The fourth quarter ended Dec. 31 marked the third consecutive quarter of the latest bull run for U.S. stock markets, with the major indexes reaching new unprecedented highs. The S&P 500 surpassed 3,700 for the first time in history during this period, the Nasdaq rocketed above 12,800 and the Dow Jones Industrial Average surpassed its pre-Covid highs.
The U.S. stock market continues to be valued far higher than what the country's collective businesses are currently worth. The Buffett Indicator, which is the ratio of total market cap to gross domestic product, stands at 188.3% as of March 4, indicating that the U.S. stock market is significantly overvalued. This metric is named after Warren Buffett (Trades, Portfolio), who famously called it "probably the best single measure of where valuations stand at any given moment."
Due to the unprecedented intervention of the Federal Reserve to keep stock prices high, GuruFocus now includes in this chart the total assets that the Fed has poured toward propping up stock prices. With Fed support factored in, the valuation ratio of the Buffett Indicator stands at 139.1%, which is still overvalued but not by quite as much. It should be noted that Fed support disproportionately benefits the nation's largest companies.
Despite the general overvaluation, gurus have still found plenty of names that they expect to profit on. According to GuruFocus' Hot Picks, a feature which allows investors to screen for the stocks that had the most guru buys or sells over a specific time frame, the five most popular stocks among gurus during the fourth quarter of 2020 (as determined by net buys) were Freeport-McMoRan Inc. (FCX, Financial), Gilead Sciences Inc. (GILD, Financial), Shopify Inc. (SHOP, Financial), Fiserv Inc. (FISV, Financial) and Square Inc. (SQ, Financial).
Freeport-McMoRan
Freeport-McMoRan (FCX, Financial) is a mining company based in Phoenix. It is one of the world's largest publicly traded copper miners and primarily produces copper, gold and molybdenum through sites in North America, South America and Indonesia.
During the quarter, 13 gurus bought shares of Freeport while two gurus sold shares of the company, resulting in 11 net buys. As of the end of the quarter, 15 gurus hold shares in the company.
The most notable guru shareholder of the company is Ken Fisher (Trades, Portfolio) with 2.95% of shares outstanding, followed by Stanley Druckenmiller (Trades, Portfolio) with 0.43% and Pioneer Investments (Trades, Portfolio) with 0.37%.
During the quarter, shares of Freeport traded for an average price of $20.97. As of March 4, the stock trades around $32.03 with a 52-week range of $4.82 to $39.10. The GuruFocus Value chart rates the stock as significantly overvalued.
Since Freeport is a commodity investment, the stock as a general rule experiences dramatic price swings related to overall economic health, especially as it pertains to its most important commodity, copper. Copper and gold prices are both expected to increase strongly in the near future due to the post-recession economic recovery and the growth of the tech industry.
As one of the world's largest mining companies, Freeport is in an even better position to take advantage of favorable commodity prices. According to data from Morningstar analysts, the company is expected to record revenue of $18.82 billion in 2022 compared to $14.19 billion in 2020. In terms of earnings per share, analysts are predicting $1.83 in 2022 versus the 39 cents brought in during 2020.
Gilead Sciences
Headquartered in Foster City, California, Gilead Sciences (GILD, Financial) is a biopharmaceutical giant that develops, manufactures and commercializes drugs in a variety of health care fields with a focus on HIV/AIDS, liver diseases, hematology, oncology, respiratory diseases and cardiovascular conditions.
During the quarter, 14 gurus bought shares of Gilead Sciences while five sold shares of the company, resulting in nine net buys. As of the quarter's end, 19 gurus own shares of the stock.
Dodge & Cox is the top guru shareholder of the company with 1.36% of shares outstanding, followed by Jim Simons (Trades, Portfolio)' Renaissance Technologies with 0.51% and John Rogers (Trades, Portfolio) with 0.24%.
During the quarter, shares of Gilead traded for an average price of $60.29. As of March 4, the stock trades around $63.85 with a 52-week range of $56.56 to $85.97. The GF Value chart rates the stock as modestly undervalued.
Gilead's share price remains depressed due to the sales declines of its HIV and hepatitis C drugs, which have lost exclusive copyright protections and thus face competition both from generic versions as well as new players. These are the drugs that brought about the company's initial success, so optimism over Gilead's attempts to recreate such success through acquisitions has been dampened.
