Last week, Wall Street kicked off earnings season. This marks a roughly six-week stretch where most S&P 500 companies will lift their proverbial hoods and report their quarterly operating results from the most recent quarter. While these reports help to paint a picture regarding the health of the U.S. economy and stocks, in general, there’s another group of data releases that are, arguably, even more important.
Every quarter, institutional investors with at least $100 million in assets under management (AUM) are required to file Form 13F with the Securities and Exchange Commission. A 13F allows investors an over-the-shoulder look to see what Wall Street’s smartest money managers bought and sold in the latest quarter. August 14 marked the filing deadline for second-quarter trading activity, and is potentially the most important data release in recent months.
Image source: Getty Images.
While Berkshire Hathaway CEO Warren Buffett is easily the most-watched of all asset managers, other billionaire investors have garnered quite the following. One highly successful billionaire money maanger that professional and everyday investors tend to closely monitor is Israel Englander of Millennium Management.
Englander and his team run a very active hedge fund, with thousands of positions and close to $216 billion in AUM, as of the midpoint of 2024. Among the many trades undertaken by Englander and his crew during the June-ended quarter, the one that stands out most is the decisive selling activity in ultra-popular artificial intelligence (AI) stock Palantir Technologies(NYSE: PLTR).
Palantir has been a continuous holding in Millennium Management’s mammoth portfolio since it became a public company in September 2020. But during the second quarter, Englander oversaw the sale of 7,074,815 shares of Palantir, which reduced Millennium’s stake by 59% to 4,973,308 shares.
As of the second quarter, Palantir’s stock had more than doubled from an extensive base that kept shares more or less pegged between $6 and $10 from May 2022 through April 2023. With Millennium holding its top-20 positions by market value for an average of only 11 quarters (i.e., less than three years), profit-taking is certainly a viable reason for this more than 7-million-share reduction. But it’s probably not the only reason for this aggressive selling.
To be perfectly blunt, Palantir’s valuation has become an eyesore. In one respect, the company absolutely deserves some level of valuation premium given that its services are irreplaceable at scale. These “services” include its AI-driven Gotham platform, which aids mission planning for federal governments, as well as its enterprise-focused Foundry platform that helps businesses streamline their operations by making sense of their data.
Then again, Palantir’s is approaching a forward price-to-earnings (P/E) ratio of almost 100, and tipped the scales at roughly 30 times forward-year sales last week. With the company’s annual sales growth expected to dip to 21% in 2025, maintaining a nearly triple-digit forward P/E ratio probably isn’t sustainable.
Palantir is also contending with a natural growth ceiling for its Gotham platform. Though Gotham is responsible for making Palantir profitable on a recurring basis, and has helped the company land lucrative multiyear contracts from the U.S. government, there are only so many government entities that can use Gotham (e.g., Palantir won’t allow China or Russia to access its services).
With limited potential for expansion from Gotham, Palantir is going to have to rely on Foundry for its long-term growth. Although Foundry’s future is bright, this is still a relatively nascent operating segment for the company.
But while Israel Englander and his team were busy showing more than half of their Palantir shares to the door, they were avid buyers of a company that’s near and dear to the hearts of consumers worldwide.
Image source: Coca-Cola.
Despite adding to more than 2,100 existing positions in the June-ended quarter, the purchase Englander made for Millennium Management that really stands out is consumer staples goliath Coca-Cola(NYSE: KO).
Millennium’s 13F shows that 5,444,678 shares of Coca-Cola were purchased by the fund’s brightest investment minds, including Englander. This lifted Millennium’s stake in the beverage leader by 347% in a three-month period to 7,009,050 shares.
The beautiful thing about consumer staples stocks is that they perform well in pretty much any economic climate. Coca-Cola sells beverages, which are a basic necessity no matter how well or poorly the U.S. or global economy are performing. The predictability of cash flow consumer staples leaders bring to the table is what makes them such popular investments.
But there’s more to like about Coca-Cola than simply its ability to deliver predictable operating cash flow. For instance, it offers almost unrivaled geographic diversity. It has more than two dozen brands generating at least $1 billion in annual sales, with operations in all but three countries around the globe (North Korea, Cuba, and Russia). This leads to steady cash flow in developed markets and provides needle-moving organic growth in emerging markets.
Coca-Cola is also the world’s top brand among consumers. In May, Kantar released its annual “Brand Footprint” report which, for the 12th consecutive year, was topped by Coca-Cola. Kantar’s report notes that the percentage of households purchasing Coke products grew by 2.6% in 2023 from the prior year, with the brand chosen by consumers close to 8.3 billion times.
Being a highly recognized brand is a reflection of Coca-Cola’s marketing efforts paying off. It has more than a century of history and well-known brand ambassadors to lean on in order to connect with mature consumers. Meanwhile, the company’s marketing team is relying on AI and digital media channels to engage with a younger audience.
KO Dividend Chart
Let’s not forget that Coca-Cola has one of the most impressive capital-return programs, too. While the company’s board does, occasionally, authorize share buybacks, it’s the dividend that does the talking. In February, the company’s base annual payout increased for a 62nd consecutive year, which firmly establishes Coca-Cola as a Dividend King. You’ll only need the fingers on two hands to count how many public companies currently have a longer streak of continuous payout increases.
The final piece of the puzzle for Millennium’s investment team was, likely, Coca-Cola’s valuation. Although its forward P/E is currently in-line with its trailing-five-year average, shares were trading at a notable discount to this average during the second quarter.
While Coca-Cola isn’t going to knock investor’s socks off in the growth department, its well-defined competitive advantages and superior dividend continue to deliver for patient shareholders.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Palantir Technologies. The Motley Fool has a disclosure policy.
