In this article, we discuss the 5 stocks Australian billionaire Kerr Neilson is selling. If you want to read our analysis of Neilson’s history and investment philosophy, go directly to Australian Billionaire Kerr Neilson is Selling These 15 Stocks.
5. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 40
International Business Machines Corporation (NYSE:IBM) is an Armonk, New York-based technology company.
In an article published in Barron’s on September 17, senior writer Allen Root wrote that although International Business Machines Corporation (NYSE:IBM) is a cheap stock in terms of valuation, it does not deserve a place in the bargain bin. In the last 90 days, International Business Machines Corporation (NYSE:IBM) has seen 13 downward revisions in EPS estimates for Q3 2022, which is expected to be reported on October 19. Analysts anticipate the company to report revenue of $13.60 billion, which would signify a YoY decline of 22% from $17.62 billion during the same quarter last year.
St. James Investment Company shared its outlook on International Business Machines Corporation (NYSE:IBM) in its Q4 2021 investor letter. Here’s what the firm said:
“IBM was not the first company to build computers. The distinction belongs to Sperry-Rand’s subsidiary UNIVAC, which introduced the first commercially successful computers in the early 1950s. In this era, IBM did possess the largest research and development department of the business machines industry and quickly caught up, introducing cost-competitive computers a few years after UNIVAC. By the late 1950s, IBM held the dominant market share in computers. IBM also touted a vastly superior sales organization, which used a sales tactic called “paper machines” (the equivalent of today’s “vaporware”). If a competitor’s product was selling well in a market segment that IBM had yet to penetrate, the company would announce a competing product and start taking orders for the “paper machine” long before it was available.
One cannot overstate how powerful IBM was in the computer industry in the 1950s and 1960s. Every competitor rightly worried that if their product worked too well for too long, it was only a matter of
time before an army of IBM salesforce representatives mobilized. In their easily recognizable uniforms of starched white shirts, red ties and blue suits, IBM marketers marched on their customers and offered a more expensive, but much more defensible, choice. “Nobody gets fired for buying IBM” was a common phrase. Even competitors acknowledged that the company excelled at sales. As a UNIVAC executive once complained, ‘It doesn’t do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen.’” (Click here to see the full text)
4. DISH Network Corporation (NASDAQ:DISH)
Number of Hedge Fund Holders: 41
DISH Network Corporation (NASDAQ:DISH) is an Englewood, Colorado-based provider of wireless mobile service and TV provider through various mediums.
In a research note issued on August 4, Philip Cusick at JPMorgan slashed the price target on DISH Network Corporation (NASDAQ:DISH) by 20% from $30 to $24 and maintained a Neutral rating. The analyst anticipates the wireless mobile network segment to face big hurdles. According to Goldman Sachs, among the 11 major sectors, the tech, media, and telecom (TMT) sector, also known as the Communication Services (CS) sector, faced the biggest cut in EPS during the Q2 2022 earnings season. DISH Network Corporation (NASDAQ:DISH) does not pay a dividend, unlike the other major players in the same sector.
Eagle Capital Management held over 16.9 million shares in DISH Network Corporation (NASDAQ:DISH) as of Q2 2022.
3. Lumen Technologies, Inc. (NYSE:LUMN)
Number of Hedge Fund Holders: 42
Lumen Technologies, Inc. (NYSE:LUMN) is a Monroe, Louisiana-based provider of communication infrastructure with over 4.5 million broadband subscribers as of 2022.
On August 5, Philip Cusick at JPMorgan resumed coverage on Lumen Technologies, Inc. (NYSE:LUMN) with an Underweight rating and a target price of $10. The analyst believes the company is fundamentally challenged in the short and medium term following the divestiture of Latin America and incumbent local exchange carrier (ILEC) assets. These developments are expected to hamper the legacy voice and copper revenue of the company. The analyst also anticipates Lumen Technologies, Inc.’s (NYSE:LUMN) revenue and EBITDA to decline in 2023 as the complexity and size of the business will reduce.
