We recently compiled a list of the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb and in this article we will discuss the activist investor’s position in Meta Platforms, Inc. (NASDAQ:META).
Billionaire investor Dan Loeb’s hedge fund Third Point had a strong start to 2024 after its offshore fund posted returns of 7.8% in the first quarter chugging along with the broader market’s 10.6% gain. AI has been one of his top investing themes for some time now and the activist shareholder maintains his bullish view on the technology. In the first quarter, he initiated a position in Alphabet and also increased his position in Amazon by 22% to about $920 million.
Loeb Thinks Vistra’s Capital Allocation Strategy is “Brilliant”
Loeb’s also bullish on the energy transition and one of his favorite stocks that is expected to benefit from the AI-driven electricity demand is Vistra, one of the largest independent power producers and retail electricity providers in the US. Though Vistra’s core markets have experienced volatility due to weak domestic electricity demand, the power company’s “capital allocation strategy has been brilliant”, he stated in his Q1 2024 letter to shareholders, seen by Insider Monkey. In the weak demand environment for fossil fuels, Vistra made smart moves by shutting down its unprofitable coal plants and instead buying back 33% of its shares between 2018 and 2023. Additionally, its acquisition of nuclear generation assets of Ohio-based energy company, Energy Harbor, was right on time as governments are turning to nuclear fuel sources to meet the world’s growing energy demands. Loeb expects Vistra to be a direct beneficiary of AI-driven electricity demand and is bullish on the company’s unique position of holding both renewable and fossil fuel-based assets under its belt.
Loeb’s Bullish on LSEG, and For Good Reason
Another AI play Loeb is increasingly bullish on is UK-based stock exchange and financial data company London Stock Exchange Group. The activist investor likes the company’s unique market position as a data provider that is democratizing and making financial data accessible to consumers without the use of additional third-party software. He sees London Stock Exchange Group benefitting from generative AI as information retrieval systems in financial services become more powerful. He also expects the company to develop “a powerful Research Assistant application” with Microsoft to reduce both human resources and time needed to process financial data. He thinks London Stock Exchange Group is at the forefront of capitalizing on the transition of the financial services industry “from manual data processing via clunky desktop terminals to machine-assisted data processing”.
Our Methodology
We scanned Third Point’s Q1 portfolio and picked growth stocks from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Note: All pricing data is as of June 6.
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Is Meta the Best Growth Stock to Buy According to Dan Loeb?
Meta Platforms, Inc. (NASDAQ:META)
Third Point’s Stake Value: $600,176,880
Number of Hedge Fund Holders: 246
Loeb upped his stakes in Meta Platforms, Inc. (NASDAQ:META) by 7% in Q1 2024, ending the quarter with a position of over $600 million. In total, 246 hedge funds were bullish on Meta Platforms, Inc. (NASDAQ:META) and ended the quarter with positions worth $47 billion. Meta Platforms, Inc. (NASDAQ:META) is one of Dan Loeb’s top growth stock picks.
Meta Platforms, Inc. (NASDAQ:META) is seeing robust ad revenue growth. Its Family of Apps (Facebook, Instagram, WhatsApp and Messenger) generated ad revenue of $35.6 billion, up 27% year over year, and about 3.2 billion people use one of its apps each day. However, the company’s AR/VR business Reality Labs keeps bleeding cash and logged losses of $3.85 billion in Q1. Management said its AR/VR business is supporting its AI initiatives and it continues to be optimistic about the future of the metaverse and mixed-reality ecosystem. The company is sticking to its strategy of collaborating with eyewear brands such as EssilorLuxottica to build virtual and mixed reality headsets to boost its market share. Meta is also making progress on the AI front and successfully rolled out its AI assistant Meta AI and is currently in the process of training Meta Llama 3, a 400-billion+ parameter large language model. What’s interesting about Meta’s two long-term focus areas is the fusion of AI and mixed reality. While still in its infancy, the metaverse concept shows more promise with the addition of AI to it. Meta is integrating AI functionalities into its smart glasses which will give users access to real-time information related to their surroundings.
Meta Platforms, Inc. (NASDAQ:META) also raised its capital expenditures guidance for 2024, saying it expects CapEx to range between $35 billion and $40 billion, up from its prior guidance of $30 billion to $37 billion. The group is investing heavily in infrastructure and AI, and is reportedly working on its own in-house AI chips. By developing its own AI chips, Meta can gain a competitive advantage in the market, reducing its reliance on external providers and improving the performance of its AI applications.
Why should growth investors consider Meta Platforms, Inc. (NASDAQ:META)? The company has grown at double digits consistently over the past 10 years, growing its revenue by a CAGR of 32% and net income by 37.3%. The company has also started paying dividends and exited Q1 2024 with $16 billion in capital returns through dividends and buybacks. In a world where cash is king, Meta doesn’t lose. The company has grown its free cash flow by a compound annual growth rate of 23% over the past 10 years. In 2023, Meta’s net income was $39 billion and it ended the year with a free cash flow of $44 billion, its FCF to net income ratio is 113%. Meta is an extremely profitable company that is pioneering disruptive technologies and with its strong near-monopoly position in social media and digital advertising, we think it’s a good idea while it trades at 24.5 times its forward earnings, close to its 5-year average multiple of 23.7x.
Meta Platforms, Inc. (NASDAQ:META) ranks 3rd on our list. To discover Dan Loeb’s top growth stock picks, check out our free report on of the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb. While we acknowledge the potential of META as an AI play, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.
