In this article, we discuss 5 stocks to buy according to John Rogers’ Ariel Investments. If you want to read our detailed analysis of Rogers’ history, investment philosophy, and hedge fund performance, go directly to 10 Stocks to Buy According to John Rogers’ Ariel Investments.
5. Microsoft Corporation (NASDAQ:MSFT)
Ariel Investments’ Stake Value: $310,441,000
Percentage of Ariel Investments’ 13F Portfolio: 2.75%
Number of Hedge Fund Holders: 259
Microsoft Corporation (NASDAQ:MSFT) is a technology company that develops and supports software, services, and appliances. Ariel Investments initiated its position in Microsoft Corporation (NASDAQ:MSFT) during the fourth quarter of 2010, investing roughly $4.46 million. During Q1 2022, the hedge fund elevated its position in the company by 1%.
On May 23, Jefferies analyst Brent Thill decreased his price objective on Microsoft Corporation (NASDAQ:MSFT) from $400 to $325 while maintaining a Buy rating. Due to mounting economic headwinds and the approaching prospect of recession, Thill decreased his projections for the 28 software businesses he watches.
At the end of Q1 2022, 259 hedge funds tracked by Insider Monkey held stakes in Microsoft Corporation (NASDAQ:MSFT), down from 262 in the previous quarter. These stakes have a collective value of over $65.64 billion. Fisher Asset Management held the largest position in Microsoft Corporation (NASDAQ:MSFT) in Q1 2022, worth over $8.59 billion.
Here is what Motiwala Capital had to say about Microsoft Corporation (NASDAQ:MSFT) in its fourth-quarter 2021 investor letter:
“Microsoft (NASDAQ:MSFT) re-enters our portfolio after a long gap. MSFT sells enterprise and consumer software products as well as hardware products such as the Xbox video game console and Surface laptops. All business segments experienced double-digit revenue growth and earnings per share have compounded in the mid-double digits over the last 5 years. We believe MSFT continues this momentum in the years ahead.”
4. Philip Morris International Inc. (NYSE:PM)
Ariel Investments’ Stake Value: $344,868,000
Percentage of Ariel Investments’ 13F Portfolio: 3.05%
Number of Hedge Fund Holders: 55
Philip Morris International Inc. (NYSE:PM) is a holding corporation that produces and sells cigarettes, tobacco, and nicotine-based products. Philip Morris International Inc. (NYSE:PM) is the fourth-largest holding in the first quarter portfolio of John Rogers’ Ariel Investments. The hedge fund owned 3.67 million shares of Philip Morris International Inc. (NYSE:PM) in Q1 2022, worth $344.87 million, representing 3.05% of the total 13F portfolio.
At the end of Q1 2022, 55 hedge funds monitored by Insider Monkey were long Philip Morris International Inc. (NYSE:PM), up from 47 firms the previous quarter. The total stakes owned in the first quarter amounted to more than $6.64 billion, compared to $6.20 billion in the last quarter.
GQG Partners is Philip Morris International Inc. (NYSE:PM)’s largest shareholder, with shares worth $2.81 billion. On April 24, BofA analyst Lisa Lewandowski boosted her price objective on Philip Morris International Inc. (NYSE:PM) to $117 from $107 and retained a Buy rating on the stock. Despite the concerns, Philip Morris International Inc. (NYSE:PM) will shift its focus to other high-potential industries in 2022, according to the analyst, while coping with the temporary cost constraints of transferring manufacturing away from Russia.
Broyhill Asset Management mentioned Philip Morris International Inc. (NYSE:PM) in its Q2 2021 investor letter. Here is what the firm said:
“Philip Morris (PM) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 23%. We shared our thoughts on these regulations during the quarter, which are available here.