Here’s what Longleaf Partners Fund said about Lumen Technologies, Inc. (NYSE:LUMN) in its Q4 2021 investor letter:
“Lumen (39%, 4.22%; 3%, 0.38%), the global fiber company, was the top absolute and relative contributor for the year. CEO Jeff Storey took two actions this year to substantially increase the business’s value and address the stock’s enormous discount (it trades below 35% of our appraisal value). First, during the third quarter, Lumen sold its Latin American fiber for a good price (9x EBITDA) and the weaker half of its US consumer business for an encouraging 5.5x EBITDA. Both multiples came in above our appraisals and demonstrate how cheap the consolidated Lumen RemainCo is today at less than 6x P/FCF and EV/EBITDA. The majority of Lumen’s remaining EBITDA comes from its US Enterprise and SMB segments, which grow faster than Lumen’s disposed LatAm fiber and are worth higher multiples. The weakest segment of the new Lumen, the western half of Consumer, is superior to the assets the company just sold for 5.5x EBITDA. Second, Storey quickly repurchased 7% of Lumen’s shares, adding meaningfully to value per share and free cash flow per share. When the dispositions close, proceeds will reduce debt meaningfully, putting net debt right at the company’s leverage ratio target even though that target was based on the prior, inferior business mix. We are pleased that our engagement since filing an amended 13D helped the company begin to deliver positive corporate actions. The market has fixated on the potential for another dividend cut, but Lumen’s FCF is more than sufficient to cover the $1/share payout while investing aggressively into high-return, edge-out capex to grow revenues.”
2. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)
Number of Hedge Fund Holders: 45
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a Massachusetts-based biotech company that is pioneering the treatment of life-threatening genetic diseases like cystic fibrosis (CF).
According to experts, the size of the cystic fibrosis market stands at $9.8 billion as of 2022. Through its four approved cystic fibrosis transmembrane conductance regulators (CFTR), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has been able to control nearly 80% of the market. However, Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is over-reliant on CF products and does not see the launch of a major drug that could result in revenue diversification in the next two years. Furthermore, the company does not have a deep pipeline of products in phase three trials like some of its competitors.
Here’s what Harding Loevner said about Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) in its Q4 2021 investor letter:
“In Health Care, the disappointing share price performance of Wuxi AppTec and Wuxi Biologics was partially offset by the strong rebound in Vertex Pharmaceuticals’ share price. Vertex reported encouraging Phase 2 results for its drug candidate to treat a rare form of kidney disease, as well as positive pilot data for the first patient treated with its groundbreaking stem cell therapy for Type 1 diabetes. These studies’ results were all the more encouraging as they validated the company’s strategy to deploy its unique drug development approach beyond its cystic fibrosis franchise.”
Overall, 45 funds held a stake in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) as of Q2 2022.
1. Amgen Inc. (NASDAQ:AMGN)
Number of Hedge Fund Holders: 55
Amgen Inc. (NASDAQ:AMGN) is a Thousand Oaks, California-based biotech company.
Since 2018, the bottom line of Amgen Inc. (NASDAQ:AMGN) has stagnated, and there have been concerns related to the revenue growth of some of its leading drugs. Furthermore, experts believe that significant buybacks and increases in dividends are hurting the financial structure of Amgen Inc. (NASDAQ:AMGN). Concerns have also been raised regarding the company’s $4 billion cash acquisition of ChemoCentryx as its leading drug Enbrel is seeing a decline in YoY sales despite having patent protection for the next six to seven years. This is because Humira, which is a competitor product by AbbVie, is gaining market share.
Here’s what ClearBridge Sustainability Leaders Strategy said about Amgen Inc. (NASDAQ:AMGN) in its Q3 2021 investor letter:
“In health care, Amgen, a biotechnology company, has endured several pipeline setbacks recently, including a slow transition of its Lumakras treatment into first-line lung cancer, a slower than expected development of its treatment for myeloma as well as the company’s asthma treatment Tezepelumab missing its primary endpoint in a Phase III study. We remain positive on the stock, with Amgen’s investments in biosimilars and its pipeline part of our long-term thesis.”
You can also take a peek at 16 Best Penny Stocks To Buy Now and 10 Best ESG Stocks To Buy.
