Hedge fund manager Chris Davis once said the key to understanding how to invest wisely is to not fall prey to buzz, realizing the key to real gains from the market lies in trusting fact over gilded fiction. This hedge fund manager is not one who likes to just follow the pack, choosing even to even share his trading secrets when it comes to exchange-traded funds (ETFs). The ticket to Davis’ success? The hedge fund master not once has been swayed by the masses, choosing instead to not react with popular reflect in uncertain times.
According to TipRanks, four-star hedge fund manager Chris Davis of Davis Selected Advisers is ranked #23 out of 203 hedge funds. Davis has earned 96.2% in portfolio gains since June of 2013 and is above average in his sharpe ratio of 2.80. This guru’s portfolio value circles $23.19 billion and he has an average return of 18.76% over the past 3 years.
So how did the first quarter shape up for giants like Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Amazon.com, Inc. (NASDAQ:AMZN), and Micron Technology, Inc. (NASDAQ:MU)? Davis is pumping the brakes on these three leaders, diminishing holdings mostly in Valeant and Micron, with a 10% shave on Amazon. Let’s explore why:
Valeant Pharmaceuticals Intl Inc
Valeant has long been a short vs. long investing game, with many on the Street scared off by short-term woes, from legal battles to massive debt. For a Q1 move, Davis reduced his stake in Valeant by 44% down to $43.21 million, but since then, the usually troubled biotech giant has gone on to gain almost 28% in share value since the last SEC filing.
True- Valeant did recently impress with first quarter earnings for the year that were far better than investors and analysts had feared. The biotech giant’s team did not resort to a guidance cut for the year, and suddenly the short-term that had many sidelined began to offer more potential for a comeback king.
However, Valeant’s top-seller Xifaxan, an antibiotic fighting intestine-based bacterial infections could be one reason Davis does not trust recently improved sentiment. The drug’s major patents’ time will be up between now and 2021, and generic competition is quite cutthroat in the arena. The loss stemming from expiration of patents could cause revenue to take a tumble, leaving the giant’s key revenue driver in a risky situation. Valeant certainly does not need any more warning signs cropping up.
Ultimately, Davis’ mindset with regards to the Valeant stake chop is not that contrarian, with TipRanks analytics showing VRX as a Hold. Out of 14 analysts polled by TipRanks in the last 3 months, 2 are bullish on Valeant stock, 9 remain sidelined, and 3 are bearish on the stock. With a return potential of 13%, the stock’s consensus target price stands at $15.22.
Davis Selected Advisers pulled back on Amazon this last quarter by just under 10%, taking the stake in Amazon down slightly to $1.53 billion. Yet, shares have garnered almost 9% in value since the last filing.
Amazon Prime’s membership is fiercely on the rise, with some analysts anticipating the online auction and e-commerce leader will capture domestic retail market share. Domestic subscriptions have grown twice over in two years alone. More market share means more upside for Amazon. With Prime Video hitting India almost half a year ago now, Amazon’s global influence just keep getting better.
Meanwhile, the company is ready to add big pharma to a list of sectors it intends to dominate, a disrupting competitor for the likes of Walgreens. With the pharmacy industry alone, should Amazon’s endeavors prove successful, the company could be tapping into a multi-billion dollar market opportunity. Amazon has already kicked off recruitment, selecting various healthcare professionals to add to its team, so that when the time to dabble comes, the leader will be well-prepared to triumph.
The Street seems to disagree with Davis’ step back on the giant, but perhaps Davis would argue Amazon has built a stellar repute on hype. Worthy of note, off the hedge fund manager’s moves, this one was the least drastic reduction. TipRanks analytics exhibit AMZN as a Strong Buy. Based on 32 analysts polled by TipRanks in the last 3 months, 29 rate a Buy on Amazon stock while 3 maintain a Hold. The 12-month average price target stands at $1,089.96, marking a nearly 13% upside from where the stock is currently trading.
Micron Technology, Inc.
Micron could soon enter a golden era with shares experiencing 30% of growth from this time last year. Why? In a year where one of the buzziest topics of conversation is the future of the Internet of Things (IoT), chipmakers in general stand to benefit. Micron especially is ready to capitalize on this opportunity with a new alliance in the works with Microsoft, where the chip giant’s flash memory will be implanted in the IoT device, converging with Microsoft’s Azure IoT cloud. The goal will be to create a solid link users can trust from the device to the cloud.
Mirroring his lessened confidence in the other two players, Davis likewise has pulled back in Micron, cutting his stake in half down to $463.21K. The chip giant is anticipated to post fiscal third quarterly earnings June 29th, and hype is certainly weighing in Micron’s favor. Last quarter, the giant served up a nice beat, outclassing expectations from revenue to earnings. Could Micron be gearing up to impress analysts and investors once again come June?
Yet, remember Davis’ motto- never buy on hype. Still- Micron has surged on not just blind momentum, as Wall Street confidence has stemmed from the giant’s stellar earnings acceleration. Many attribute this strength to a bolstered sales-meets-sharper-efficiency one-two punch.
For now, sentiment stands by Micron’s side and TipRanks analytics demonstrate MU as a Strong Buy. Out of 17 analysts polled by TipRanks in the last 3 months, 15 are bullish on Micron stock while 2 remain sidelined. With a return potential of nearly 32%, the stock’s consensus target price stands at $36.88.