Where Are Super Investors Shopping for Bargains?

GuruFocus offers a lot of screens and tools I find highly useful and interesting for coming up with short lists of companies to look at.

Frequently I go over the Aggregate Industry Trend screener. It allows you to quickly see in which industries value investing gurus like Joel Greenblatt(Trades, Portfolio), Richard Pzena (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio) and more than 150 others are putting their money to work and from where they are running as fast as possible. I also went through this exercise last month, and the differences are interesting as well.

Below are the top five industries with the largest numbers of net sales. That means gurus have been selling more positions than they have been starting new positions. Last time I wrote about this screen, the oil and gas industry was the clear leader. It isn’t in the top five most hated sectors now:

Semiconductors

Semiconductors was the runner-up last time and tops the chart now. This is a highly cyclical industry. Apparently gurus are not believing the cycle will turn any time soon. Gurus like David Einhorn (Trades, Portfolio) and Seth Klarman (Trades, Portfolio) also turned bearish on Micron (NASDAQ:MU) based on renewed Chinese investments into the space. Additional competitors are a bad omen. Instead, the gurus are waiting for bear market-driven consolidation which allows for better pricing power.

Retail

It’s no secret retail is doing terribly. There are a lot of incumbent companies in this space that had a good run but are now being destroyed by more nimble online upstarts that do not have all kinds of store leases and highly paid personnel to deal with. There is a real cycle of creative destruction going on here best exemplified by the success of Amazon (AMZN, Financial). Very tough to pick the winners from the losers and unsurprisingly gurus aren’t trying.

Banks

Banks are a surprise to me. Perhaps the volatility early in the year has a lot of value guys second guessing their allocations. Stanley Druckenmiller (Trades, Portfolio) sold out of Wells Fargo (WFC, Financial), Bruce Berkowitz (Trades, Portfolio) sold out of Citigroup (C, Financial) and T. Boone Pickens sold out of Bank of America (BAC, Financial), for example.

Industrial products

Some of the selling here was driven by people giving up their positions in Precision Castparts (PCP, Financial), the firm that is being acquired by Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (BRK.A, Financial)(BRK.B). With only the deal spread being left to capture perhaps there wasn’t enough incentive to hold on. General Electric (GE, Financial), a widely held stock, also had a pretty good run and quite some funds are taking profits perhaps like Mark Hillman (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).

Asset management

This one hurts as I have a lot of exposure to the industry myself. (Active) management firms have been demolished over the past couple of years, and I guess gurus are not seeing the end of it. Supposedly the value investing gurus tracked at GuruFocus have exceptionally good insight into this industry although they may be slightly biased as their firms generally focus on the (especially hard hit) value spectrum of active management. David Winters (Trades, Portfolio) sold out of Franklin Resources (BEN, Financial), Ronald Muhlenkamp (Trades, Portfolio) out of State Street Corp. (STT) and Einhorn out of Bank of New York Mellon (BK, Financial).

Reading what industries gurus are running from could be helpful to determine whether it is time to take some profits but much more interesting are the industries where gurus are buying hand over fist.

Biotechnology

Biotechnology is the clear No. 1. Even since Hillary Clinton tweeted she would put a stop to excessive profiteering here, the sector has been under pressure. According to the guru’s now is the time to load up. This isn’t very easy as it is hard to determine which stocks to buy and few of us have truly valuable insight into this notoriously difficult to understand industry. Guru buys could be a good starting point. Klarman bought Innoviva (INVA), Frank Sands (Trades, Portfolio) bought Incyte Corp. (INCY), Martin Whitman (Trades, Portfolio) bought Baxalta (BXLT, Financial) and John Buckingham (Trades, Portfolio) bought Biogen (BIIB). Biogen is a very popular long with gurus, according to GuruFocus data.

Online media

Now this is a sector everyone understands. Buying here is clearly driven by the popularity of Alphabet (GOOG, Financial)(GOOGL) stock which is greedily acquired by the likes of Caxton Associates (Trades, Portfolio), Druckenmiller, Steve Mandel and even George Soros (Trades, Portfolio). Other popular targets are Match Group (MTCH) and TripAdvisor (TRIP). A great sector to go shopping as most investors find companies they have experience with or understand here.

Conglomerates

Conglomerates showing net buyers isn’t the most reliable indicator. The problem here is that the number of transactions isn’t very significant. Because most industries have the guru’s as net sellers, the industry stands out. Having said that, Arnold Van Den Berg acquired some Jardine Matheson Holdings (JAR), Louis Moore Bacon some Silver Acquisition Corp. and Jim Simons (Trades, Portfolio) some Icahn Enterprises LP (IEP).

Waste management

Waste Management also made the shopping list last time. It stands out because percentagewise the buyers outnumber the sellers strongly. Then again it remains an industry with only a few publicly traded companies. One reason to force yourself to look here is that Waste Management isn’t a sexy industry. Less competition from other investors means there is a greater chance you will be able to find true bargains.

Airlines

Coming in at the fifth spot are airlines. The industry that is notoriously disliked by Buffett, who often made it an example of an industry where no value was created, is now in vogue with value gurus. What gives? I think there are two reasons for the current attention; 1) The persistent low oil price. Airlines hedges are coming off or they are able to roll them over very advantageously. 2) The consolidation of the industry in the U.S. Global air travel is one of the toughest ways to make a buck, but regional airlines can do well at times.

With the U.S. airline industry consolidating this relieves some of the historical notorious pricing pressure. Perhaps these firms are not fit to buy and hold forever but according to the Guru’s some interesting trades can be found here. Greenblatt invested in Alaska Air Group (ALK), Soros in Spirit Airlines (SAVE) and Bacon in Delta Air Lines (DAL).

Disclosure: Long Franklin Resources, Google.