However, both companies and their investors should remain focused on the future, not the past. Gilead has made a number of acquisitions to strengthen its pipeline in recent years, most notably its purchase of Immunomedics, which included a drug that has been granted accelerated approval for certain types of breast cancer. Analysts remain lukewarm on the company's future prospects, projecting revenue to drop to $23.81 billion in 2022 compared to $24.68 billion in 2020 even as earnings per share rise to $4.80 from 10 cents.
Shopify
Shopify (SHOP, Financial) is a Canadian multinational e-commerce company that owns a proprietary e-commerce platform of the same name. Its platform enables businesses to easily create online stores or add online stores and retail point-of-sale systems to their existing operations.
During the quarter, 13 gurus bought shares of Shopify while five gurus sold shares of the company, resulting in eight net buys. As of the quarter's end, 17 gurus have a stake in the company.
Steven Mandel is the biggest guru shareholder of the company with 1.47% of shares outstanding, followed by Frank Sands (Trades, Portfolio) with 1.45% and Spiros Segalas (Trades, Portfolio) with 0.82%.
During the quarter, shares of Shopify traded for an average price of $1,049.63. As of March 4, the stock trades around $1,123.18 with a 52-week range of $305.30 to $1,499.75. The GF Value chart rates the stock as significantly overvalued.
Shopify has been a beneficiary of the accelerated pace of the digitalization of commerce brought about by the Covid-19 pandemic. Its products help businesses quickly and easily start and/or grow the reach of their offerings. One of the main reasons for entrepreneurs to choose Shopify over other platforms like Amazon (AMZN) is that it allows them to retain more independence.
Due to its niche focus and platform provider model, Shopify's growth will most likely mirror the growth of e-commerce very closely, and this expectation is clearly reflected in analysts' estimates – for example, Morningstar analysts expect the company's revenue to grow to $5.3 billion in 2022 compared to $2.92 billion in 2020, while earnings per share is expected to be $5.31 in 2022 compared to $2.55 this year.
Fiserv
Based in Brookfield, Wisconsin, Fiserv (FISV, Financial) is a multinational provider of financial services technology to corporate clients in the financial world, including banks, credit unions, thrifts, leasing and finance companies, insurance companies and securities processing organizations.
During the quarter, 11 gurus bought shares of Fiserv while three sold shares of the company, resulting in eight net buys. As of the quarter's end, the stock was owned by 14 gurus.
The guru with the largest holding in the company is Dodge & Cox with 0.95% of shares outstanding, followed by Mairs and Power (Trades, Portfolio) with 0.29% and Leon Cooperman (Trades, Portfolio) with 0.15%.
During the quarter, shares traded for an average price of $107.82. As of March 4, shares trade around $115.69 with a 52-week range of $73.50 to $124.61. The GF Value chart rates the stock as fairly valued.
Fiserv is expected to benefit from the digitalization of the financial services sector. While it operates in financial services, Fiserv itself is a software company that earns its money not off of credit risk but off fees from its fintech products and services. The company expects its mid-2019 acquisition of First Data, which brought in the Clover point-of-sale operating system, to continue creating cost synergies to drive growth.
With expected industry tailwinds and cost synergies, analysts are optimistic about Fiserv's growth, predicting revenue to grow to $16.68 billion in 2022 compared to $14.85 billion in 2020 while earnings per share rise to $3.87 from $1.40.
Square
Square (SQ, Financial) is a financial services company based in San Francisco. It serves as a merchant services aggregator, operates a mobile funds transfer platform (the Square Cash App) and helps clients with their business websites and order delivery.
During the quarter, 13 gurus bought shares of Square while six gurus sold shares of the company, resulting in seven net buys. As of the quarter's end, 18 gurus owned shares of the stock.
During the quarter, shares traded for an average price of $195.49. As of March 4, shares were trading around $218.41 with a 52-week range of $32.33 to $283.18. The GF Value chart rates the stock as modestly overvalued.
Investors are primarily focused on the Cash App as the main driver of Square's growth. The company recently added bitcoin transactions to the Cash App, which have already begun to boost the top line as of the December quarter. Its exposure to small businesses may have hurt results in 2020 due to the pandemic, but as the economy (not just the stock market) begins to grow again, this part of the company's operations should also contribute to growth.
Square's advantage over competitors is that it aims to build a two-sided digital payments ecosystem serving both merchants and consumers. Encouraged by this promising business strategy, analysts expect revenue to grow to $14.51 billion in 2022 compared to the $9.49 billion reported in 2020, though earnings per share are expected to be down to 38 cents for 2022 compared to 44 cents in 2020.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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