Jim Simons' Renaissance Technologies dumped its entire 1,681,000-share stake in Sundial in Q4.
Although Sundial has had a monstrous run higher to begin 2021, there doesn't look to be much substance behind its rally. It looks like it was based on the idea that the U.S. federal government could legalize cannabis at the federal level, which would give Sundial the free and clear to enter the more lucrative U.S. pot market. The thing is, President Joe Biden has promised to do nothing more than decriminalize and reschedule marijuana and has previously shied away from the possibility of legalizing it nationally.
Another major issue with Sundial is the way the company improved its balance sheet. I'd estimate -- following a recent investment in Indiva and the exercising of warrants -- the company has $680 million in cash available. That's plenty of capital to push into the U.S. if the federal government reforms its existing stance on cannabis.
But Sundial raised this cash by trampling existing shareholders. It undertook countless share offerings and debt-to-equity swaps. In less than five months, its share count has skyrocketed by more than 1.1 billion shares.
Sundial is also nowhere near profitability at a time when more pot stocks are getting ready to go green. Management's decision to focus on the retail market and shift away from lower-margin wholesale will put Sundial many steps behind its Canadian peers.
Long story short, I don't blame billionaires one bit for running to the exit.
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Barrick Gold
Another stock that really lost its luster with billionaire money managers during the fourth quarter is gold miner Barrick Gold (GOLD +0.63%). Aggregate ownership in Barrick by 13F filers declined by 84 million shares (about 8%), with hedge funds reducing their stakes by more than 15%.
In particular, Warren Buffett's Berkshire Hathaway exited its 12 million-share stake. Meanwhile, Renaissance Technologies and Larry Fink's BlackRock reduced their positions by 7.33 million shares and 4.88 million shares, respectively.
The most likely reason for this pessimism has been the steady decline in the spot price of gold since the summer. Gold stocks are inextricably linked to the product they sell, so a declining gold price is going to adversely affect cash flow and profitability. My suspicion is that rising Treasury yields have taken a bit of the luster off of precious metals.
However, the outlook for precious metals remains bright. Even after a surge in Treasury yields, investors still aren't outpacing inflation if they're buying bonds. There's also the strong likelihood that we'll see another round of fiscal stimulus from Washington, as well as ongoing quantitative easing measures from the nation's central bank. That's a recipe for an expanding money supply, which is typically good news for the price of gold.
More specific to Barrick, the company has done an excellent job of reducing its outstanding debt and focusing on efficiency at its core mines. Following years of lugging around billions in net debt, Barrick is now fractionally net-cash positive. It also expects a midpoint all-in sustaining cost of $995 per gold ounce on the 4.4 million ounces to 4.7 million ounces expected to be produced this year. That's an $800/oz. margin, based on the current price of gold.
Suffice it to say, money managers may regret selling.
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Pfizer
Billionaires also weren't shy about hitting the sell button when it came to pharmaceutical stock Pfizer (PFE 0.21%) in the fourth quarter. Total ownership by 13F filers declined by 360 million shares (nearly 9%), with 74% more funds decreasing their stakes in Q4, relative to the sequential third quarter. Among billionaires, BlackRock sold nearly 40.2 million shares of Pfizer, while Warren Buffett and his team completely dumped a 3.91 million-share stake.
It's tough to definitively say why the big money turned against Pfizer in the fourth quarter, but I have two ideas. First, billionaire money managers might have taken a "buy the rumor, sell the news" approach to the company's coronavirus disease 2019 (COVID-19) vaccine program. As many of you probably know, Pfizer reported its late-stage study results in Q4, with its vaccine proving 95% effective. It's currently one of two COVID-19 vaccines to have received emergency-use authorization in the U.S.
The second possibility is successful money managers were disappointed by cancer drug Ibrance's flop in treating early-stage breast cancer. There's no denying that Ibrance has been a multibillion-dollar drug for Pfizer, but there was a lot of hope that its label could be expanded into more lucrative earlier indications. That's not going to be the case.
No matter the reasoning, Pfizer is beginning to look like a bargain. Even excluding the $15 billion in revenue expected in 2021 from the company's COVID-19 vaccine, sales at the midpoint could be up by high single digits this year. Oncology and rare disease drug growth has been particularly impressive.
Now that Pfizer is valued at about 11 times this year's earnings forecast, buying the stock -- not selling it -- would likely be the prudent move.
