2 Smart Stocks That Millionaires Are Buying

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The most recent round of 13-F forms has been filed with the SEC. These quarterly reports disclose the equity holdings of institutional investment firms, providing a degree of transparency for the financial community. Of course, it’s always wise to do your own research, but watching the pros can be a good way to get ideas.

With that in mind, here are two stocks that millionaire money managers bought during the second quarter.

Image source: Getty Images.

1. Adobe Systems

Cyrus Taraporevala, the CEO of State Street‘s asset management arm, added shares of Adobe Systems (NASDAQ:ADBE) to the company’s investment portfolio. This looks like a smart move. With a market cap of $318 billion, Adobe is one of the largest software companies in the world. Its product portfolio ranges from digital media to digital experience, providing tools that drive creativity, productivity, and customer engagement.

Starting with digital media, Adobe offers market-leading solutions for photo and video editing, cinematic special effects, and graphic art. The company also provides PDF tools like Acrobat and Adobe Sign, both of which replace paper-based processes with digital documents, helping clients cut related costs by up to 90%. Like the company’s creative software, its PDF platform has achieved widespread adoption, as 5 million organizations worldwide rely on Adobe Document Cloud.

In digital experience, Adobe’s software helps marketers collect and analyze data, manage content, and deliver a personalized customer experience across digital channels. Recently, Forrester Research recognized Adobe as the leading provider of enterprise marketing software, citing its use of artificial intelligence as a key differentiator. And Fast Company seconds that opinion, ranking Adobe as one of the 10 most innovative AI companies.

However, the most impressive thing about Adobe is its financial performance. Despite being nearly 40 years old, this tech company continues to deliver solid double-digit growth.

Metric

Q2 2016 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$5.3 billion

$14.4 billion

22%

Free cash flow

$1.6 billion

$6.6 billion

33%

Data source: YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Adobe also benefits from a healthy balance sheet, which currently boasts $5.8 billion in cash and short-term investments, compared to $4.1 billion in long-term debt. That financial stability means the company can weather downturns without issuing debt or equity, and it has plenty of cash on hand to capitalize on opportunities as they arise.

Here’s the big picture: Adobe puts its market opportunity at $147 billion by 2023, leaving substantial room for future growth. And given its many best-in-class products, I think this tech company will continue to reward shareholders over the long term.  

2. Mastercard

James Gorman, the CEO of Morgan Stanley, added shares of Mastercard (NYSE:MA) to the company’s holdings. No surprises here. Mastercard is the third-largest payments network in the world, capturing 24% of purchase transactions in 2020, according to The Nilson Report. And excluding the Asia-Pacific region, where UnionPay is the dominant player, Mastercard ranks No. 2 behind Visa.

As of the second quarter, the company had 2.9 billion cards in circulation, connecting consumers with millions of merchants worldwide. That scale is a tremendous advantage, making it all but impossible for a smaller card company to challenge Mastercard. Moreover, the resultant network effects have been a powerful growth driver. Consider it this way: With so many cards in circulation, merchants are essentially obligated to accept Mastercard, and as Mastercard earns acceptance at more locations, consumers are more likely to put a Mastercard in their pocket.

During the recent earnings call, management noted that domestic and cross-border spending is recovering as economies reopen, which helped the company deliver revenue of $4.5 billion, up 36% from the prior year. Management also noted that international travel was in the early stages of recovering, which could mean additional upside in the near term.

Looking further back, Mastercard’s financial performance, while somewhat muted by the pandemic, has still been solid over the last five years.

Metric

Q2 2016 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$10.2 billion

$16.6 billion

10%

Free cash flow

$4.1 billion

$7.0 billion

11%

Data source: YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Going forward, Mastercard places its addressable market at $235 trillion, the majority of which comes from account-based business-to-business expenditures. To that end, Mastercard Track facilitates payments between buyers and suppliers. During the second quarter, Mastercard continued to scale this product, adding new banks and software companies to the platform.

Here’s the big picture: Today, Mastercard has a market cap of $338 billion, but that doesn’t mean it can’t get bigger. Given its strong competitive position and massive opportunity, I think Mastercard could be a $1 trillion company a decade from now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.