The stock market’s bull run has been slowing down, driven by the sharp slowdown in macroeconomic growth and consumer spending. This is evident in the benchmark S&P 500 index’s 1.3% gains over the past week. Also, according to Oppenheimer technical analyst Ari Wald, “Over the last 30 years, there has been a tendency for the market to pause in mid-November ahead of a resumption of strength in December into year-end.”
Hedge fund managers are known to capitalize on such market slowdowns to rake in substantial profits by identifying fundamentally strong stocks that possess tremendous growth potential. Therefore, tracking activist hedge funds can allow investors to identify key investment opportunities now.
Despite the current market pause, hedge funds have been investing heavily in renowned industry leaders Pfizer Inc. (PFE), AT&T Inc. (T), Marathon Oil Corporation (MRO), and Coty Inc. (COTY). These companies are expected to generate substantial growth over the next few months despite the slowdown in consumer spending and supply chain concerns, thereby delivering an adequate return on investments (ROI).
Pfizer Inc. (PFE)
PFE is one of the biggest pharmaceutical companies in the world, currently ranked #77 on the Fortune 500 list. The New York City-based company gained significant traction during the COVID-19 pandemic last year because it was one of the first companies to introduce a vaccine. PFE, in collaboration with BioNTech SE (BNTX), received the world’s first authorization to commercially develop a vaccine to combat the pandemic. Furthermore, the PFE-BNTX COVID-19 vaccine has a 95% efficacy, making it one of the most effective vaccines in the world.
PFE’s revenues have increased 134% year-over-year to $24.09 billion in the third quarter (ended October 3, 2021), owing to a 749.3% rise in vaccine sales. Its net income came in at $8.15 billion, up 454.5% from the same period last year. EPS improved 446.2% from the year-ago value to $1.26.
The company has been taking steps to boost its COVID-19 vaccine sales over the past couple of months. Its COVID-19 booster shot was approved by the FDA last week, and the company is currently in the process of obtaining authorization for its oral COVID-19 antiviral drug PAXLOVID. PFE plans to supply 2 billion COVID-19 vaccine doses to poor and middle-income countries by 2022. As part of its long-term growth strategy, PFE entered an agreement to acquire clinical-stage immune-oncology company Trillium Therapeutics for $2.26 billion, which is expected to be finalized in the current quarter or the first quarter of 2022.
As a result, hedge funds have been actively investing in PFE to capitalize on its accelerating growth. Hedge funds have increased their holdings in PFE by 4.30 million shares over the last quarter. Top hedge fund managers, including Cathie Wood, Greg Poole, Andrew Law, and others, have invested heavily in the stock. Shares of PFE have outperformed the benchmark S&P 500 index to gain 38% in price year-to-date, reflecting bullish investor sentiment.
A $24.35 billion consensus revenue estimate for the fiscal fourth quarter (ending December 2021) indicates a 108.4% improvement year-over-year. Analysts expect the company’s EPS to rise 113.3% in the current quarter to $0.90.
It is no surprise that PFE has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth, and a B grade for Value and Quality. In addition, it is ranked #11 out of 199 stocks in the Medical – Pharmaceuticals industry. In addition to the grades I have highlighted, you can view PFE ratings for Momentum, Sentiment, and Stability here.
AT&T Inc. (T)
T is the biggest telecom company and wireless carrier in the United States. The Dallas, tex.-based company controlled 44.8% of the wireless subscriptions market share in the U.S. as of the first quarter of 2021. The company has capitalized on the growing demand for seamless connectivity in the work-from-home era over the past year. Moreover, T has emerged as a leading player in the current 5G race. It has been named as “America’s Best 5G Network” by Global Wireless Solutions (GWS) and is accessible to more than 250 million people across 50 states. Also, T has been labeled as America’s Best Wireless Network for the fourth consecutive year in 2021 by GWS.
T has been reorganizing its business structure to reduce its debt burden, causing its revenues to dip slightly from the prior year. However, such structural reorganization is expected to strengthen its liquidity and solvency and improve its profit margins significantly. T has divested several business segments over the past few months. The company sold its Vrio Corp. business to Grupo Werthein in July and its Crunchyroll anime business to Sony Pictures Entertainment in August. Also, T spun off its DIRECTV, AT&T TV, and U-verse video services in collaboration with global alternative asset firm TPG.
Despite a slight dip in revenues, T’s net income increased more than 100% from its year-ago value to $5.87 billion in its fiscal third quarter ended September 30, 2021. Its EPS rose 110.3% from the same period last year to $0.82. Also, the company is a dividend aristocrat; it has increased its dividend payouts annually for 36 consecutive years. It currently pays $2.08 annually as dividends, yielding 8.62% at the current share price. Analysts expect T’s EPS to increase 5.7% year-over-year to $3.36 in fiscal 2021.
