10 Stocks the Smart Money is Buying Now! (Q3 2021)

So spoken about Buffett's 13F and monitor Prabria selling Alibaba and Michael Burry ditching his options bets. But one thing I like to do at the end of 13F season is have a look at Data Roamer, which tracks 73 super investors, and just check out what stocks these super investors are buying the most. Um, you know, the big dogs: Buffett, Munger, Ackman, Marks, probably Klarman, Spear, Gates, Burry, and so on. So that's what we're going to be doing in this video.

So lots to cover, and with that said, let's get started.

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Alright, with that said, let's have a look at what our super investors have been buying in the most recent quarter. As always, this is a good way of kind of finding companies to add to your watch list, but please just don't go investing in these companies simply because the big investors did. Always do your own research.

But with that said, the 10th most bought stock in Q3 2021 was Restoration Hardware, a high-end home furnishing company, was bought by five super investors after the stock relaxed somewhat in Q3 after a huge 753% run from March 2020 to May 2021. Now honestly, this is not one that I follow. However, looking at Hyper charts, you can see revenues up, net income is up, margins are growing, free cash flows up. It's a business that's on the up and one that's doing things differently: experiential retail, as they call it. It's high-end, and people love high-end design. They love high-end homes. And interestingly, this one's also a Buffett stock. So there you go.

Alright, coming in at number nine is Wells Fargo. Next on our list, one of the big four U.S. banks. This business was really sold off last year and has actually featured in a lot of these super investor quarterly update videos that I make. In fact, this time last year we had nine super investors buying it. This time around only five, which does make total sense because the stock has largely recovered, and the quicker the stock rises from here, you know the faster the gap closes between intrinsic value and that margin of safety. So clearly less super investors now see an amazing opportunity to make big returns by buying it. And honestly, I wouldn't be surprised to see this one fall off the list in say another three months' time.

So alright, moving on. Coming in number eight, we have Activision Blizzard. This is the video game maker behind the Call of Duty games, the Tony Hawk Pro Skater series, Skylanders, Destiny, Overwatch, Warcraft, Diablo, Hearthstone, StarCraft—there's a lot of games in there. Now their stock peaked in February this year, but around June-July started tanking; it's now down over 40%. Why? Well, unfortunately for them, there's been some very bad corporate culture news out of the company, with allegations of sexual harassment, sexism, and racism leading the company to become subject to litigation from both the California Department of Fair Employment and Housing and the U.S. Equal Employment Opportunity Commission. There's obviously a lot of concern that this is a deep issue within the company, and they are experiencing a lot of resignations at the moment, which is definitely sending their stock price south. However, with that said, clearly five super investors see promise in the underlying business and the strength of their game franchises and their esports division in the long term and are therefore jumping on this stock while it's cheap, probably with the intention of holding it through the bad times, holding it until after all of these issues have been resolved. So that's that one.

Then coming in at number seven, we have PVH. Again, five super investors bought PVH this quarter. PVH is of course a clothing company that owns brands such as Tommy Hilfiger and Calvin Klein; also licenses brands such as Michael Kors. This stock was relatively flat in Q3. However, at one point it did dip to 93 dollars per share. So my guesses are that, you know, the five super investors that bought in just saw the temporary dip as an opportunity to buy more shares in a business that, you know, has a pretty strong brand moat.

Then number six, we have FedEx, a well-known courier company that enjoys its position in the package delivery oligopoly with UPS, the United States Postal Service, and Amazon. Although FedEx has been slowly losing market share in this space over the last few years and now, in fact, it has the lowest market share of all the main players. However, you know, in Q3, the stock did drop 26%, and with revenue growing and the outlook for couriers, you know, brighter than ever, it does make sense that some of our investors didn't mind buying in.

Alright, then moving on to number five, we have guess who: Alphabet. Again, five super investors bought Google, and you know I'm not surprised to see this in the slightest. Alphabet, you know, it's a duopoly with Facebook in the online advertising space, huge moats around their businesses. The company makes an insane amount of money, has one of the strongest balance sheets you will ever see, so I'm really not surprised to see super investors buying even though the stock rose in Q3. You know it's just a super solid business long-term; has absolute pricing power in the search industry because it has no real competition. So, no surprises there with Google.

And then in the number four slot, we have Booking Holdings. This is an American travel technology company that has acquired many travel-related businesses over time. They've got Booking.com, Priceline, Agoda, Rentalcars.com, and so on. And yes, this business was hurt very badly by the lockdown. However, as you can see now, it is bouncing back pretty hard—revenue almost back to record levels, operating income up in Q3, free cash flow is back. I mean clearly people are itching to get back into some travel, and well, in Q3 the stock was guess what, down 17% from its April high, which I imagine encouraged the seven super investors that bought in to actually pull the trigger.

Alright, there we go! That leaves us with three, so let's get into it. The third most bought stock in Q3 by our super investors was Visa. Why Visa? Well, first because it's a killer business, and second because the stock at the moment is tanking—peak to trough was down 12% in Q3 and has slid another 11% since. And there are a few reasons for this. You know the Justice Department is currently looking into Visa in the debit card market; they're also probing whether they paid Square, Stripe, and PayPal to limit the payment firms from accepting other card networks. And also, just a week ago, Amazon announced they will stop accepting UK Visa cards from January next year.

