It has been a trying year on Wall Street. Whether you’ve been investing for a year or decades, you’ve probably been underwater since the start of 2022. That’s because the iconic Dow Jones Industrial Averagewidely followed S&P500and equity-driven growth Nasdaq Compound (NASDAQ INDEX: ^IXIC), have lost up to 19%, 24% and 34% of their value respectively since hitting their closing highs. This puts the S&P 500 and the Nasdaq firmly in a bear market.
However, steep declines in the broader market rarely, if ever, dissuade successful fund managers from putting the money to work. Ask Billionaire Ken Griffin of Citadel.
Griffin’s hedge fund had more than $50 billion in assets under management as of May 2022 and more than 11,000 positions at the end of the first quarter, according to Citadel’s Form 13F filing with the Securities and Exchange Commission. While diversity and hedging — Citadel regularly uses put and call options strategies as hedges on their positions — are keys to Griffin’s success, it’s worth noting that he and his team have piled into a number of leading stocks during the first quarter.
What follows are four stocks Ken Griffin bought hand in hand as the Nasdaq plunged.
Bank of America
The first well-known company Ken Griffin piled into as the stock market plunged was the money center giant Bank of America (NYSE: BAC). Although Citadel has held shares of BofA for more than a decade, the nearly 4.7 million shares purchased in the first quarter increased its stake by 149%, compared to the number of shares held at the end of 2021.
The most logical explanation behind this increase is Bank of America Interest Rate Sensitivity.
With US inflation hitting a 40-year high of 8.6% in May, the Federal Reserve had no choice but to be aggressive in raising interest rates. BofA happens to be the most sensitive to the interest rates of the big banks. When interest rates rise, it generates more net interest income on its outstanding floating rate loans.
According to the company’s first-quarter earnings presentation, a parallel shift of 100 basis points in the yield curve should generate $5.4 billion in additional net interest income year-over-year. The Fed has already moved 150 basis points, and we’re only halfway through 2022.
The other draw for Bank of America is its digitization efforts. Over the past three years, the number of active digital users has grown from 37 million to 42 million. Most importantly, the total sales made online or through a mobile app increased to 53% in the quarter ended March compared to 30% in the comparable quarter three years ago. Digital sales are significantly more profitable for banking stocks.
Ken Griffin and his investment team also used the Nasdaq bear market as an opportunity to strengthen the position of Citadel in a semiconductor solutions company Broadcom (NASDAQ:AVGO). Citadel bought more than 325,000 shares in the first quarter, which increased the Griffin Company’s stake by 212% compared to the end of 2021.
Although semiconductor stocks are cyclical and the winds of a possible recession are blowing, Broadcom offers a number of competitive advantages that likely prompted Griffin and his team to more than triple Citadel’s stake in the company.
For example, Broadcom’s biggest catalyst is the 5G wireless revolution. Telecom companies are investing billions of dollars to upgrade their wireless infrastructure to handle 5G speeds. This is great news for Broadcom, which provides 5G wireless chips and other accessories found in next-generation smartphones. Consumers and businesses that regularly replace their devices are expected to fuel Broadcom’s sales growth for years.
Griffin might also be excited about Broadcom’s operating cash flow transparency. This is a company that ended 2021 with a record backlog of $14.9 billionand was logging orders through 2023. Even a short-term recession won’t be enough to slow Broadcom’s steady growth in sales and earnings.
Although its market capitalization is nowhere near as large as the other companies on this list, Ken Griffin bought shares of the data storage solutions company western digital (NASDAQ: WDC) put the fist back in the first quarter. In total, Citadel purchased nearly 1.67 million shares of Western Digital, which increased its sequential quarterly stake in the company by approximately 2,350%!
Like BofA and Broadcom, Western Digital is a cyclical business. When recessions hit, it usually struggles. To add to that, Western Digital and its peers have historically oversupplied the data storage market when their pricing power improves.
What might have puzzled Ken Griffin and Citadel’s major investors were the ongoing global supply chain issues. While supply chain shortages and historically high inflation are hurting most businesses, it’s virtually guaranteed that Western Digital and other data storage vendors can’t flood the market with their products. This is support both demand and price for storage solutions at a time when Western Digital is trading at a microscopic 5 times Wall Street’s forecast earnings for 2023.
Additionally, Western Digital appears to be in the driver’s seat for capitalize on the growing demand from data centers, especially in the wake of the pandemic. For years, enterprise hard drives (HDDs) have been a staple of data centers. However, SSDs using NAND flash memory are more than likely the future. NAND memory offers greater storage capacity and is less expensive than traditional hard drives.
The fourth billionaire stockbroker Ken Griffin piled his hand on his fist as the Nasdaq plunged into a do-it-yourself home improvement chain Home deposit (NYSE:HD). The more than 902,000 shares purchased in the first quarter increased Citadel’s stake in the company by 426% from the fourth consecutive quarter.
Griffin’s fascination with Home Depot was likely related to the fact that the housing market held up particularly well in adverse economic conditions in the first quarter. It should be noted that mortgage rates have increased significantly over the past three months, which has started to cool the price of new and existing homes for sale.
However, Home Depot can be smart play in virtually any environment. For example, it benefited from years of strong demand from contractors as house prices climbed and lending rates remained near historic lows. With mortgage rates currently rising, Home Depot can refocus its attention on homeowners who are likely to stay put and renovate. We saw Home Depot make this same pivot during the Great Recession.
It is also a company that makes significant investments in digitization. Although its brick-and-mortar stores are expected to continue to generate the lion’s share of its revenue, Home Depot announced an $11 billion investment in digital initiatives in 2017. The investments made are designed to integrate the online and in-store experience for buyers, as well as improving the transparency of its available inventory. Ultimately, this digital push should see Home Depot beat Wall Street’s growth expectations.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America and Western Digital. The Motley Fool fills positions and recommends Home Depot. The Motley Fool recommends Broadcom Ltd. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.