‘PM Valuation. PM is up ~ 15% YTD and would have the most to gain under a nicotine cap. A cap would likely accelerate conversion to iQOS, which is 100% incremental for PM (PM also has zero exposure to combustible cigarettes in the U.S. and licenses its IQOS product for MO to distribute domestically). As such, the decline in PM was much more muted, with the stock hitting new 52 week highs a day after the Biden headline, driven by yesterday’s earnings release. It didn’t take long for investors to shift their attention back to fundamentals and the fundamentals here are best in class. In short, results beat estimates across the board (a recurring theme here), and management raised guidance for the full year (another recurring theme). IQOS continued to deliver impressive growth, recording continued market share gains on the heels of continued user acquisition growth, up 1.5M to 19.1M total users. Importantly, IQOS now represents nearly 30% of PM net revenues (management expects “smoke-free” products to represent more than half of their business by 2025, which should make the ESG folks happy), which is driving top-line growth and margin expansion. Hard to believe that they have created a product with higher margins than combustible cigarettes!! We expect PM operating margins to increase by 100bps – 200bps annually as IQOS continues to gain share. The stock trades at ~ 15x today or 2/3 of the market’s multiple for a business likely to generate $35B in cash flow – or 25% of the market cap – in just the next three years. Over the last decade, shares have traded at an average multiple of 18x and within a range of ~ 14x – 22x (+/-1 standard deviation). The stock yields 5.1% at the current price, and we expect management to resume share purchases in the back half of this year.’”
3. Baidu, Inc. (NASDAQ:BIDU)
Ariel Investments’ Stake Value: $349,165,000
Percentage of Ariel Investments’ 13F Portfolio: 3.09%
Number of Hedge Fund Holders: 47
Baidu, Inc. (NASDAQ:BIDU) is a Chinese tech company specializing in internet-related services and products. Susquehanna analyst Shyam Patil maintained a Positive rating on Baidu, Inc. (NASDAQ:BIDU) and a price objective of $200 on May 31. While the analyst is concerned by the epidemic and China’s macroeconomic circumstances, his long-term outlook on the firm has not changed.
On May 5, Baidu, Inc. (NASDAQ:BIDU) posted earnings for the first quarter of 2022. The earnings per average diluted share (EPADS) came in at $1.77, beating market predictions by $0.94. In addition, the revenue for the first three months of 2022 was $4.48 billion, above the market estimates by $320 million.
According to Insider Monkey’s first-quarter database, 47 hedge funds were bullish on Baidu, Inc. (NASDAQ:BIDU), compared to 38 funds in the preceding quarter. John W. Rogers’ Ariel Investments held the most significant position in Baidu, Inc. (NASDAQ:BIDU), with 2.64 million shares worth about $349.17 million.
Ariel Investments, in its third-quarter 2021 investor letter, mentioned Baidu, Inc. (NASDAQ:BIDU). Here is what the fund said:
“When we have such a high level of conviction for a company it is not uncommon for us to own it in size across our portfolios. Such is the case with technology giant Baidu, whose leading search engine has been dubbed the “Google of China.” This quarter shares sold off in sympathy with the Chinese internet sector as investors were rattled by the government’s sweeping regulatory crackdown intended to promote “common prosperity” by easing wealth inequality. While we recognize the greater political risk of investing in emerging markets such as China and incorporate an appropriately higher risk premium in the discount rate in our valuation models, we believe Baidu’s business strategy is aligned with national policies and prioritize and is therefore not adversely impacted unlike some other players in the internet sector who are in the eye of the storm.
Indeed, the Chinese government recognizes Baidu’s large, upfront investments in many next-generation artificial intelligence (AI) technologies and hails it as a national champion. For example, the company’s Advanced Driving Support System (ADAS), Apollo, has twice as much data on miles driven than any other initiative in the world, giving Baidu (and China) a large lead in the global AI arms race. In addition, Baidu’s cloud offering touts highly differentiated Platform as a Service (PaaS) features and capabilities for a demanding enterprise customer base. While these initiatives are a temporary drag on margins and require long-term execution, their success will bolster China’s “dual circulation” strategy aimed at spurring domestic demand, innovation and self-reliance.” (Click here to see the full text)
2. Mattel, Inc. (NASDAQ:MAT)
Ariel Investments’ Stake Value: $393,539,000
Percentage of Ariel Investments’ 13F Portfolio: 3.49%
Number of Hedge Fund Holders: 38
Mattel, Inc. (NASDAQ:MAT) is a toy company that creates, manufactures, and sells its products worldwide. North America, International, and American Girl are the company’s segments. As per Insider Monkey’s database for Q1 2022, 38 hedge funds held stakes in Mattel, Inc. (NASDAQ:MAT), up from 29 in the previous quarter. These stakes hold a total value of roughly $1.32 billion.
