It’s more than worthwhile to keep up with what the big money is doing of late. While riding on the coattails of an investing legend may not lead to outperformance in any given year, it can be a subtle sign as to where relative value can be found, regardless of the type of market environment we find ourselves in. Undoubtedly, stocks have gotten quite expensive over the past year, with price-to-earnings (P/E) ratios continuing to swell. Still, billionaire investors and hedge fund managers haven’t been exclusively hitting the sell button.
They’ve been doing some buying, and in some corners, you wouldn’t think to look. Undoubtedly, the Magnificent Seven trade has been what’s worked of late. But as the names begin to consolidate a bit, it may be worth broadening one’s horizons should a new slate of winners supercharge the S&P 500 to gains in 2025.
In this piece, we’ll look into the case of a big-name money manager who recently sold shares of Meta Platforms (NASDAQ:META | META Price Prediction) in the third quarter while picking up shares of a battered value stock that’s been very difficult for many investors to like of late.
Meta Platforms stock has been hot of late. It’s a great time to book some profits.
Dan Loeb, hedge fund manager at Third Point, was quite active in the past year. In the third quarter, Loeb reportedly sold a sizeable chunk of his fund’s position in Meta Platforms (just north of 550,000 shares). Indeed, that’s quite a bit of profit-taking from one of the legends on Wall Street in a name that’s surged over 350% in just two years.
At 29.1 times trailing price-to-earnings (P/E), shares do seem to be getting a bit on the expensive side, even as recent AI tailwinds prove to be worth paying up for.
As Meta moves ahead with what Mark Zuckerberg — a man who’s also sold META shares of late — believes will be an “intense” year for the company as he aims to cut 5% of low-performing employees, it will be interesting to see how the stock responds. Given the higher odds of a market-wide correction and heftier expectations ahead, I’d argue it’s only prudent to consider taking some profit from the name at north of $600 per share.
CVS stock: A Third Point value buy that looks very interesting.
Though I still like Meta, there may be cheaper options on the market worth pouncing on. For the third quarter, Loeb picked up shares of a few much-cheaper stocks. The pick-up that I find most intriguing is the long-time underperforming healthcare firm CVS (NYSE:CVS), which has been under severe pressure since 2022.
Reportedly, Third Point picked up 1,575,000 shares in the third quarter in what was a big vote of confidence for a name whose shares are down around 54% from all-time highs. Indeed, after enduring such a colossal downside, it’s not hard to imagine numerous other deep-value hunters are looking to the name as a comeback play of sorts.
The stock trades at a mere 8.2 times forward P/E to go with a 5.2% dividend yield at current prices, making it one of the cheapest blue-chip dividend plays in an arguably lofty market. Are there headwinds for CVS to power through this year?
Most definitely. Retail chain closures, recent executive shifts, and operating challenges have all added uncertainty to the name of late. Still, one has to think that most of such unknowns are already baked into the dirt-cheap stock.
The bottom line
If CVS’s new leadership can help the firm turn a tide, perhaps its shares could be in a spot to impress in this new year. At the time of writing, TD Cowen analyst Charles Rhyee boasts a street-high price target of $80.00 per share, which entails 53% upside.
Though it’ll take a lot of effort for the firm to course correct, I do like the depressed price of admission. With some big names betting on the name (and taking profits off other winners), perhaps retail investors may be inclined to take a closer look.
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