5 Stocks Super Investors Are Betting On: A Deep Dive

Stock #1: Amazon (Ray Dalio)

Ray Dalio has significantly increased his holdings in Amazon, boosting his position by a staggering 152%, now owning 2.65 million shares. It's intriguing because, despite Amazon's massive scale and market dominance, the stock has been relatively flat over the last four years. Back in August 2020, Amazon was trading at an all-time high of $175, and today, it’s at around $180. For a $2 trillion company, that's a bit surprising.

What makes Amazon so compelling? They generate $48 billion in cash flow, even while spending heavily on capital expenditures to expand their network and improve their services. But there's a puzzle here—Amazon's gross margin is only 18%, which is lower than even Walmart. This seems odd given Amazon's scale, and it raises questions about how efficiently they're converting revenue into profit.

Despite these challenges, Amazon's AWS (Amazon Web Services) continues to dominate the cloud computing space, which is a high-margin business. But the majority of Amazon's revenue still comes from selling products, where they need to improve margins to increase gross profit.

When we analyze Amazon using our stock analyzer tool, the numbers suggest a wide range of potential outcomes. With assumptions of a 7% to 12% profit margin and a price-to-earnings ratio ranging from 20 to 26, the tool suggests a low price of $78, a high price of $360, and a middle price of $185. This reflects the uncertainty around Amazon's future profitability. While Ray Dalio clearly sees potential, I'm still cautious, finding Amazon too expensive at current levels.

Stock #2: Humana (Seth Klarman)

Seth Klarman has initiated a new position in Humana, one of the largest private health insurers in the U.S., focusing on Medicare Advantage plans. Klarman purchased 420,000 shares, currently valued at around $150 million.

Humana operates in a low-margin business with a profit margin of 1.53% over the last year and 3% over five years. Despite these thin margins, Humana's revenue has grown significantly—10-year growth of nearly 100% per year, 5-year growth of 133% per year, and 3-year growth of 12% per year. Notably, this growth appears to be organic rather than driven by acquisitions, which is a positive sign.

Humana's price-to-free-cash-flow ratio is currently 12.5, which is reasonable for an insurance company. However, insurance companies are tricky to value using traditional metrics like free cash flow. Instead, it's crucial to understand how they manage their "float"—the money they collect in premiums before paying out claims. Warren Buffett has famously used this strategy at Berkshire Hathaway to generate substantial returns.

If you're interested in Humana, it's worth diving deeper into the intricacies of insurance with someone knowledgeable in the field.

Stock #3: Nike (Bill Ackman)

Bill Ackman has started a position in Nike, purchasing 3 million shares. Full disclosure: I also own Nike, and I believe in its long-term potential. Nike's stock has seen a significant drop from its peak of $180 in November 2021 to about $84 now, with a recent low of $71 just two weeks ago.

Nike's price-to-free-cash-flow ratio is 19, which might seem high, but it's still Nike—a brand that commands a premium. The company boasts a return on invested capital of 20%, which is impressive, and it pays a 1.78% dividend. Despite recent stumbles, like the decision to return to selling through Foot Locker, Nike's direct-to-consumer strategy still holds promise for improving margins.

Analyzing Nike's stock, I used conservative estimates of 3% to 7% revenue growth and profit margins between 10% and 12%. Even with these modest assumptions, the stock analyzer tool suggests a low price of $61, a high price of $121, and a middle price of $87. At today's prices, that would yield about a 9.5% annual return, including dividends.

Stock #4: Thermo Fisher Scientific (Jeremy Grantham)

Jeremy Grantham has added Thermo Fisher Scientific to his portfolio, purchasing 426,000 shares. Thermo Fisher is a major player in the life sciences industry, selling scientific instruments, lab equipment, and diagnostic products across four key segments.

With a market cap of $235 billion and an enterprise value of $277 billion, Thermo Fisher is a behemoth. The company generated $8 billion in free cash flow last year, with a five-year average of $6.5 billion. However, its price-to-free-cash-flow ratio is high at 30, and its return on invested capital is relatively low.

Grantham may see short-term potential here, but the low return on invested capital is a red flag for long-term investors. The stock analyzer tool shows a wide range of possible outcomes, with a low price of $180, a high of $440, and a middle price of $285. This suggests that Thermo Fisher is a mixed bag—there’s potential, but also significant risk.

Stock #5: Tesla (Cathie Wood)

Cathie Wood, often dubbed "the wealth destroyer" by critics, has increased her position in Tesla by 2.6%. Tesla is her largest holding, and despite her ETF's poor performance over the last five years, she continues to bet heavily on the electric vehicle giant.

Tesla is a polarizing stock. On one hand, the company has revolutionized the automotive industry and is seeing massive revenue and profit growth. On the other hand, the stock is down 45% from its all-time high of $415 in November 2021, even as revenue and profits have doubled.

When analyzing Tesla, I used some extreme assumptions—revenue growth of 7% to 60% and profit margins from 8% to 35%. Even with these aggressive numbers, the stock analyzer tool suggests a wide range of outcomes, with a potential return of 11.7% under middle assumptions. However, the risk is substantial, and I still view Tesla primarily as a car company until it can generate the majority of its revenue from high-margin tech products.

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