Investing legend Peter Lynch once noted, “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.” He said that to suggest investors should ignore the noise that surrounds insider selling. Instead, focus on what they’re buying. That’s a much better indicator of where a stock might be heading.
Still, seeing what stocks the smart money is shedding from their portfolios is instructive. If a growth stock is suddenly being dumped by a lot of investors, it may mean it’s time to dig further into the stock. Here are three growth stocks investors are selling that you may want to take a harder look at.
Growth Stocks Investors Are Selling: Meta Platforms (META)
Shares of Facebook owner Meta Platforms (NASDAQ:META) are on a tear. The stock has surged almost 150% over the last six months. From the low point of $88 per share hit back in November, Meta stock is up over 225%.
It reported plans to take on Elon Musk’s Twitter with its own “sanely run” alternative, internally called Project 92, according to The Verge. It may end up with a public branding of Threads. Such talk has helped boost Meta’s stock by another 17% over the past month.
Not everyone, though, seems convinced Meta can keep the momentum going. Glenn Greenberg’s Brave Warrior Advisors, for example, completely sold out of its position in the Instagram, WhatsApp, and Facebook owners back in the first quarter. Of course, that means he lost out on 38% worth of appreciation since the end of March, but he wasn’t the only one.
Ruane Cuniff of Ruane, Cunniff & Goldfarb also trimmed his holdings, as did Arnold Van Den Berg of Van Den Berg Management.
Were they wrong to get out early? Certainly, the metaverse hadn’t panned out quite like Zuckerberg intended when he went all in and changed the company’s name. Yet artificial intelligence could boost Meta’s fortunes, and if digital advertising bounces back, that will improve the platform’s financial standing.
Meta trades at six times sales and 41 times the free cash flow it produces, pricey benchmarks indeed. Yet it also goes for less than 20 times next year’s earnings estimates and less than twice its projected earnings growth rate. That suggests that despite the rapid rise in Meta’s value, this is a growth stock investors are selling that still might be a good choice for you.
Apple (AAPL)
It’s well known that Apple (NASDAQ:AAPL) is Warren Buffett’s favorite stock. The tech giant represents almost 47% of Berkshire Hathaway‘s (NYSE:BRK-A, NYSE:BRK-B) total portfolio, and in the first quarter, the Oracle of Omaha was busy buying another 20 million shares.
But other billionaire investors were heading for the exits at the same time. In fact, over a half dozen top investing gurus saw Apple as a growth stock to avoid.
According to their management firm’s quarterly 13F filings, Ron Baron of Baron Funds, Dodge & Cox, Ken Fisher of Fisher Asset Management, Ken Griffin at Citadel Advisors, Jim Simons at Renaissance Technologies, and Jeff Yass at Susquehanna International were all net sellers of Apple stock.
There’s good reason to be cautious about the tech leader. With shares up 44% year to date, Apple trades at 33 times trailing earnings, 7.5 times sales, and 35 times free cash flow. And the sales juggernaut is slowing. It is expected Apple will suffer weaker iPhone 14 sales along with fewer Mac computers going out the door. Wall Street forecasts sales will drop more than 2% in the coming quarter.
Yet Apple’s future continues to be with services. Where product sales fell 4.5% last quarter, services rose 5.6%. The segment now accounts for 22% of total revenue. Moreover, Apple continues to reward shareholders by returning significant sums to them. It paid out almost $3.7 billion in dividends last quarter while repurchasing $19.2 billion worth of stock.
Apple often surprises Wall Street with its financial results, meaning I wouldn’t make this a growth stock investors should avoid either.
Tesla (TSLA)
Another growth stock investors are selling is Tesla (NASDAQ:TSLA), and here they may be on the right track. Despite the electric car maker’s stock more than doubling so far this year, the company is finding it more difficult to sell cars and has been resorting to slashing prices.
Tesla doubled its Model 3 discount, offered new discounts on its Model Y, and cut prices on the vehicles it sells internationally.
The discounts fly in the face of the strong demand talk Tesla provided at its Investor Day conference earlier this year. Although the drop in average selling price is relatively negligible at about $300 per car, the decline is indicative of a potential hit to profits in the future.
Ken Fisher sold out of Tesla stock in the first quarter, while billionaire investor George Soros cut his holdings by over 10%. Jefferies Group (NYSE:JEF) all but sold out of its position as well, selling off 99% of its holdings in the first quarter.
Tesla has a history of defying expectations, like Apple. As much as world governments are pushing the industry towards EVs, the infrastructure to support as many cars as they want on the roads is not there. And for all the green halos they wear, EVs also contribute to environmental harm.
From mining for minerals and metals needed to build them to rely upon fossil fuels to power the plants needed to charge them, EVs exact a heavy toll on nature. And though Tesla remains the leading EV maker, it faces a rising tide of stiff competition.
At 75 times earnings, nine times sales, and 138 times free cash flow, Tesla is an expensive growth stock to avoid.
On the date of publication, Rich Duprey did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
