Top 5 Stocks the Smart Money is Buying in the 2022 Crash

Wouldn't it be fantastic if every single quarter we, as average Joe investors, got to look inside the minds of all the best investors in the world and see what they were buying? Ta-da! We can! The power of the 13-F filing only catches the information withheld from the public for 45 days. So, unfortunately, we're always looking into the past. It's a little bit annoying, but hey, if it means I can see what all my favorite investors are buying or selling each quarter, I'll take it.

As you guys know, there's a very handy website I use called Data Roamer that actually tracks 79 super investors and compiles a list of the most bought stocks each and every quarter. So, in this video, let's talk through the five most bought stocks by the smart money in Q2 of 2022. I know technically this video is coming out quite late, and I do apologize. That is due to a mix of factors. We've had other videos to finish, we're also hiring at the moment, so our usual routine is a little bit messy, and I've actually just come back from overseas as well.

But as we'll see, this time around, it actually doesn't matter so much that the video is late, because a lot of these businesses' share prices have not really moved much since the end of Q2. But with that said, let's get into it. Let's take a look at the five most bought stocks by our super investors last quarter. [Music]

I said top five in the title, but I also want to just skim over the rest of the top 10 as well because there are definitely some interesting names in there this time around. So let's do that first, and then we'll spend a little bit longer—a little bit more time on the top five.

So firstly, coming in at number 10 is Adobe, the makers of various pieces of software, you know, Photoshop, Premiere Pro, After Effects, etc. They are a very strong moat company. They have obviously a switching moat, much to my own personal frustration, as we use their programs all the time here in the office, and quite honestly, they suck. But obviously, it's a good thing for keeping their profits up as a business.

Overall, seven super investors bought into Adobe as the stock fell 20% across Q2, so quite a big drop-off. Then coming in at number nine, we have U.S. Bancorp. I really can't add any flavor when it comes to banks; that's not my circle of competence. But this one is notably held by both Warren Buffett and Charlie Munger. Again, seven super investors bought in Q2 as the stock fell 13% across the quarter.

Then coming in at number eight, we have—guess what?—Netflix. Again, seven super investors buying in, so another strong moat company. Yes, I said it. It's an interesting one, because the headlines this quarter were very much like, "Oh, Disney Plus gained heaps of subscribers; Netflix is losing subscribers." But when you actually dig below the surface, you find that Netflix is by far the dominant streaming service. Their share of screen time is way higher than any of the other players, and it’s kind of just beating YouTube as well. They obviously collect a lot more revenue per subscriber than the other streaming services.

So if you combine that with the fact that the share price tanked a whopping 53% in Q2, that’s a recipe for the super investors to get very interested. Then from there, coming in at number seven, we have PayPal. This time, eight super investors decided to buy. Again, this is another strong moat company. They have a very strong network of users, which has given them an approximate 50% share of the online payment processing market. The stock lost about 40% in Q2 as well, so I’m definitely not surprised to see the super investors getting interested.

Then coming in at number six, we have Booking Holdings. Again, eight of our super investors bought into Booking Holdings, which is a collection of travel-related businesses including Booking.com, Priceline.com, Kayak, Agoda, RentalCars.com, and OpenTable. They, like all travel businesses, got hurt a lot in 2020 and 2021 but are now well and truly recovering. With the stock bouncing around in Q2, it seems like eight super investors saw value at some point during the quarter.

All right, now we get to the top five. We really whizzed through the first five, but I do want to spend a little bit more time on the five biggest buys in Q2. So, coming in at number five, we have Disney. Again, a big moat company. Ten super investors decided to buy into Disney after the stock price declined 31% in Q2. I think what the super investors see here is quite simply a mispricing for the long term.

Because while their earnings are still a long way from returning to where they were pre-2020 operationally, investors have had a lot more reasons to be optimistic over the past few months. For example, firstly, there are more and more people returning to their parks, so revenue from admissions doubled year over year, causing a big rise in operating income for their Parks, Experiences, and Products segment from $356 million in Q21 to $2.2 billion in Q2 this year. And this even led their CEO, Bob Chapek, to hint that demand is now strong enough that they can start increasing their prices at their parks, which is a very good sign for that segment.

