3 Phenomenal Growth Stocks Down 82% to 94% That Billionaires Can’t Stop Buying
Whether you’ve been investing for decades or are relatively new to the investing landscape, 2022 has been a challenge. The very followed S&P500 produced its worst first-half performance in more than 50 years. Meanwhile, growth driven Nasdaq Compoundwhich was largely responsible for pulling the broader market out of the coronavirus pandemic doldrums, entered a bear market and lost up to 34% in value since hitting an all-time high in November .
There’s no doubt that bear markets can test investors’ resolve and, in some cases, send people rushing to the sidelines. But that has not been the case for billionaire fund managers.
According to 13F filings with the Securities and Exchange Commission, some of Wall Street’s brightest billionaire investors were actively buying stocks as the S&P 500 and Nasdaq plunged into a bear market during the second quarter. In particular, billionaires have flocked to some of the most beaten growth stocks.
What follows are three phenomenal growth stocks down 82% to 94% that some billionaires can’t help but buy.
Rivian Automotive: down 82% from its record level
The first outstanding growth stock that has been reduced to a pulp, but is still very popular among billionaire investors, is the electric vehicle (EV) maker Rivian Automotive (RIVN 0.62%). Shares of Rivian ended last week 82% below the intraday high set shortly after its IPO last November.
The billionaire looking to cash in on Rivian’s short-term downfall is none other than Jim Simons of Renaissance Technologies. During the second quarter, Simons initiated a position of nearly 1.92 million shares in Rivian which was worth about $49.3 million, as of June 30.
The “why” behind this purchase is simple to understand: electric vehicles are the future, and almost every developed country in the world is pushing their commercial and consumer use. But what makes Rivian stand out is the large order he landed from the e-commerce giant Amazonas well as its niche product.
Long before becoming a public company, Rivian validated itself by landing an order for 100,000 electric delivery vans from Amazon. Although Amazon has more than enough capital to spend, it wouldn’t have placed such a huge order if it hadn’t believed in the technology and design that Rivian offers. The assumption here is that Amazon’s order will fuel cash flow and adoption of corporate electric vehicles in the future.
Rivian also has a solid chance to differentiate itself with its R1T pickup and R1S SUV. In particular, the R1T is a premium design that still allows truck enthusiasts to go off-road. It is beaten by the first manufacturer of electric vehicles You’re here to production, and has no significant competition in the luxury category from traditional automakers in the United States.
But Rivian’s expansion is going to be costly. The company is spending $5 billion on a manufacturing plant in Georgia that won’t even begin production for two years. Additionally, the COVID-19 pandemic is hampering the supply of semiconductor chips and general parts. The result: Rivian’s projected production of 25,000 electric vehicles in 2022 is well below what Wall Street had originally forecast. If Rivian’s production and sales fail to impress, its premium valuation could be hit even harder.
Palantir Technologies: down 83% from its all-time high
The second phenomenal growth stock that has been taken down, but remains a favorite target of billionaire fund managers, is the data mining company Palantir Technologies (PLT -1.64%). Since hitting an all-time high of $45 in January 2021, Palantir shares are down 83%.
Although the stock lost tens of billions of dollars in market value, two billionaires aggressively bought shares of Palantir. The aforementioned Renaissance Technologies’ Simons more than doubled its fund’s stake to 28.2 million shares during the second quarter, while Israel Englander’s Millennium Management opened a position of nearly 1.9 million. shares.
The buzz around Palantir is likely related to its unique operating model. The company primarily relies on two key platforms: Gotham and Foundry. Gotham is an artificial intelligence (AI)-based solution that helps federal governments collect data and oversee missions. Foundry is an enterprise-focused software solution designed to help businesses better understand their data. Although there are competitors to elements of what Palantir offers as a business, there is no direct competitor that is on the same scale as Palantir.
For years, Gotham has been Palantir’s primary revenue driver. Winning big contracts (mostly from the US government) that span four years or more has helped her maintain a revenue growth rate of 30% or more. However, Gotham’s cap is limited in the sense that not all world governments are suitable as clients (for example, management would not approve of China using Gotham). This means that Foundry is the company’s long-term golden ticket.
In the past year, which ended June 30, Palantir saw its number of commercial customers increase by 250% to 119. With only 119 enterprise customers, it’s clear that Foundry is only scratching the surface. surface regarding its potential.
But keep in mind that Palantir is still three years away from recurring profitability, based on CEO Alex Karp’s comments during the company’s most recent conference call with analysts. Without earnings, the Palantir share price could remain volatile in an uncertain economic environment.
Upstart Holdings: down 94% from its all-time high
The third and latest phenomenal growth stock billionaire can’t stop buying is a cloud-based lending platform Assets received (UPST 1.23%). Upstart is today’s disaster on this list, dropping 94% from peak to trough in just over 10 months.
But even a 94% beating can’t scare billionaire Philippe Laffont of Coatue Management. Laffont’s fund initiated a position of 2.36 million shares during the second quarter, making Upstart one of Coatue’s top 30 holdings.
What makes Upstart such an intriguing investment is the company’s reliance on AI for its cloud-based lending platform. While the traditional loan verification process can take weeks, nearly three quarters of all Upstart loans are approved fully automated. This is much more convenient for consumers and significantly reduces costs for credit institutions.
But it’s not just about speeding up loan approvals for Upstart. It is about expanding opportunities for a larger portion of the population. People approved for loans approved by Upstart had lower average credit scores than the traditional loan approval process. Yet in virtually every case, Upstart endorsements resulted in similar delinquency rates as the traditional process. This means that Upstart can bring banks and credit unions more loan applicants without increasing their credit risk.
Additionally, Upstart has an exceptionally long track to expand its solutions. With the acquisition of Prodigy Software last year, it has only recently begun to dabble in the auto loan origination space. Between car loans and small business loans, Upstart’s addressable market is now more than 10 times larger than personal loans.
However, Upstart has not proven itself during a real downturn in the US economy, such as under current conditions. As the Federal Reserve rapidly raises interest rates to curb historically high inflation, it’s unclear how much the delinquency rate of loans approved by Upstart will rise. What is clear is that financial institutions have become much more picky about taking out new loans in the current environment. Although Upstart appears to have the tools to succeed in long-term economic expansions, the next two quarters could be tough.