Evaluating market sentiment and paying attention to what prominent players on Wall Street think about a stock could play a vital role in making an investment decision.
Some renowned investors have recently talked about Apple Inc. (NASDAQ:AAPL) Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Alphabet Inc (NASDAQ:GOOGL) St. Jude Medical, Inc. (NYSE:STJ) and Dynegy Inc. (NYSE:DYN). In this article, we will take a closer look at their comments about the companies in question.
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Berkshire’s Manager Reveals the Secret
Earlier this month, Ted Weschler, one of the two investment managers working for Warren Buffett’s Berkshire Hathaway sat down with German magazine Manager Magazin for an interview, in which he explained the rationale behind Berkshire’s love for Apple Inc. (NASDAQ:AAPL). According to Weschler, it is the subscription model element in Apple’s business which makes it a viable option. The company’s subscription model protects it from competition because of the customer loyalty it infuses in the business, and has the potential to keep margins elevated for a long time. Apple’s subscription model also makes it different from the tech behemoths of the past such as Nokia, Blackberry and Motorola, the manager believes.
Warren Buffett usually avoids tech stocks, because, according to him, the sector lacks the necessary insights to properly value companies and their business models. Despite this, Berkshire surprised investors this year by loading up on Apple Inc. (NASDAQ:AAPL) shares, when the company faced an investor exodus as hedge funds owned by big names like Carl Icahn, George Soros, and David Einhorn pulled money from the company. Ted Weschler, who joined Berkshire in 2012, thinks the smartphone industry has been changed because of apps and cloud computing. These services make a “sticky” ecosystem, as customers tend to use Cloud storage for their photographs, and related devices to refine their experience.
Berkshire upped its stake in Apple by 55% in the second quarter, ending the period with over 15.23 million shares of the company, having an aggregate value of $1.45 billion.
Valeant Could Double in Three Years
Bill Miller is bullish on Valeant Pharmaceuticals Intl Inc (NYSE:VRX). The investor, who is famous for beating the S&P 500 Index for 15 straight years, recently said in an interview on CNBC that with its new management and free cash flows, the stock could double in three years. Miller points out that with free cash flow of $2.5 billion to $3 billion on a market cap of $8 billion, Valeant has a 25%-35% free cash flow yield. He thinks Valeant’s core assets are safe from the problem of debt and bought more Valeant Pharmaceuticals Intl Inc (NYSE:VRX) last week. The company is set to announce its third-quarter results on November 8. At the end of the second quarter, Bill Ackman’s Pershing Square had 21.6 million shares of Valeant Pharmaceuticals. The stock has lost about 80% in value year-to-date.
On the next page, we will discuss Alphabet, St. Jude Medical, and Dynegy.
Teton Capital Loves Google Because of Cloud, Ads, Pixel Phones
Quincy Lee’s Teton Capital has 13.5% of the value of its portfolio invested in Alphabet Inc (NASDAQ:GOOGL). In its third-quarter investor letter, the Ohio-based fund said Alphabet’s stock is set to hit $2,022 by 2019. The fund thinks Google’s new Expanded Text Ads (ETAs) will increase the click-through rates in Google Ads, eventually boosting the company’s ads business in the coming quarters. Teton is also betting on Google’s Cloud business, which it thinks is showing great signs of growth, mainly in the areas of customer service, enterprise and machine learning. Given the huge overall growth prospects for the cloud industry, the markets will place a high implied multiple on Google’s Cloud business, the letter said. Teton estimates that Google’s Cloud revenue will reach $20 billion by 2019. The hedge fund is also excited about Google’s latest Pixel phones, which will help the company grab a major market chunk from rivals Samsung and Apple.
St. Jude Medical’s Cybersecurity Problems Are Not Deal Breakers
James Dinan, the founder of York Capital Management, recently talked about Minnesota-based medical device maker, St. Jude Medical, Inc. (NYSE:STJ), on CNBC. Dinan thinks that St. Jude’s’ deal with Abbott Laboratories (NYSE:ABT) will go through, and that the recently reported cyber-security threats to the company’s heart devices will not become a permanent hurdle. Dinan mentioned St. Jude’s announcement of the formation of an advisory board to tackle cyber-security issues affecting patient care and safety. Dinan said cybersecurity threats are plaguing almost every other player in the industry, and he currently likes the “noise” and uncertainty. The FDA started investigating St. Jude Medical’s devices after short seller Muddy Waters and cyber security firm MedSec Holdings claimed St. Jude Medical’s stock would fall, as they had spotted vulnerabilities in the company’s devices. Last week, St. Jude Medical’s Board approved the company’s $31 billion merger with Abbott Laboratories (NYSE:ABT). At the end of the second quarter, 54 funds tracked by Insider Monkey were long St. Jude Medical, Inc. (NYSE:STJ), up from 36 funds a quarter earlier.
Lasry Thinks Dynegy is Undervalued
Billionaire Marc Lasry, who is the CEO and co-founder of Avenue Capital Group, thinks Dynegy Inc. (NYSE:DYN) is “massively” undervalued because investors are bearish on energy stocks these days and their focus is mainly on cash flows, which are going to contract more in the next three to four years. Lasry finds it “odd” that the cash flows expected to come from Dynegy Inc. (NYSE:DYN) in the coming years will be equal to the market value of the company. The investor thinks Dynegy Inc. (NYSE:DYN) is a great stock to buy except for the debt problem. Lasry’s hedge fund held about 6.73 million shares of Dynegy at the end of the second quarter. Earlier this month, RBC Capital downgraded Dynegy to ‘Sector Perform’ from ‘Outperform’ and slashed its price target to $15 from $22. Michael Platt and William Reeves’ BlueCrest Capital Mgmt owns approximately 28.12 million shares of Dynegy as of the end of June.