So, as usually happens, pressure in the news brings the stock under pressure as well. But here's the thing: you know Visa can easily ride this sort of stuff out easy peasy. They are a huge moat company. So if you don't know the way they work—or most of you probably do know—they issue payment cards. Consumers carry the Visa cards; merchants accept the Visa cards. You swipe the Visa card and pay for groceries, and Visa takes just a tiny little cut for processing the payment. But if you repeat that billions and billions of times, you know Visa ends up making a lot of money.

But the kicker with Visa—this is crazy—they have a 52% market share, Mastercard 22%, American Express 9%. It's grown a huge market share because it's a big moat company because of the network effect of people with the cards and the merchants accepting Visa payments. Long story short, it helps them grow with very little effort. And as you can see, short revenue dipped because it covered, but they're back better than ever just a few quarters later. Have a look at QuickFS. It shows some pretty powerful numbers: 10-year compound annual growth rate of revenue, earnings per share, and free cash flow—all over 10%; 10-year median return on investor capital 19.7%. I mean these are numbers that show there's something that is shielding this business from competition, helping it grow very nicely over the long term, and that something is the network effect. So it doesn't surprise me that the stock dipped, and some super investors decided to buy in.

Then the second most bought stock in Q3 2021 was Amazon. Again, seven super investors bought Amazon in the quarter, which is of course the American e-commerce and cloud computing giant. Unlike Visa, there wasn't a big stock decline which may have tempted some investors. In fact, despite some volatility, Amazon actually ended up pretty flat for the quarter, and that's, you know, about the tune over the past 12 months for Amazon after it shot up 90% after last March. So Amazon is simply being borne on its merits, and you know it's certainly a great business.

Of course, they have a few parts of their business. First three are kind of grouped together: online stores, physical stores, third-party seller services—that's their e-commerce businesses that makes up 70% of Amazon's revenue. Then you've got Prime subscriptions, which is 7%; AWS, Amazon Web Services, which is their cloud business, makes up 15%; and then the rest is filled with, you know, other bits and bobs. But the reason that investors have been so into Amazon, you know, now last year, 10 years ago is because they're just a great long-term compounder. Yes, you can get caught up in the short term; they voluntarily added significantly to their operating expenses this quarter, like in fulfillment and in content, which definitely hurt their net income.

But honestly for Amazon, the moves the management team has made over, you know, over time has led to a lot of growth. 10-year compound annual growth rate is around 30% for revenue, earnings per share, and free cash flow. And no, the ROIC may not be super high, but remember that's also mainly because Amazon has a pretty asset-heavy approach. And this is one of the key differences, say between Amazon and Alibaba. Amazon handles the whole process from the website to the warehouses, the shipping, the delivery. And the reason they do that is to try and completely control the customer experience so they can try and improve it, even though the logistics side of things soaks up a lot of cash and isn't high margin.

Whereas on the flip side, Alibaba doesn't fulfill the shipping; instead, they've created a logistics platform inside now to help organize and speed up the deliveries of many third-party delivery companies, which is more obviously more of an asset-light approach. So that's Amazon: it's a long-term compounder, and e-commerce generally is just on the up and up.

And that leads us to actually the number one most bought stock by our super investors in Q3 of 2021. It's a stock we were just talking about before: it was Alibaba. And honestly, this comes as no surprise because it was the most bought stock by super investors in Q2 as well.

Now I'm not going to go deep on Alibaba in this video because I've already made a three-part mini-series on the business. But Alibaba, as we know, predominantly a Chinese-focused e-commerce company with just a giant moat like Amazon. They also have a cloud business, but it doesn't contribute much at all to profits right now at this moment in time. And it's also worth noting that for a one-third stake in Ant Financial, which owns Alipay. But, uh, yeah, of course Alibaba was being bought up in this quarter; the stock continued to plunge during Q3—was down 33%—and even since the end of Q3, it's continued to tumble.

And what's crazy about this business in my opinion is, yes, it has a massive moat, yes, it has a lot of future growth potential, yes, it's been growing like crazy over the past 10 years, but this business is also really cheap. It's cheap just looking at e-commerce by itself, assuming kind of a low double-digit growth rate. And you know if you take that example, then that's kind of just assuming that Alipay is worth nothing and cloud goes absolutely nowhere. So I'm not surprised that people are buying it; it's a powerful business. You know, 891 million annual active customers in China, 240 million outside of China. You know, the iron triangle gives the business a wide, wide moat. It's a big compounder, ROIC is high, price is low. It ticks the boxes.

So I'm not surprised that so many super investors are buying, but of course that's just my opinion. Of course do your own independent research. But, uh, overall guys, they are the top 10 stocks that our super investors were buying in Q3 of 2021.

Hope you enjoyed the video! I know a lot of you guys really like this series that I do, um, so I'll continue to do it. But hope you enjoyed this quarter's installment. Of course, leave a like in the video if you did enjoy it or if you found it useful. Subscribe to the channel if you've not done so already. If you'd like to help with the expansion of your money, as I said at the top of the video, check out Profitful. Check out the Patreon we just started as well, and we'll be moving into the new office hopefully very, very soon. So look out for that on the channel, which should just unlock a whole bunch more content. So I'm really excited for it. I can't wait to kind of show you guys the process and get into that new set. It should be a lot of fun; I'm really looking forward to it.

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