Data is abundant, if not overwhelming, on Wall Street. Between earnings season -- the six-week period when a majority of S&P 500 companies unveil their quarterly operating results -- and near-daily economic data releases, it can be easy to miss something important.
For instance, investors might have overlooked one of the most-important days of the entire first quarter: Feb. 14. While Valentine's Day was the focus for most Americans, Feb. 14 marked the deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F with the Securities and Exchange Commission.
A 13F provides a concise snapshot that allows investors to see which stocks Wall Street's leading money managers have been buying and selling. While Berkshire Hathaway's Warren Buffett tends to be the most-followed fund manager, he's far from the only billionaire investor known to make waves on Wall Street.
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Duquesne Family Office's billionaire chief Stanley Druckenmiller oversees more than $3.7 billion in AUM, and his trading activity is also closely monitored by the investing community. Druckenmiller runs an active hedge fund -- the average hold time for all 78 securities is less than seven months -- which tends to seek out short-term price dislocations.
Interestingly enough, Druckenmiller has sent two of the hottest artificial intelligence (AI) stocks on the planet to the chopping block, and has been gobbling up shares of three of Wall Street's most-prolific turnaround stocks.
Billionaire Stanley Druckenmiller has dumped shares of Palantir and Nvidia
Perhaps the biggest eyebrow-raising move from Duquesne Family Office's billionaire investor is his dumping of shares of AI giants Palantir Technologies(NASDAQ: PLTR) and Nvidia(NASDAQ: NVDA). Since March 31, 2024, Druckenmiller sold 95% of his fund's stake in Palantir.
Meanwhile, all 9,500,750 split-adjusted shares of Nvidia that Duquesne held, as of June 30, 2023, were gone 12 months later. Nvidia completed a 10-for-1 forward split in June 2024, thus the need to adjust the share count.
Although both businesses possess well-defined competitive advantages, there are obvious reasons for Druckenmiller to have cashed in his fund's chips.
For starters, the gains for Palantir and Nvidia have been eye-popping. Palantir stock galloped higher by close to 2,000% (at its peak) from the start of 2023, while Nvidia's market cap surged by north of $3 trillion. These are highly uncommon gains and Duquesne's chief saw it as an opportunity to ring the register.
Valuation concerns likely also crept into the picture. Historically, companies on the cutting edge of a next-big-thing trend, such as AI, have seen their valuations peak at a range of 31 to 43 times sales. Nvidia stock hit its ceiling at a price-to-sales (P/S) ratio of 42.39 in June 2024, while Palantir's P/S ratio surged to around 100 last month. Based solely on what history tells us, neither figure is sustainable over the long run.
There's also the very real concern that history will repeat and the artificial intelligence bubble will burst. Every next-big-thing investment trend for more than three decades has been overhyped by investors well before it's had a chance to mature and gain widespread adoption. If the AI bubble were to burst, its most-direct beneficiaries, such as Nvidia and Palantir, would probably be among the hardest-hit stocks.
Long story short, the risk-versus-reward scenario strongly favored locking in gains.
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Duquesne's Druckenmiller bets big on a trio of turnaround stocks
But just because billionaire Stanley Druckenmiller has been a seller of two widely owned AI stocks, it doesn't mean he hasn't been putting his fund's capital to work elsewhere. Based on Duquesne Family Office's 13F filings, he's been piling into three turnaround stocks over the last year.
Philip Morris International
Not including dividends, tobacco stock Philip Morris International(NYSE: PM) had been a buzzkill for the better part of a decade. From the start of 2014 through the end of 2023, its shares rose by less than 8%. But this didn't stop Druckenmiller from purchasing 1,352,255 shares of Philip Morris stock last year.
Traditionally, the biggest competitive advantage tobacco companies possess is the addictive nature of nicotine, which is found in tobacco. Even with cigarette shipments declining in most developed markets, Philip Morris has been able to offset these declines by increasing its prices.
To add to this point, Philip Morris International has an operating presence in more than 180 countries. If cigarette shipments fall off in some of its developed markets, there's a good chance burgeoning middle classes in emerging markets, where tobacco remains a luxury, will help pick up the slack. In other words, geographic diversity is a big help to the company's top-and-bottom line.
But what's propelled Philip Morris's escape from a decade of underperformance is its smoke-free products. Its oral nicotine pouches (Zyn) and heated tobacco system (IQOS) are delivering sustained double-digit increases in sales and reaccelerating its earnings growth rate. The long-awaited transformation of the traditional tobacco industry has arrived, and Stanley Druckenmiller is here for it.
Warner Bros. Discovery
A second turnaround stock that Duquesne's head honcho has been piling into is legacy media operator Warner Bros. Discovery(NASDAQ: WBD). In 2024, Druckenmiller oversaw the purchase of 4,657,650 shares of Warner Bros. Discovery.
Like most legacy media companies, Warner Bros. is spending aggressively to build out its streaming content; and the results have been mostly promising. Global direct-to-consumer subscribers grew by more than 19 million last year to 116.9 million, while average revenue per user hovered in the mid-to-high $7 range. Thankfully, Warner Bros. Discovery possesses strong subscription pricing power, which should play a key role in boosting future profits from this segment.
There's also been a clear improvement in the company's balance sheet. Following AT&T's spin-out of Warner Bros. and its subsequent merger with Discovery in April 2022, the newly formed company had quite a bit of net debt. But with management focused on free cash flow generation and improving its financial flexibility, Warner Bros. Discovery's net debt fell to $34.2 billion, as of Dec. 31, 2024, from $45.3 billion at the end of 2022.
Lastly, the company expects to restructure into two separate divisions -- Global Linear Networks and Streaming & Studios -- by the midpoint of this year. This type of restructuring can lead to better earnings visibility, and it may signal the possibility of future dealmaking.
Teva Pharmaceutical Industries
The third turnaround stock that billionaire Stanley Druckenmiller has been absolutely piling into is generic- and brand-name drug developer Teva Pharmaceutical Industries(NYSE: TEVA). In 2024, Duquesne picked up 8,997,400 shares of Teva, which makes it Druckenmiller's fourth-largest holding.
For the better part of seven years (2015-2022), Teva was a perfect example of Murphy's Law in action. It overpaid for generic-drugmaker Actavis, which ballooned its outstanding debt, and was the target of a seemingly endless barrage of litigation, which ranged from its role in the opioid crisis to its pricing of generic drugs.
Teva's breakthrough came in July 2022 when it settled opioid litigation with 48 states. While the $4.25 billion settlement figure is a big number, it's being paid out over 13 years and isn't entirely a cash component. Up to $1.2 billion of this amount can be comprised of Narcan deliveries to states. Narcan is the drug used to counteract opioid overdoses.
Teva's management team also made it a point to improve the company's financial flexibility by addressing its debt. Former turnaround specialist CEO Kare Schultz, and current CEO Richard Francis, have collectively worked to sell non-core assets, reduce operating expenses, and boost margins. The end result is a reduction in net debt from north of $35 billion following the Actavis acquisition to less than $14.5 billion, as of the end of 2024.
The final piece of the puzzle for Teva was shifting more of its focus and capital expenditures toward higher-margin novel-drug development. With Teva's sales once again climbing, the future appears bright for Duquesne's fourth-largest position.
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Sean Williams has positions in AT&T, Teva Pharmaceutical Industries, and Warner Bros. Discovery. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, Palantir Technologies, and Warner Bros. Discovery. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
