Stan Druckenmiller saw the potential of the next wave of artificial intelligence very early on, taking a big position in Nvidia in Q4 2022. He also added Microsoft, which increased its investment in OpenAI, a leader in generative AI, in Q1 2023. Earlier this year, he began to see profits on his Nvidia investment, which he then used to invest some in Apple.
But Druckenmiller quickly changed his view on the world’s three largest companies. He sold shares in Nvidia, Apple and Microsoft in the second quarter, according to his latest 13F filing with the SEC. Instead, he’s focused on high-yield stocks whose shares could benefit from a Federal Reserve rate cut.
The Federal Reserve kicked off this easing cycle by cutting the federal funds rate by a quarter of a percentage point on Sept. 18. Markets expect two quarter-percentage-point cuts over the next three months, with further cuts in 2025. Here are three stocks that Druckenmiller is buying in anticipation of rate hikes:
1. Philip Morris
Druckenmiller bought 889,355 shares of Philip Morris stock during the second quarter. (NYSE: PM)and call options giving the right to buy an additional 963,000 shares. In total, the entire position was worth $187.7 million at the end of June.
Philip Morris is a global leader in a declining industry. Fewer young consumers are buying cigarettes as new generations are taught about the health risks of tobacco. But Philip Morris is committed to replacing cigarettes with smoke-free alternatives.
The tobacco company’s portfolio of smokeless products includes the popular heat stick brand Iqos and nicotine pouches Zyn. The company estimates that it currently has 36.5 million active customers for its smokeless products. The Iqos brand is scheduled to launch in the U.S. in the fourth quarter, which could further boost the company’s sales.
While Philip Morris is focused on the future of its nicotine products, it has been able to maintain cigarette sales thanks to its stable pricing power. Its market power, including brands such as Marlboro and Parliament, gives it strong pricing power that can offset declining sales.
The stock currently trades for about 17.5 times forward earnings and yields about 4.5%, a reasonable price for a company that can continue to grow earnings and dividends while navigating the current transition in its industry.
2. Kinder Morgan
Druckenmiller adds 2,872,665 shares of Kinder Morgan stock (NYSE: KMI) He added 3,880,500 new shares to his portfolio in the second quarter, following an additional 3,880,500 shares purchased in the first quarter. The billionaire’s total holdings were worth $134.2 million at the end of the second quarter.
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Kinder Morgan is responsible for transporting about 40% of the natural gas consumed in the United States, but its current growth driver is its liquefied natural gas (LNG) export facilities.
Management expects demand for natural gas to grow significantly between now and 2030. Liquefied natural gas exports could double during that time. Additionally, during the company’s second-quarter earnings call, Chairman Richard Kinder spoke about the potential for AI to drive energy demand.
As companies build more AI data centers, they will need to be powered, but renewable energy sources are not keeping up with demand. Training and running advanced AI models requires large amounts of energy, despite efforts by chipmakers to make their designs more power-efficient.
The company’s shares currently trade at an enterprise value of 12.2 times EBITDA (earnings before interest, taxes, depreciation, and amortization), yielding about 5.3%. That valuation is near the top of its peers, but for a company with a dominant position like Kinder, the price could be worth it. The company’s steady free cash flow growth should support its dividend for many years to come.
3. Central American Apartment Communities
Druckenmiller’s final big acquisition in the second quarter was MidAmerica Apartment Communities. (NYSE: MAA)He held 644,190 shares of the real estate investment trust (REIT) stock at the end of June, valued at $91.9 million.
MAA is focused on residential apartment complexes. It currently owns 103,600 apartment units across the Sunbelt. MAA focuses on markets with strong job growth, growing populations and high rates of household formation. This results in higher demand for housing, allowing MAA to increase rents at a faster pace than market.
As a REIT, the company can benefit from falling interest rates, which lowers the cost of debt and makes equity yields look more attractive relative to fixed-income investments. But MAA isn’t waiting for rates to fall before investing in the future; it has a $1 billion development pipeline.
The stock is trading at about 17.4 times its earnings from operations (FFO) per share, which is roughly in line with other residential real estate investment trusts. But investments in the future could lead to significantly higher rents and FFO. And since the stock currently yields about 3.6%, investors interested in diversifying their portfolios with REITs may find it worth a closer look.
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Adam Levy invests in Apple and Microsoft. The Motley Fool invests in and recommends Apple, Kinder Morgan, Microsoft, Mid-America Apartment Communities, and Nvidia. The Motley Fool recommends Philip Morris International and recommends buying Microsoft January 2026 $395 calls and selling Microsoft January 2026 $405 calls. The Motley Fool has a disclosure policy.
Billionaire Stan Druckenmiller is selling off Nvidia, Apple, and Microsoft and buying these high-yield stocks instead This was originally published by The Motley Fool.
