Whether you've just started to invest or are a pro at it, it's tempting to track what stocks the "smartest" minds on Wall Street have been buying and selling. One mistake investors often make, though, is to blindly emulate bigwigs' portfolios without realizing that not every stock fits their individual goals and risk perception. It's only after analyzing the stocks a little more deeply that you should make any investment decision.
These three Motley Fool contributors, for instance, picked three stocks that some of the smartest investors are buying to find out if they're worth your money. Here's what they have to say about GW Pharmaceuticals (NASDAQ: GWPH), Mastercard (NYSE: MA), and Disney (NYSE: DIS).
George Budwell (GW Pharmaceuticals): GW Pharmaceuticals has attracted numerous blue-chip investors and top fund managers alike over the past few years. However, this mid-cap biopharma stock might make a great pickup for retail folk as well.
What's the scoop? GW became the first company ever to bring a cannabis-based drug to market in the U.S. last year with its antiepileptic medication Epidiolex. The FDA green-lit Epidiolex in mid-2018 as a treatment for two childhood forms of epilepsy known as Dravet syndrome and Lennox-Gastaut syndrome. And since its launch, GW has been able to rapidly secure favorable reimbursement status for the drug with a number of top third-party payers in the United States. This broad insurance coverage, in kind, has helped Epidiolex's initial sales ramp up to far exceed expectations.
Image source: Getty Images.
The best might be yet to come, however. GW recently announced positive late-stage results for Epidiolex as a treatment for patients suffering from seizures stemming from a genetic disorder called tuberous sclerosis complex (TSC). The big deal is that TSC's commercial opportunity dwarfs that of Dravet syndrome and Lennox-Gastaut syndrome combined.
What's the key takeaway? Epidiolex now has a clear line of sight at generating more than $2 billion in annual sales with this latest clinical win. GW's stock, in turn, should have a lot more room to run. Underscoring this point, the biopharma's shares are trading at less than three times this peak sales forecast. That's an outright bargain for a biopharma stock, especially for one with a well-differentiated product on the market.
A long-term fintech play
Neha Chamaria (Mastercard): Mastercard has been a longtime favorite among Wall Street bigwigs, with even legendary investors like Warren Buffett and Joel Greenblatt owning the stock. Buffett's Berkshire Hathaway, for instance, has held shares of Mastercard for almost eight years now. To further give you an idea about how popular the stock is, consider that as many as 25 hedge funds added Mastercard shares to their portfolios in the last quarter of 2018.
So what's made Mastercard such a hit? Several factors, such as operating in a near-duopoly in the global payments processing industry with Visa, an asset-light business model, operating margins north of 50%, and steady growth in earnings and cash flows over the years.
Remarkably, a global trend underpins Mastercard's growth and investing thesis: the war on cash, or simply the consumer shift from cash to cashless modes of payments such as credit and debit cards and mobile wallets. So when financial institutions like banks issue a Mastercard-branded card, the company processes all transactions made with the card and earns fees for it.
In its most recent quarter, Mastercard clocked 13% growth in revenue and bagged several deals across the globe, including one each with Apple and T-Mobile. The quarter reflected Mastercard's aggression to expand its footprint into some of the fastest-growing regions in the world to exploit less-penetrated, high-potential markets. The company is also dabbling in various value-add products and services that should further complement growth. Investors who've owned Mastercard shares for a long period of time have minted a lot of money, and I won't be surprised to see the stock continue to hold a spot in the portfolios of some of the smartest minds out there for years to come.
An entertainment powerhouse
Rich Duprey (Disney): Interest in Disney stock is on the rise this year, as a number of big-name investors bought up shares of the entertainment giant in the first quarter of 2019. While the House of Mouse has returned around 20% on average since their purchase -- a nice payoff for moving into the stock at the right time, since Disney has traded sideways for a long while -- investors might still want to consider making a bet on it too.
We're moving into the summer months, which naturally will play well to Disney's theme parks, which account for the largest portion of its revenues. The parks, experiences, and products segment saw a 5% increase in revenues in the fiscal second quarter, as most components performed well. But Easter was moved into its fiscal third quarter, so that should boost results for Q3.
Although its media networks division saw flat revenues for the period, the segment that's almost as large as the theme parks has a couple of drivers that will really come into play later this year when its new Disney+ streaming video channel launches in November and the last installment in the Skywalker saga, Star Wars: The Rise of Skywalker, is released in December. This division should also benefit from the conclusion of the story line in Avengers: Endgame, which won critical and box office acclaim.
Disney's stock has pulled back about 5% from recent highs and trades at around 20 times trailing and estimated earnings, giving it a reasonable valuation for a company that still holds so much potential.
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George Budwell has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), Mastercard, Visa, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.