With all the noise surrounding the elections and coronavirus disease 2019 (COVID-19) vaccines, investors might have missed what’s arguably the most important data release for the month of November. And no, I’m not talking about any Fedspeak or economic data.
This past week marked the deadline for money managers with $100 million or more in assets under management to file Form 13F with the Securities and Exchange Commission (SEC). A 13F provides an under-the-hood look at what the brightest money managers were up to during the most recent quarter (in this case, Jul. 1, 2020, to Sept. 30, 2020). Even though the portfolio snapshots provided are more than six weeks old, they still provide invaluable information to Wall Street and the investment community as to what the world’s most successful investors have been doing.
After perusing a laundry list of stocks on 13F aggregator website WhaleWisdom.com, three highly unexpected stocks stood out as being especially popular with money managers in the third quarter.
Don’t adjust your laptop or computer screen — that really says Aurora Cannabis (NYSE:ACB). During the third quarter, the aggregate number of shares held by firms and individuals required to file a 13F increased by 27.2% to 16.81 million. Billionaire Jim Simons’ Renaissance Technologies opened a 447,378-share position in Q3, with Ken Griffin’s Citadel Advisors upping its existing stake by almost 419,000 shares.
I’m stunned. Aurora Cannabis has been an absolutely atrocious investment for the past 19 months (down nearly 95%), and it’s done little with its shareholders in mind.
This is a marijuana stock whose outstanding share count has ballooned by more than 11,800% since June 2014. With minimal access to additional lines of credit or loans, Aurora’s primary financing tool has been to sell its common stock. The company has already completed $650 million in at-the-market (ATM) stock offerings since April 2019, and its board recently approved a separate $500 million ATM program. In other words, shareholders are drowning in new share issuances.
Aside from cash concerns, Aurora’s (now-former) management team also buried the company under a mountain of bad deals. The July 2018 all-share acquisition of MedReleaf for $2.64 billion Canadian is unquestionably the worst pot transaction of all time. The deal was expected to yield 140,000 kilos of annual output, but will only result in 28,000 kilos of production after Aurora shuttered MedReleaf’s Markham facility and sold off its 1-million-square-foot Exeter greenhouse.
But what I find unforgivable is that Aurora’s execs received pay raises and bonuses last fiscal year after recording a CA$3.3 billion loss and constantly selling stock to raise capital.
I genuinely have no clue what money managers see in Aurora and would strongly discourage following in their footsteps.
Once again, not a typo. Money managers couldn’t stop buying into hardware and software solutions company Eastman Kodak (NYSE:KODK). The third quarter saw aggregate share ownership by 13F filers increase by 44.1% to 15.53 million shares, with billionaire Philippe Laffont’s Coatue Management opening a 1.25-million-share stake.
There are two reasons I find this surge in interest and ownership in Kodak stock especially disturbing.
First, the Eastman Kodak you see today is a shell of its former self. Even if the Kodak name still brings up fond memories of its once-dominant photography and digital camera platforms, nostalgia doesn’t pay the bills. Kodak is riding a 14-year streak of declining year-over-year sales, and there’s a very good chance 2020 becomes year No. 15. The company’s Q3 operating results featured $249 million in sales, down from $313 million in the year-ago quarter. All three major operating segments (traditional printing, digital printing, and advanced materials and chemicals) delivered double-digit percentage sales declines.
The second issue ties into why Kodak has been so popular in recent months. In late July, the company announced that it was to be awarded a $765 million loan to develop pharmaceutical ingredients that would be used in generic drug production. But since being the expected recipient of said loan, it’s been placed on hold. You see, some Kodak executives, including CEO Jim Continenza, were awarded stock options the day before the loan announcement was made. These execs knew about this announcement roughly a week before it was made public. The possible insider trading has prompted the SEC to open an investigation into the matter.
Why money managers would want to buy into a company with a failing business model that’s being investigated by the SEC is beyond me.
Unlike Aurora Cannabis and Eastman Kodak, which have been genuine dumpster fires, money managers have absolutely been crushing it with electric vehicle (EV) manufacturer NIO (NYSE:NIO). According to data on WhaleWisdcom.com, aggregate ownership by 13F filers increased 11.4% in Q3 (46 million shares) to a little north of 450 million shares. In particular, Larry Fink’s BlackRock upped its existing stake by over 10.6 million shares.
After watching Tesla moonshot higher by over 11,000% since the summer of 2010, investors have been piling into premium EV SUV manufacturer NIO, which happens to operate in China, one of the most lucrative auto markets in the world. Investors have been rewarded handsomely for that decision, with shares of NIO up nearly 1,900% since mid-March of this year.
Watching NIO’s deliveries stabilize after wild swings in years past has been exciting. Over the past two quarters, NIO has delivered a combined 22,537 vehicles, which is more than it delivered in the entirety of 2019. But as revenue soars and NIO expands its production capabilities, we’ve watched the company’s net loss shrink. That’s a positive development that could have the company on track for recurring profitability by as early as 2022.
Furthermore, NIO’s battery-as-a-service (BaaS) program could prove to be a serious long-term moneymaker for the company. This service will cut the initial cost of its EVs by about $10,000 and charge enrolled BaaS members about $140 a month. Members in the program will be able to swap out batteries or upgrade in the future. Like any subscription model, NIO’s BaaS model offers high margins and should help keep its ES8, ES6, and EC6 crossover buyers loyal to the brand.
Of the three stocks money managers couldn’t top buying in Q3, this looks to be the only one with bright long-term prospects.