3 high-octane stocks that billionaires are buying

Following the stock picks of famous investors can be a great way to find future winners. These investors generally have an excellent track record of exceeding market average returns, and because some of these professionals oversee billions of dollars in assets for their clients, they conduct extensive research before investing in a company.

Three Motley Fool report authors were asked to name the three high-octane stocks that billionaire investors favor and have recently been buying. Their types: Alibaba Group (WOMAN -1.62%), Kupang (CPNG -2.11%)AND Chipotle Mexican Grill (CMG 0.76%).

Fallen growth material that can come back to life

John Ballard (Alibaba): Alibaba shares are trading well above today’s high. Economic difficulties resulting from Covid-19-related issues weighed on consumer spending in China last year, significantly impacting Alibaba’s revenues as reflected in share price movements. But this once fast-growing e-commerce and cloud computing leader may soon have a change of heart.

One billionaire who has acquired a significant stake in the company is David Tepper of Appaloosa Management, whose fortune is estimated at $20 billion. Forbes. Tepper is a successful hedge fund manager, and his firm more than doubled its stake in Alibaba to $814 million in the first quarter.

While Alibaba doesn’t look like a high-octane stock right now, the ability to expand internationally through AliExpress’s cross-border retail business, in addition to meeting the growing demand for artificial intelligence (AI) services through Alibaba Cloud, could see the company’s revenue growth improve in the coming years.

Alibaba’s revenue rose 7% year-over-year in the quarter ended March, driven by market-leading online retail stores Taobao and Tmall. Strong demand for AI services on Alibaba Cloud has also been reported. These results show that the worst is behind the company. In its latest earnings report, management noted that improved shopping experiences on Taobao and Tmall should help the retail group return to healthy growth in fiscal 2025 (which ends in March 2025).

With the stock trading at a cheap forward price-to-earnings (P/E) ratio of 9.4, the stock could double in value if it approaches the mid-market P/E ratio of 21.

This e-commerce company takes all appropriate steps

Jeremy Bowman (Coupang): E-commerce represents one of the biggest growth opportunities in global business, and one of the more intriguing ways to gain exposure is through Coupang, a leading e-commerce operator in South Korea.

Coupang is growing rapidly, increasing its profit margins and borrowing freely using a proven playbook Amazon into the titan he is today. It is expanding into new businesses such as food delivery and video streaming, and recently acquired Farfetch, an online marketplace for luxury fashion. It is also investing in artificial intelligence technology that will help run warehouses using robots.

In Coupang’s most recent quarter, revenue increased 28% on a currency-neutral basis to $7.1 billion, and gross profit increased 36% to $1.9 billion, thanks in part to a recent price increase for its Prime-like Rocket Wow membership service.

Not surprisingly, the stock has caught the attention of some billionaire investors. Stanley Druckenmiller, founder of Duquesne Capital Management, a hedge fund that has delivered an average annual return of around 30% for nearly 30 years, considers Coupang the second-largest holding in his family office, after Microsoft.

Druckenmiler didn’t explain why he likes Coupang, but the stock’s combination of growth potential and a reasonable valuation is intriguing. The stock has a P/E of 33.

Other billionaires who bought Coupang in the first quarter included Marc Stad, whose Dragoneer Investment Group fund purchased nearly 2 million shares, and Millennium Management’s Israel Englander, who bought nearly 1 million shares.

Given the past success of e-commerce companies like Amazon and MercadoLibreand Coupang’s growth potential, improved profitability and reasonable valuation, it wouldn’t be surprising to see more billionaire investors buy Coupang stock in the coming quarters.

A perennial winner who can still become millionaires

Jennifer Saibil (Chipotle Mexican Grill): Chipotle has probably made several millionaires over its years on the stock exchange and has become a mainstay of billionaire Bill Ackman’s Pershing Square Capital stock portfolio.

Ackman did sell some shares in the first quarter, but this may have been done to rebalance the portfolio. Pershing Square only owns eight shares, and even after the sale, Chipotle’s stock rose from 18% to 20%.

While Ackman was selling, other billionaire investors were buying. For example, Ken Griffin of Citadel Investors bought 135,356 shares in the first quarter. Chipotle shares are up 35% this year and have posted solid gains for most of its time as a public company.

Investors love Chipotle, and for good reason. It consistently achieves double-digit percentage revenue growth, driven by strong comparable sales growth. Earnings per share (EPS) are consistently growing. This trend was evident in the first quarter, with sales up 14% year-over-year and comparable sales up 7%. EPS increased from $10.50 to $13.01.

Plus, there’s another reason why Chipotle stock has been hot this year. In March, the management board announced a 50-to-1 stock split, which will take place in June. Stock splits usually indicate that a company’s management team is confident in its future, and while they’re doing nothing to change the value of the underlying company, investors love them. Chipotle shares have been trading above $1,000 for some time, so this split has likely been delayed.

This fast casual chain is an all-weather winner and has even more growth ahead. Individual investors should join billionaires and add Chipotle stock to their portfolios.