Hedge fund manager Sam Peters of the $4.65 billion ClearBridge LLC fund has slashed his holdings in Tesla Inc (NASDAQ:TSLA), Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB) according to 13F forms filed with the SEC and which have now been made public.
Sam Peters is keenly followed by investors due to his investing success; since June 2013 the portfolio has made a gain of 81.4% with an average return over the last three years of close to 16%. On financial expert accountability engine TipRanks, Peters has a four-star rating and is ranked #34 out of a total of 203 tracked fund managers.
The fund manager has had a passion for investing since a surprisingly young age. He has revealed that when he was growing up he subscribed to the Outstanding Investor Digest – and was fascinated by the interviews with money managers: “I wanted to be in their seat” he says.
Peters grew up in an oil and gas ranching family in New Mexico where business cycles had a real impact on his daily life. He was influenced by his grandma who, although “skeptical” of Wall Street, wisely realized that “everything is cyclical”. Peters sees this as an important reminder not to act rashly through optimism, but conversely, to look for opportunities in pessimism.
Through his experience at Fidelity, where Peters joined in 1999 as an analyst following a degree in economics and an MBA at the University of Chicago, he gained experience in the banking sector, tech and healthcare. Following Fidelity, Peters moved to Legg Mason Capital to work with legendary fund manager and philanthropist Bill Miller. Leg Mason was integrated into ClearBridge, Legg Mason’s biggest equity manager in early 2014.
ClearBridge, where Peters is now managing director and portfolio manager, looks for long-term results through “strategies focused on three primary client objectives in our areas of proven expertise: high active share, income solutions and low volatility.” These strategies are realized through numerous investing vehicles including separately managed accounts, mutual funds, collective investment funds and offshore funds. The fund is very committed to working out the correlation between the different stocks and sectors in order to ensure a diverse portfolio.
“As active managers, we must be arrogant enough to think we can beat the market by discovering price-value gaps, yet humble enough to acknowledge that we will be wrong at times, and still courageous enough to bet our convictions” says Peters, who joined ClearBridge in 2005.
So how did this strategy play out in Q1? Let’s examine three of the fund’s most interesting moves:
Tesla Wiped Out
Peters sold out the funds entire stake in controversial electrical carmaker Tesla. And Peters isn’t the only one is worried about what will happen to the carmaker as the launch date of its much-hyped $35,000 Model 3 sedan approaches.
Five-star Bernstein analyst Toni Sacconaghi maintained his Hold rating on the stock with a $250 price target after a less-than-impressive first-hand experience of dealing with Tesla. Sacconaghi put a deposit on the Model X (a more luxury version of the Model 3) and calls the overall customer experience “not good” and particularly disappointing in comparison to the customer service of more established luxury automakers such as BMW. He experienced long waits, little visibility into the actual delivery of the date and inconsistent service.
Ultimately such issues could limit the kind of aggressive expansion of the Model 3 rollout planned by Tesla. Sacconaghi is worried that Model 3 buyers have higher expectations and will not tolerate a company that is still operating as a “startup in hypergrowth mode” and, secondly, that the company is already under strain operationally and will be unable to handle the additional pressure once the Model 3 ramps up deliveries throughout the second half of the year.
CEO Elon Musk has also just revealed (via a Tweet) that the Model 3 will not be launched in India by the end of the year, as had previously been expected. In response to a Tweet asking about Tesla’s India plans, Musk replied that 30% of parts must be locally sourced and “the supply doesn’t exist yet in India to support that.” Tesla is very keen to make a mark on the Indian automotive market which is worth approximately $74 billion- but this may be difficult to achieve by exporting Model 3 vehicles from the US to India due to heavy import taxes. Electrical vehicles are still fairly uncommon in India where there is primarily a choice between two vehicles: the Mahindra e2O and the Mahindra Verito.
TipRanks reveals that the stock has a Hold analyst consensus with analysts fairly split between buy/ hold/ sell ratings over the last three months. The average analyst price target of $271 represents a downside of -13% from the current $310 share price. Notably, there is a very significant range of price targets from $380 on the high to just $155 on the low.
Sam Peters slid back the fund’s Amazon in Q1 by -1.37% to $106 million. So far the stock- still the fund’s ninth largest holding- has made a gain of 8.3% since the last filing date.
The ecommerce retail giant is now apparently considering a move into the pharmaceutical industry according to CNBC. A source told CNBC that this move is often discussed by Amazon but now the company is hiring a general manager and asking industry experts how to take these plans forward. While Amazon will have to compete with some heavyweight pharma companies (e.g. CVS Health) the potential revenue opportunity for Amazon in this market is huge at about $25-50 billion. Amazon has sold drugs on its Japanese website since April.
The market is very bullish on Amazon: it has a Strong Buy analyst consensus rating with 28 buy and 3 hold ratings published on the stock over the last three months. Furthermore, the 12-month average analyst price target of $1,095 still stands at a 14% upside from the current share price of $959.
In particular, Loop Capital’s Blake Harper calls Amazon the most “disruptive” business in the retail industry. He is encouraged by the success of Amazon’s prime subscription service which is creating impressive growth for the company. Harper says a survey of 500 Prime members has led him to believe that Amazon can take further market share in North America. As a result, he is bullish about Amazon’s upside potential but equally concerned about the knock-on-effect AMZN’s success will have on other specialty hardline retail companies.
Peters also reduced ClearBridge’s holding in social media titan Facebook by -1.53%. The fund’s remaining holding now stands at just $137,000. Since the last filing date, these shares have gained by 4.23%.
Facebook’s content guidelines have just been leaked to the Guardian and the stock is the subject of many headlines today. The extent to which Facebook moderates posts from its 2 billion users has always been controversial, especially with the introduction of Facebook live videos which are particularly difficult to track in real-time. Staff say they only have about 10 seconds to decide what action to take- for example, to ignore or delate a post, or mark it as disturbing.
The leaked papers reveal that the general message to staff is to allow violent content including death and non-sexual child abuse. Threats of violence are not banned but moderators should try to “disrupt potential real world harm.” However violent images with “sadism and celebration” should be taken down say the FB guidelines.
The stock has one of the strongest analyst ratings in TipRanks’ data universe with 32 buy ratings and one hold rating published on the stock in the last three months. The stock also has impressive upside potential of 16% from its current $148 share price say analysts.