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Watching what the smart money is buying can be a useful investment strategy. While blindly following anyone, whether a billionaire investor or some guy writing on the internet, is never a good idea, using the companies investing gurus buy as a launch pad for your own analysis can be profitable.
That's because investors, rich or or not, rarely agree. Where one sees a potential gold mine, another views the stock as fool's gold. But sometimes, the stars align and a consensus forms behind a stock that all seem to agree is a unique opportunity.
That recently happened when more than two dozen millionaire and billionaire investors all piled into one stock. When that happens, it may be a signal to small investors that they should also take notice.
Earlier this year, medical products supplier Solventum (NYSE:SOLV) was spun off from industrial conglomerate 3M ( NYSE:MMM ) and 26 different hedge fund managers stormed in to buy the stock.
Some were relatively small positions, such as the $248,000 position opened by Mario Gabelli at Gamco Investors . Others, like BlackRock 's ( NYSE:BLK ) position worth more than half a billion dollars were substantial. But the average of the 26 super investors was over $68 million.
Key Points About This Article:
- Following the stock moves of billionaire investors is a good way to narrow down the universe of stocks to consider, so long as you don't blindly follow their lead.
- One stock that has over two dozen investing gurus excited is healthcare company Solventum (SOLV), a recent spinoff from industrial conglomerate 3M ( MMM ).
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report . It features a software stock we’re confident has 10X potential.
A business aligned for growth
It's probably not surprising these millionaires and billionaires wanted in on Solventum. 3M has been in decline for a number of years, saddled with mounting legal liabilities including for so-called "forever chemicals" and faulty earplugs for the military. It is a named defendant in over 6,200 cases. But the healthcare stock was the company's growth vehicle.
It generated some $8.2 billion in revenue for 3M in 2023, up 1% year-over-year, but 56% of which came from its MedSurg division, which makes advanced wound care products and surgical solutions, such as sterilization products, surgical drapes, and antiseptics. Dental products and healthcare information systems each contributed another 16% to the total. Purification and filtration products make up the rest.
Solventum is targeting a total addressable market worth $93 billion that is growing at 4% to 6% a year. So we're not talking about a semiconductor stock that is expected to double in size every few years, but as a mature player that's been in business for over 70 years, Solventum is looking forward to sure, stable growth.
Off to a slow start
3M completed the spinoff on April 1 and SOLV stock immediately turned south. It began trading at $69 a share, but tumbled over the next few months down to a low of $47 a share, a loss of almost a third of its value.
That, obviously, did not deter the asset managers who were stepping in to buy up the stock. Undoubtedly they saw the challenges it faced, but were still buying in.
When 3M made the separation, it saddled the medical products supplier with $8.3 billion in long-term debt and another $1.8 billion in debt due within one year. Management, though, says it is focused on paying down that figure over the next 24 months.
While 3M was a Dividend King with over 50 years of raising its dividend before slashing it in half earlier this year, the debt load suggests we won't see a dividend from Solventum for some time.
Still, things are changing for the better.
Picking up speed
While the stock still remains below its post-spinoff offer price, SOLV stock is up 46% from its lows. Organic sales rose 1.3% in the second quarter to $2.08 billion while adjusted operating income of $430 million produced margins of almost 21%. Adjusted earnings of $1.56 per share helped fuel the stock's growth.
Solventum also raised its full-year guidance. Where it had previously forecast flat to a 2% decline in sales, it now expects revenue to rise as much as 1% from last year. Adjusted EPS of $6.30 to $6.50 is well ahead of its prior outlook of $6.10 to $6.40 per share. Management still anticipates producing between $700 million and $800 million in free cash flow.
The healthcare company looks to be a slow, but steady growth stock . As it extricates itself from the costs of the spinoff, minimizes its debt, and can now fully target its market, Solventum is a stock for all investors to consider, not just the monied class.
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