The third quarter of 2022 was another discouraging period for investors. Inflation kept going strong, the Federal Reserve continued raising interest rates and even the housing market began showing signs of weakness as consumers were slammed by the combination of rising costs and increasing mortgage rates.
As investors digested lackluster earnings reports and began hoping the Fed could ease up on interest rate hikes soon, the S&P 500 was down 6% over the course of the three months through the end of September, while the Nasdaq lost 5% and the Dow Jones Industrial Average dropped 7%.
Seeing share prices fall may be discouraging, but for value investors, that also means more opportunities are emerging. According to GuruFocus’s Hot Picks, a feature which allows investors to screen for the stocks that had the highest number of guru buys or sells based on the most recent regulatory filings, the five most popular buys among gurus during the third quarter (as determined by net buys) were Salesforce Inc. (CRM, Financial), FedEx Corp. (FDX, Financial), Micron Technology Inc. (MU, Financial), Fidelity National Information Services Inc. (FIS, Financial) and Broadcom Inc. (AVGO, Financial).
Investors should be aware that the data in this article is based on 13F filings for investing firms and portfolio updates for mutual funds, which do not provide a complete picture of a guru’s holdings. The 13Fs include only U.S. common stocks, while the mutual fund updates typically include both U.S. and foreign common stocks. Neither include other assets or investments such as bonds, credit, etc. All numbers are as of the quarter’s end only; it is possible the gurus may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Salesforce Inc. (CRM, Financial) had 15 guru buys in the third quarter compared to five sells, resulting in 10 net buys. As the chart below shows, this marks the third quarter in a row where gurus are mostly bullish on the stock:
The stock price averaged $169.57 for the quarter. Joel Greenblatt (Trades, Portfolio) and Mark Hillman (Trades, Portfolio) were among the gurus buying the stock, while sellers included Baillie Gifford (Trades, Portfolio) and Ken Fisher (Trades, Portfolio). As of the quarter’s end, the stock appeared in the portfolios of 21 gurus.
Salesforce has achieved double-digit growth in all of its segments for the past two fiscal years as more companies adopt its solutions to manage relationships and communications with customers and potential customers. This is in part due to frequent acquisitions such as Tableau, Mulesoft and Slack. Salesforce is confident future growth will be bolstered by integrating Slack into other services.
While this high-flying tech stock still isn’t cheap on an absolute basis, its stock price has been cut in half from all-time highs, causing the GF Value chart to rate it as significantly undervalued.
During the quarter, shares of FedEx traded for an average price of $211.05. Guru buyers included John Hussman (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio), while sellers included Ray Dalio (Trades, Portfolio) and Ken Fisher (Trades, Portfolio). As of the quarter’s end, 18 gurus had a holding in the stock.
FedEx’s stock suffered its worst single-day decline in history during the third quarter following a disastrous earnings report for the first quarter of fiscal 2023. The company has a history of overestimating itself, but this time, it missed analysts’ lowest earnings guidance by 25%, causing investors to panic. Nevertheless, the long-term fundamentals supporting the business remain intact, and the company should recover when the economy recovers.
Micron Technology Inc.
Micron Technology Inc. (MU, Financial) had 14 guru buys in the third quarter along with six sells, resulting in eight net buys. Gurus were slightly bullish on the stock in the second quarter as well, but not nearly as much as in the third quarter:
Micron traded for an average price of $58 during the quarter. Prem Watsa (Trades, Portfolio) and Yacktman Asset Management (Trades, Portfolio) were among the gurus buying the stock, while those selling included Alan Fournier (Trades, Portfolio) and David Tepper (Trades, Portfolio). The stock appeared in 23 gurus’ portfolios as of the quarter’s end.
Micron says it is seeing a significant reduction in near-term industry bit demand, mostly from weakness in consumer markets, including PCs and smartphones. However, President and CEO Sanjay Mehrotra remains optimistic in the long-term outlook for memory and storage. Due to its focus on memory and storage, the company is more sensitive to economic shocks than many peers.
The company’s margin improvement over the years is an encouraging sign of business strength showing that it likely has what it takes to survive an economic downturn. The cash-debt ratio surpassed the 1.0 mark in 2018 and has remained above it ever since.
Fidelity National Information Services Inc.
There were 13 gurus buying shares of Fidelity National Information Services Inc. (FIS, Financial) in the third quarter while five sold shares, resulting in eight net buys. Gurus have been mostly bullish on this stock since the last quarter of 2020:
Fidelity’s shares averaged $93.12 apiece in the third quarter. Buyers of the stock included gurus such as Wallace Weitz (Trades, Portfolio) and Ray Dalio (Trades, Portfolio), while sellers included Elfun Trusts (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio). The stock was owned by 18 gurus as of the end of the quarter.
As the leading provider of title insurance and settlement services to the real estate and mortgage industries in the U.S., Fidelity benefitted massively from the hot housing market and low mortgage rates while they lasted. To maintain and expand its market leadership, Fidelity has been investing in real estate technology, which is a wise move considering the real estate industry often lags in technological advancements.
The danger with this stock is that it is tied very closely to the cyclical housing market. We can see this risk clearly in how the stock has cratered this year due to the housing market slowdown. The GF Value chart now rates the stock as a possible value trap, but it should recover someday along with the housing market.
Broadcom Inc. (AVGO, Financial) had 12 guru buys and four sells in the third quarter, which translates to eight net buys. This marks the first quarter in years that gurus have been so bullish on the stock:
This stock traded for an average price of $510.87 in the third quarter. Guru buyers of the stock included Ron Baron (Trades, Portfolio) and Ronald Muhlenkamp (Trades, Portfolio), while sellers included Sarah Ketterer (Trades, Portfolio) and Steven Romick (Trades, Portfolio). There were 16 gurus holding the stock as of the end of the quarter.
This semiconductor manufacturing and infrastructure software solutions giant inked a deal to acquire VMware (VMW, Financial) for $61 billion in cash and stock earlier this year, though the deal has yet to make it through regulatory scrutiny. Broadcom has been pursuing an acquisition-based growth strategy in recent years under President and CEO Hock Tan, and VMware could be a great addition because it could revamp the company’s software division; in fact, upon closure of the deal, the company plans to rebrand its software division under the VMware name.
The companies expect merger synergies to accelerate software innovation and growth opportunities by expanding capabilities for enterprise infrastructure and cloud computing. If the deal does go through, it could also be a boost to investor sentiment. Broadcom’s return on invested capital (ROIC) is consistently above its weighted average cost of capital (WACC), indicating it excels in creating value for shareholders.