Hedge funds HBK Investments LP, Echo Street Capital, Fisher Asset Management, Auxier Asset Management, and Gotham Asset Management have raised their stake in T substantially over the last quarter, capitalizing on its recent price dip.
T has an overall B rating, which translates to Buy in our proprietary rating system. The stock has a B grade for Growth, Value, and Stability. Of the 20 stocks in the Telecom – Domestic industry, T is ranked #3.
Click here to view additional T ratings for Momentum, Sentiment, and Quality.
Marathon Oil Corporation (MRO)
MRO is a leading oil exploration and production company in the United States, with exploration interests in Texas, North Dakota, Oklahoma, Delaware, and New Mexico. The Houston, Tex.-based company operates through two segments—the United States; and International.
MRO has been profiting from the robust macroeconomic recovery, which has demand in the United States and internationally. Its revenues increased 92.7% year-over-year to $1.44 billion in its fiscal third quarter, ended September 30, 2021. Its net income and EPS improved 1,050% from the same period last year to $184 million and $0.23, respectively.
As part of its commitment to capital discipline and differentiated execution, MRO raised its base dividend for the third consecutive quarter to $0.06 in the third quarter of 2021 and repurchased $200 million worth of common stock as of October 1. The company plans to repurchase an additional $300 million of its shares by the end of 2021. Moreover, MRO expects to return approximately 50% of its fourth-quarter cash flow from operations to shareholders.
The company had reduced its gross debt by $1.40 billion as of September 7, 2021, resulting in approximately $50 million in annualized cash interest expense savings. It aims to reduce its gross debt by $4 billion, improving its profit margins significantly.
These policies are being viewed favorably by hedge fund managers. Hedge funds Gotham Asset Management (managed by Joel Greenblatt), Carlson Capital LP (managed by Clint Carlson), and Fisher Asset Management (managed by Ken Fisher) have added shares of MRO to their respective portfolios. The heightened investor interest has driven the stock to gain 129.5% in price year-to-date and 42.8% over the past three months.
Analysts expect MRO’s revenues to come in at $1.52 billion in its fiscal fourth quarter (ending December 2021), indicating an 82.7% improvement from the prior-year quarter. The $0.51 consensus EPS estimate for the current quarter indicates a 525% improvement year-over-year. The company has an impressive earnings surprise history, as it surpassed the Street’s EPS estimates in each of the trailing four quarters.
MRO’s POWR Ratings reflect this promising outlook. It has an overall B rating, which equates to Buy in our POWR Ratings system. In addition, it has a Momentum grade of A, and a Growth grade of B. Also, of the 84 stocks in the B-rated Energy – Oil & Gas industry, MRO is ranked #14.
We have also rated MRO for Stability, Value, Quality, and Sentiment. Get all MRO ratings here.
Coty Inc. (COTY)
New York City-based COTY develops, and markets branded beauty products, fragrances, and color cosmetics globally. Its supply chain comprises prestige retailers, department stores, direct-to-customer websites, and perfumeries. The company recently outlined its long-term growth plan to retain its position as a true beauty powerhouse. Regarding this, COTY CEO Sue Y. Nabi said, “Coty’s unique and beautiful portfolio of brands, our talented team, and our single-minded focus on delivering sustainable, profitable growth, coupled with targeted reinvestment, are enabling us to evolve. We continue to capitalize on the tremendous growth opportunities in prestige fragrances, skincare, China, clean beauty, and e-commerce.”
COTY has been consolidating its capital structure by selling its 4.6% stake in Wella to KKR in exchange for the redemption of KKR’s convertible preferred COTY shares. The redemption of the preferred shares is expected to contribute approximately $14 million in annual dividend savings and $65 million in annual cash savings.
Institutional investors owned 34.7% of outstanding COTY shares (as of November 19, 2021). Hedge funds Gotham Asset Management, HBK Investments LP, Echo Street Capital, and Graham Capital Management have added shares of COTY to their portfolios in the last quarter.
COTY’s revenues increased 22% year-over-year to $1.37 billion in its fiscal first quarter, ended September 30, 2021. This can be attributed to a 33.6% rise in Prestige segment revenues. Its operating income improved substantially from its negative year-ago value to $17.20 million, while its net income from continuing operations rose 86.7% from the same period last year to $228.90 million.
The Street expects COTY’s revenue and EPS to improve 14.4% and 20.3%, respectively year-over-year to $5.30 billion and $0.12 for its fiscal year ending June 2022.
Shares of COTY have gained 65.6% in price over the past year to close Friday’s trading session at $10.35.
COTY has an overall rating of B, which translates to Buy in our proprietary rating system. In addition, the stock has an A grade for Growth, and a B for Sentiment. Of the 63 stocks in the A-rated Fashion & Luxury industry, COTY is ranked #40.
View additional COTY ratings for Stability, Momentum, Value, and Quality here.
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PFE shares rose $0.21 (+0.41%) in premarket trading Monday. Year-to-date, PFE has gained 44.20%, versus a 27.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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