Investors rarely lose important data on Wall Street. Earnings season provides an onslaught of operating results for many of America’s most important companies, while economic data is released almost daily Monday through Friday. But every so often, one of these important data dumps can slip through the cracks.
For example, August 14 is the deadline for institutional investors with at least $100 million in assets under management to submit their applications. Form 13F With the SEC – and there’s a chance you missed this opportunity. A 13F provides an under-the-hood look at the stocks that Wall Street’s top-tier money managers bought and sold in the last quarter (in this case, August 14 filings detailing trading activity for the quarter ending in June).
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Although Berkshire Hathaway‘s Warren Buffett is a favorite among investorsThere are other billionaire money managers making waves. One such billionaire who is widely tracked is Israel Englander of Millennium Management, who as of the end of June was overseeing an investment portfolio worth about $216 billion spread across thousands of securities, including call and put options.
Although running A very An activist hedge fund, there are a few deals that stand out for Englander, including the disposal of ultra-high-yielding dividend stocks, as well as piling into a troubled artificial intelligence company.
Of the thousands of positions Englander and his team have cut, perhaps the most surprising is the selling activity we’ve seen during the first six months of 2024 at the telecom giant. AT&T (NYSE: T). Even though the company’s shares rose 49% on a total return basis (including its juicy 5% return) over the next year, Englander sent nearly 40% of his fund’s stake in AT&T (8,979,263 shares) to the block. Shredding this year.
Taking profits is one of the reasons the brightest investing minds of the millennium hit the sell button. It’s not unusual for AT&T to offer a total return of nearly 50% on a 12-month basis. While the forward price-to-earnings ratio of 10 is still well below the benchmark Standard & Poor’s 500It is currently trading at 24% beloved to the average forward P/E multiple over the trailing five-year period.
It’s also possible that Englander and his advisors are concerned about AT&T’s increased legal expenses. In July 2023, an investigative report was released from Wall Street Journal It was suggested that AT&T and other legacy carriers may incur financial liabilities associated with their use of lead-coated cable. Although AT&T has refuted these findings, there may be some degree of backlog or uncertainty that still exists.
But as an AT&T shareholder, I find Millennium’s actions a bit surprising. Although AT&T’s growth peak is long over, the shift to 5G download speeds has led to a modest but steady growth cycle in most aspects of the company’s business. Wireless service revenue is growing by low to mid-single digits, while the cessation rate remains at or near a historic low. Over time, access to wireless and broadband services has become a basic necessity.
Speaking of broadband, it has quickly become a major source of operating cash flow for AT&T. Upgrading its broadband services to support 5G download speeds could allow the company to report its seventh consecutive year with the acquisition of at least 1 million net broadband customers.
Additionally, AT&T has made significant progress on its balance sheet since spinning off its content arm WarnerMedia in April 2022. When WarnerMedia merged with Discovery to create the media giant we now know as Warner Bros. DiscoveryThis new entity was responsible for assuming much of the debt and making payments to AT&T totaling $40.4 billion. Since March 31, 2022, AT&T’s net debt has fallen from $169 billion to $125.8 billion, as of September 30, 2024.
And while I wouldn’t count on AT&T outperforming the S&P 500 on a regular basis, my suspicion is that Millennium will eventually regret cutting back on its stake.
On the other end of the spectrum, perhaps more puzzling, in hindsight, was the large purchase Englander and his team made during the June quarter of Millennium Management, a customizable rack server and storage solutions company Super micro computer (NASDAQ: SMCI).
Millennium’s 13F shows that 5,533,230 shares were purchased, increasing the fund’s stake in Super Micro by more than 800%. Keep in mind that this stock data has been adjusted for Super Micro Computer’s first-ever split (10-for-1) after the close of trading on September 30.
On paper, the Super Micro looks like nothing less than an easy purchase. Companies eager to capitalize on the AI revolution are spending huge sums on the infrastructure needed to make it happen. Super Micro has been a clear beneficiary, as its fiscal 2024 operating results (ended June 30, 2024) and guidance show. Sales jumped 110% to $14.94 billion in the last fiscal year, with revenues expected to range between $26 billion and $30 billion for the current year.
Another factor that has made Super Micro Computer particularly popular among organizations that want to be ahead of the innovation curve is its integration NvidiaH100 GPUs are extremely popular in customizable rack servers.
But there are two sides to every story. Although the company uses high-quality Nvidia hardware, it is also at the mercy of its suppliers. With the backlog of orders for the H100, Super Micro may not be able to meet all the demand for its products.
However, the bigger problem seems to be the alleged confidence in the company’s financial statements. In late August, Hindenburg Research, a popular short-seller, released a report that included, among other things, “alleged accounting manipulation, sibling self-dealing, and sanctions evasion” by Super Micro. Although the company denied these allegations, it delayed the submission of its annual report.
Things have escalated somewhat since Hindenburg released its report on short selling. According to Wall Street Journalthe US Department of Justice is conducting an early investigation into Super Micro’s accounting practices. What’s more, accounting firm Ernst & Young recently resigned, raising additional question marks over the company’s financials.
Although Super Micro’s potential is clear to see, there’s no reason for investors to consider dipping their toes in the water until this widening gray cloud over the company’s accounting practices is resolved.
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Sean Williams He has positions at AT&T and Warner Bros. Discovery. The Motley Fool has positions in Berkshire Hathaway, Nvidia, and Warner Bros. Discovery and recommend it. The Motley Fool has Disclosure policy.
Israeli billionaire Englander sold 40% of Millennium’s stake in AT&T and piled into troubled AI stocks instead. Originally published by The Motley Fool