Then on top of that, we also saw a 15% rise in operating income from their domestic broadcasting and cable businesses. So their two critical businesses from a current financial perspective, that being their parks and then their broadcasting and cable, are both going well. And then beyond that, we also have good news from their streaming efforts—so 15 million new Disney Plus subscribers and, interestingly, price hikes incoming.

Now, if you look at the financials, this segment still definitely isn't pretty. The operating loss from direct to consumer went from million to over $1 billion year over year. But remember, up until this point, Disney Plus has been focusing on deliberately undercutting Netflix in order to attract as many subscribers and thus market share as possible.

So, aka, they're deliberately getting walloped. What the price hikes tell us is that the management team now believes they've achieved that critical mass or market share of now 150 million subscribers, and they can now focus on increasing the average revenue per user in order to get their streaming efforts in the black. So that's what's going on at Disney, and as I said, with the stock dropping 31% in Q2, I think that has attracted a lot of these super investors for the long term.

If we turn to Simply Wall Street, their inbuilt discounted cash flow analysis suggests the stock could be quite undervalued at the current price. If you do focus on the long term, it’s never going to be a 10, 20, 30 bagger, but for a lot of these super investors, I think they're just betting on healthy returns over the long run. So that's Disney.

Now moving on to number four, we have Microsoft. Yet another big moat company. Microsoft, of course, has a very strong and diversified switching moat. That's a result of all their software. Just have a look at all their different software products and services—lots of them, as you can see. And pretty consistent growth in all areas, particularly their cloud offerings.

So again, we saw 10 super investors buy into Microsoft in Q2 as the stock fell 17% across the quarter. Once again, I think this is another case of super investors just taking full advantage of the sell-off in the market to just buy a high-quality business. I mean, just have a look at the last five years of revenue, earnings per share, equity, and free cash flow growth. That is very healthy growth.

Look at the last five years of return on investor capital; management is averaging 24%. They got $104 billion of cash or short-term investments, total debt of just $50 billion, so they're definitely not going anywhere. Debt to equity of just 0.4 is pretty easy to tell at a glance that Microsoft is a well-oiled machine. And again, turning to Simply Wall Street, they have a current five out of six valuation score with the all-important discounted cash flow suggesting a reasonable discount.

Now, of course, that doesn't mean you should go out and immediately buy it without doing your own due diligence. However, it does give you an understanding as to why the super investors didn't hesitate to load up during Q2. But with that said, let's now move on to the third most bought stock in Q2, and that was Amazon. Fifteen of our super investors bought into Amazon in Q2, and again, we see a similar story—a very strong moat company whose shares got beat down in Q2.

This time, however, the beating was a little bit more understandable. Remember back to their Q1 earnings? The company showed year-over-year revenue growth of just 7%, which is the slowest growth rate for any quarter since the dot-com bust in 2001. The stock price then shed about 27% in two weeks, and investors were really getting concerned that macroeconomic conditions were hampering the average consumer's willingness to spend.

And don’t get me wrong; that very well could be the case, as again in Q2, revenue only grew 7% year over year with online store spending flat quarter over quarter. It really just shows you how much a stock can jump around when investors are fearful of the short-term macro scenario. But of course, that's exactly what gives long-term investors opportunities. We don't care about the macro, so it's not surprising to see these big super investors, these value investors, jumping in.

Again turning over to Simply Wall Street, they do show an estimated undervaluation based on their discounted cash flow analysis. However, it’s not super convincing, as they do only score three out of six total on their valuation score overall. All right, and then there were two. See if you can have a guess as to what these two are before we reveal them. I think you'll probably be able to guess what two wide moat names have been missing from this list so far.

But coming in at number two is, of course, Meta. Meta is an interesting one; it was bought by 17 of our super investors in Q2 as the share price fell roughly 30%. Even here today, the stock really has not recovered at all. Who would have thought just a few years ago we’d see Facebook with a PE of just 13? Hey, well, here we are, and this is due to a few reasons.

