There are dozens of hedge fund transactions on a daily basis, but only a few billionaires change their positions each week. You’re probably aware of high net-worth guys like Warren Buffett and George Soros, but there are some other billionaires buys you should know about. Because it’s important to track the smart money’s best and brightest (discover how investors have beaten the market with this strategy), let’s take a look at three in particular from the past week.
Bill Gates and KiOR
KiOR Inc (NASDAQ:KIOR), the small-cap renewable fuels development company, doesn’t have much interest from the prominent investors we track. According to a new SEC filing from Bill Gates and Gates Ventures, though, the co-founder of Microsoft Corporation (NASDAQ:MSFT) now owns 11.8% of Kior’s outstanding stock. The total position is about 7.4 million shares worth $16.8 million at current market prices; only Stuart Peterson’s Artis Capital appears to be a bigger bull.
Of course, there are many reasons why Gates could be interested in Kior, but as one corporate PR statement shows, it’s probably due to the actual mission of the company itself. Gates publicly stated that he “was impressed” with Kior’s commercial scale cellulosic fuel facility in Columbus, Mississippi, adding that he’s looking to “move its technology forward.”
For any wealthy investor looking to put his or her money behind an environmental cause and not just an investment, Kior provides that opportunity. The company’s is working on a novel proprietary technique that converts non-food biomass into fuels ready to be used by existing automobiles. Wall Street doesn’t expect Kior to be profitable for at least a few years (it expects an EPS of $-1.30 this year and $-0.88 in 2014), but it isn’t particularly expensive at 2.3 times its book value.
Free cash flows are negative, but have improved significantly since 2011, and Kior’s debt is manageable. Credit Suisse, one of the few agencies that covers Kior, holds an outperform rating on the stock. According to Credit Suisse analyst Edward Westlake, the basis for this bullishness lies in the assumption that by 2015, “KiOR would be cash flow positive as a corporation and significantly better positioned to pursue the longer-term growth of turning non-food wood or waste products into fuel.”
If you are invested here, keep this general timeline in the back of your mind, and be on the lookout for any Kior news that could accelerate or slow Westlake’s outlook. It is one of the main ideas driving the stock’s growth estimates—Wall Street as a whole expects Kior to generate EPS growth 34% a year over the next half-decade. It’s worth noting that Bill Gates’ stake here is passive in nature; don’t expect any activist influence from the billionaire.
Howard Marks and Contango
In a 13D filing at the end of last month, Howard Marks and Oaktree Capital Management disclosed a 6.8% activist stake in Contango Oil & Gas Company (NYSEMKT:MCF). The position amasses 1.3 million shares worth a total of $55.3 million. Ric Dillon, Chuck Royce and Ken Griffin are also invested in the natural gas and oil company, and Marks’ buy comes amid Oaktree’s closure of its entire position in Crimson Exploration Inc. (NASDAQ:CXPO). Both energy players closed their merger in early October, and the newly combined company will maintain its offshore operations in the Gulf with additional onshore production in Texas.
From a macroeconomic standpoint, it’s easy to see why Marks continues to be bullish post-merger. The domestic E&P industry is currently in the midst of a solid uptrend, particularly in oil and liquids versus lesser growth in natural gas, and Contango’s purchase of Crimson gives it healthier diversification in both of these areas. On average, the sell-side estimates there’s about an 18% upside to Contango shares presently, so if you’re a fan of Marks and Oaktree, it’d be smart to take a longer look here.
Tiger Global and Carter’s
Tiger Global is a massive hedge fund managed by billionaire Chase Coleman and Feroz Dewan, and the legendary Julian Robertson seeded it. In a passive SEC filing on October 31st, Tiger Global reported that it upped its stake in Carter’s, Inc. (NYSE:CRI) to 5.65 million shares, versus 4 million held in its last 13F. The newly increased position now represents 10.4% of the young children’s apparel marketer, which has seen its shares rise by 25.8% year-to-date.
The Tiger cub’s boost in Carter’s comes at an interesting time, when shares already trade at fair valuation multiples and are oversold according to some analysts. As Coleman and Dewan often do, though, we believe they are invested in Carter’s due to its growth prospects. The company has beaten Wall Street’s earnings estimates in every quarter of 2013, which are the same estimates that forecast annual EPS growth of 17% through 2018.
In May of this year, Carter’s announced its first-ever quarterly dividend, which amounts to a yield of just below 1%, and its meager payout ratio near 5% indicates there’s more upside for income-seeking investors. The company’s ability to both sell and license its product lines, which include Carter’s, Child of Mine, Just One Year, Precious Firsts, and yes, Oshkosh, is an added strength that Tiger Global is likely bullish on. In general, this attribute should provide more stability to Carter’s future growth prospects.