One top hedge fund recently revealed a new trade…
A $1 billion position in Netflix (NASDAQ: NFLX).
Pershing Square Holdings – a hedge fund led by Bill Ackman – announced its Netflix stake on January 26.
Ackman started scooping up NFLX stock after the stock plunged 20%. Within days, his firm owned 3.1 million shares – becoming one of the top 20 shareholders.
The hedge fund paid between $350 – $400 per share for NFLX. And today – you can jump into the #1 streaming stock for essentially the same price.
Why NFLX Stock Crashed 50%
During the January lows – NFLX traded as low as $330. That marked more than a 50% drop for the stock.
So, what’s behind the big move?
Netflix has benefitted as consumers have canceled cable and switched to streaming services. The company essentially created the streaming video business model.
However, its success has also encouraged other companies to begin offering streaming. That means Netflix is now competing against Amazon Prime, HBO Max, Disney Plus, and Hulu.
Netflix also saw subscriber growth surge during the pandemic – when many people stayed home. Now, that rapid growth is slowing down as the world begins to look more normal. As a result, the company’s sales are expected to grow by only 12% this year.
The company remains a dominant force. Yet its days of 25%+ annual growth may be in the rear-view mirror.
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Here’s Why Bill Ackman is BUYING the Netflix Dip
Ackman’s firm stepped up to aggressively buy NFLX stock immediately after the crash.
In a letter to investors – Ackman noted the many strong aspects of the Netflix business:
- Subscription business with recurring revenue
- High quality management team that basically put Blockbuster out of business, invented the streaming video business model, and became one of the greatest producers of original content
- Pricing power and the ability to raise prices by delivering incredible value for just $15 per month
It’s worth noting that NFLX stock traded at $386 per share in February 2020 – before the Covid pandemic really began in the U.S.
Shares rose as high as $700. And are now trading around $375 – BELOW the pre-pandemic price level.
During this time the company’s sales have grown by 50%. And the company’s margins have improved. Yet the stock is essentially trading at the same price level.
Value investors like Ackman love to step in and buy growth stocks that are trading at value prices. And he has a good track record of making these bets.
He’s betting that within a couple years NFLX stock will reclaim the $700 level. If that happens the trade will hand him a 100% gain.
That’s an attractive trade.
However, I prefer to jump into stocks like NFLX before they make a huge move.
That’s why I bought NFLX stock in 2011. At the time, the stock was at just $10.15 per share on a split adjusted basis.
Netflix was transitioning from DVDs to streaming video. And the company had just released its first original production called House of Cards.
My personal NFLX trade is up 3,594% – enough to turn $5k into $184,729.
The recent market selloff also presents a huge buying opportunity. One that we haven’t seen since March 2020.
That’s why I’m focused on uncovering the next-generation tech stock winners. And buying these stocks could be like jumping into Apple, Google, or Netflix 10+ years ago.
They’re called MACE stocks.
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Yours in Wealth,