First of all, Apple and Google’s clampdown on data tracking for advertising, and there’s the macroeconomic conditions impacting big advertisers' budgets, and also huge investment into metaverse development, which is a project that is going to leave a hole in Meta’s financials for many, many years to come. In Q2 alone, Meta suffered a $2.8 billion loss from their Reality Labs unit, so it’s not insignificant.

But the real thing that is giving investors the shivers at the moment is the ad business is responsible for basically all of Meta’s revenue. Right now, with the economic conditions getting tighter and tighter, investors are concerned that Meta’s big advertising clients are going to pull back on their spending. Meta themselves forecast, quote, "continuation of the weak advertising demand environment we experience throughout the second quarter," which they believe is being driven by broader macroeconomic uncertainty.

But here’s the thing, and it’s why Meta is right up the top of this list: You know, if you’re a long-term investor, who cares? Why would you be stressing about the macroeconomic environment over the next year or two? The answer is, of course, you shouldn’t. But remember, the vast majority of money in the market is short-term focused. That’s exactly how we, as long-term investors, get these big mispricings in solid businesses—just the short-term money getting worried.

Because if you take a look at Meta, they have a very strong track record of growth. They have a very strong ROIC track record but also $12.7 billion in straight-up cash, $28 billion in short-term securities, and zero long-term debt. I mean, it’s hard to get into trouble when you have cash, and you don’t owe anything to anyone. So, I’m not surprised that the super investors jumped on this one—a five out of six valuation score from Simply Wall Street and a big margin of safety on their discounted cash flow analysis as well.

And with that said, that now brings us to number one—drumroll, please! The number one most bought stock by our super investors in Q2 2022 was Google! A whopping 24 of our 79 super investors bought Alphabet in one way or another in Q2. Overall, 16 super investors bought the class A shares, and 13 bought the class C shares, with obviously some buying both.

So, what’s the difference in the share class? Well, they're pretty much the same thing, except the class A shares have voting rights; the class C shares do not. But either way, the super investors were very interested in Alphabet last quarter, including the one and only Li Liu! For those that don’t know, Li Liu is the guy right here, standing next to this distinguished gentleman. Oh wait, that’s me!

It was pretty crazy. This is a photo from the Berkshire Hathaway shareholder meeting that we went to earlier this year. I was on an aisle seat, then there was the aisle, and literally, directly across the aisle from me, Li Liu. I could have reached out and given the guy a high five! That was pretty awesome. Anyway, enough about me, back to Google. It also got hammered in the Q2 sell-off, down 22%.

But seriously, if you’re an institutional investor, I struggle to understand why you would sell these shares during a downturn. This company probably has the best financials I’ve ever seen in a publicly traded stock. The economy could literally fall off a cliff, and Google would just be fine. I mean, look at these stats: average revenue growth over the past five years—24%, earnings per share—46%, equity—13%, free cash flow—24%. The average return on investor capital—18%. They have $125 billion in cash or short-term investments, and they have just $15 billion in debt. They have a debt-to-equity ratio of 0.1.

Can’t get much better than that! So yes, this business is very solid. It's growing. In their Q2 earnings, they noted that despite the macro, they're seeing an increase in ad spend by the big advertisers, which is good. They delivered 6% more impressions during Q2, and cost per impression rose 2%. So really, the only thing that happened was the stock got sold off with the rest of the market.

But as we can see on Simply Wall Street, Google now also scores a six out of six valuation score, with the discounted cash flow analysis showing a pretty solid margin of safety. I think when you look at the whole picture, the super investors thought this was a decent deal. And by the way, if you did want to try out Simply Wall Street, there will be a link down in the description of this video. It’s free to use forever, or if you did want to sign up for a premium account and get the full access that I've been using to make this video, then you can get a 30% discount by using that link.

But overall, team, they are the 10 most bought stocks by our super investors in Q2 2022. Sorry the video is a little bit later than usual; however, as you can tell by a lot of these stock charts, many of these share prices really haven’t changed much since the end of Q2 up until now. So it doesn’t actually impact the validity of this video much at all.

I hope you still enjoyed it! If you like seeing these videos, please let me know with a like—I would greatly appreciate it. If you want to see more of these videos, make sure you subscribe. But apart from that, guys, thanks for watching! I'll see you all in the next video.