Mattel, Inc. (NASDAQ:MAT) has been a part of Ariel Investments’ portfolio since the fourth quarter of 2010. The hedge fund initiated its position in the company with shares worth over $27.12 million. At the end of Q1 2022, the fund held a $393.54 million stake in Mattel, Inc. (NASDAQ:MAT), which accounted for 3.49% of John Rogers’ portfolio.
In its Q4 2021 investor letter, Longleaf Partners Fund mentioned Mattel, Inc. (NASDAQ:MAT). Here is what the fund said:
“Mattel (24%, 1.40%; 16%, 0.96%), the global toy and media company, was a strong contributor in the fourth quarter and for the year. Despite store closures in Asia causing -20% regional revenues during the third quarter, Mattel’s consolidated sales still grew 8% due to its strong North American recovery. Barbie sales remain impressive as they have been for years, American Girl is finally returning to growth and Fisher Price is also recovering. The company is successfully passing through inflated costs with higher pricing and without losing volume. Despite the impressive results, the stock trades too low at less than 14x forward earnings, and that is before Mattel begins to monetize its massive non-earning asset Intellectual Property portfolio. Our appraisal of the value grew by more than 30% this year.”
1. Madison Square Garden Entertainment Corp. (NYSE:MSGE)
Ariel Investments’ Stake Value: $506,371,000
Percentage of Ariel Investments’ 13F Portfolio: 4.49%
Number of Hedge Fund Holders: 14
Madison Square Garden Entertainment Corp. (NYSE:MSGE) is a holding corporation that owns and runs Madison Square Garden. The company is divided into two segments – Entertainment and Tao Group Hospitality. In the first quarter earnings published on May 9 by Madison Square Garden Entertainment Corp. (NYSE:MSGE), $460.13 million revenue jumped 114.7% YoY.
On April 21, JPMorgan analyst David Karnovsky lowered his price target for Madison Square Garden Entertainment Corp. (NYSE:MSGE) from $79 to $76 while maintaining a Neutral rating. While the firm is well-positioned for a concert market recovery, Karnovsky warned investors in a research note that there will be some obstacles in the next 6-12 months, including a possibly large rollout for MSG Network and additional Sphere launch/content expenses.
Ariel Investments was the largest shareholder of Madison Square Garden Entertainment Corp. (NYSE:MSGE) in Q1 2022, holding stakes worth over $506.37 million. Overall, 14 hedge funds in Insider Monkey’s database held stakes worth roughly $645.19 million in Madison Square Garden Entertainment Corp. (NYSE:MSGE) in the first quarter of 2022. In the previous quarter, 17 hedge funds held stakes in the New York-based company, valued at $546.63 million.
Baron Funds mentioned Madison Square Garden Entertainment Corp. (NYSE:MSGE) in its Q1 2022 investor letter. Here is what the fund said:
“We recently acquired shares in Madison Square Garden Entertainment Corp. (“MSGE”) at what we believe was a highly discounted average price of only $68 per share. From its peak of $121 per share in March 2021, the stock declined more than 40% due to setbacks in indoor live entertainment amid the COVID-19 resurgence and real estate construction delays. The company owns iconic sports and entertainment real estate venues such as Madison Square Garden, the Chicago Theater, and is building a new state-of-the-art venue in Las Vegas, the MSG Sphere at The Venetian (slated to open in 2023). In addition, MSGE has long-term leases at Radio City Music Hall and the Beacon Theatre, while also maintaining a controlling stake in restaurant group TAO.…” (Click here to see the full text)
You can also take a peek at 10 Stocks to Sell According to Jinghua Yan’s TwinBeech Capital and 10 Best Stocks to Buy Now According to Tom Gayner’s Markel Gayner Asset Management.
