3 stocks Temasek bought – Amazon, Robinhood and Nu

What happened?

The trades of large institutional investors are often tracked by retail investors. Some of you may even use this as an idea generation tool to think about what stocks to buy next. 

So we were very interested to look at Temasek’s latest 13F filing to see what major portfolio changes were made over the past quarter. 

Interestingly, Temasek increased its stake in Amazon to 3.15 million shares at 30 June 2022 from about 172k shares at 31 March. 

It also increased its stake in Robinhood to 91.5k from 10k, while taking a new stake in Nu Holdings at 1.44 million shares. 

Temasek also exited its stake in Starbucks and Salesforce in the second quarter of the year.

Let’s take a closer look at some of these names that Temasek bought. 

3 stocks Temasek is buying

#1 – Amazon (AMZN US)

Do not be misled by the losses that Amazon had incurred for the last 2 quarters. This was due largely to its investment in electric vehicle maker Rivian. 

The underlying performance of Amazon remains fairly resilient, supported by its growing AWS and advertising business. 

Its cloud infrastructure service, AWS, saw revenue growth of 33% in 2Q22, while operating profit increased by 36%.

For many people, Amazon is closely associated with its e-commerce business. After all, that’s the business that the company started with and has grown significantly over time. 

Its performance here has been quite mixed in the past quarter. While revenue in North America grew 10% year over year in 2Q22, the international segment saw a decline of 12%. 

When asked whether the high inflation has led to changes in consumer spending, CFO Brian Olsavsky said that “We have not seen anything yet. We saw demand increase during the quarter and we had a very strong June.”

This has led Amazon to give an optimistic view of its performane in the months ahead. It provided a guidance for sales in 3Q22 to be $125-130 billion, representing growth of 13-17%. 

Amazon’s share price has declined by about 13% in the past year (as of 16 August).

It reached a low of US$101 in 2Q22, before recovering back to above US$140 currently. This was after adjusting for its 20-for-1 stock split that was completed in June this year. 

At its current share price, Amazon is trading at a price-to-sales valuation multiple of 3x. 

#2 – Robinhood

The retail broker targeting first-time investors with commission-free trading and an easy to use app has seen a sharp fall in users as the stock trading boom has fizzled.

The number of active traders on its platform has declined to 14 million in 2Q22 from 21 million at its peak just a year ago. 

It only managed to add 100,000 new accounts in 2Q22, after adding 10 million accounts in 2021. 

With the fall in trading activity, Robinhood’s revenue fell by 44% YoY in 2Q22. 

On the other hand, Interactive Brokers and Charles Schwab saw revenue rising as they were able to bring in revenue stream from other businesses. 

To cope with the decline in its business activity, Robinhood said in August that it will be slashing 23% of its workforce. This represents the second time that Robinhood has laid off its employees this year. 

But not everyone is pessimistic on the prospects of Robinhood. In May, Sam Bankman-Fried (also known as SBF), the CEO of crypto exchange FTX, disclosed a 7.6% stake in Robinhood. 

Despite speculation that there might be a takeover bid for Robinhood, SBF has said that FTX is not looking to buy Robinhood outright. 

Robinhood’s CEO Vlad Tenev has also said that it is not looking to be acquired by another firm. 

#3 - Nu

If you’re not familiar with Nu, it’s probably time to sit up and take notice. 

Backed by Warren Buffett’s Berkshire Hathaway, Nu is a Brazilian digital bank which has disrupted the Latin American banking markets. Just like what Grab and Sea are trying to do in this part of the world. 

Nu boasts more than 65 million customers in its key markets of Brazil, Mexico and Columbia as of June 2022. This has been growing strongly with 5.7 million customers added in 2Q22 alone. 

One of the strengths of Nu is its very low operating costs, with the average cost to serve each active customer at only $0.80. 

Combined with its rapidly growing revenue, Nu managed to achieve profitability in its largest market, Brazil, in 2Q22.

Nu continues to grow rapidly in international markets. In Mexico, its second largest market, Nu’s customer base increased over 6x YoY to 2.7 million. It is now the leading issuer of new credit cards in the country. 

With the rapid growth, Temasek is not the only institutional investor buying more of Nu stock. 

Based on Softbank’s latest 13F filing, it purchased 22 million shares in Nu in 2Q22. 

Why should we care?

As we shared in our takeaways from the latest Temasek Review, Temasek is taking a more cautious outlook and expects more market declines. 

“Taking into account the reasonable likelihood of a recession in developed markets over the next year, we maintain a cautious investment stance while staying focused on constructing a resilient portfolio underpinned by the structural trends we have identified.” 

- Temasek Chief Investment Officer Rohit Sipahimalani.

Its increase in holdings in these companies – Amazon, Robinhood and Nu, could provide some ideas if we’re also looking to construct a resilient portfolio to ride on some of the structural trends identified. 

Some of these structural trends could be cloud adoption (Amazon), digital asset adoption (Robinhood), and widening access to financial services (Nu). 

After all, market corrections can potentially provide a good entry point for stocks which we believe will continue to grow sustainably in the long term.

That said, the 13-F filing only forms part of the full story, as it may not capture all of Temasek's investment strategies. It is also backward looking, and Temasek's positions might have changed since then. 

Hence, it is always good to perform your own due diligence before investing into a stock!

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