4. Alibaba Group Holding Limited (NYSE: BABA)
The Chinese largest e-commerce platform Alibaba Group Holding Limited (NYSE: BABA) is a member of Fisher Asset Management’s portfolio since the second quarter of 2015. At the end of the first quarter of 2021, Alibaba weighted for 2.22% of the overall Ken Fisher portfolio. Shares of Alibaba remained under pressure over the past two quarters due to regulatory issues. Besides that, Alibaba generated robust revenue growth in the previous quarter. This is clearly reflecting from its March quarter revenue growth of 81% from the year-ago period.
Polen Capital, an investment management firm, highlighted a few stocks including Alibaba Group Holding in an investor letter. Here is what Polen Capital stated:
“In the case of Alibaba, two significant news events impacted the company’s shares in the last few months of 2020. First, the Chinese government intervened to halt–for an undetermined period of time–Ant Group’s IPO. Alibaba owns 33% of Ant Group, and Ant Group’s “Alipay” application facilitates financing and payments around the Alibaba ecosystem. Second, rumors of Chinese regulatory oversight in the internet space were solidified at the end of 2020 when China’s State Administration for Market Regulation announced an investigation under the nation’s AntiMonopoly Law. In combination, these events contributed to a selloff in BABA shares that resulted in a roughly 30% decline from highs in late October 2020.
We view Alibaba as arguably one of the most dominant businesses in the world.
We believe the company is also playing an integral role in China’s ambitions to reorient its economy from one that is export-driven to one that is domestically consumption-driven. Alibaba’s marketplaces—TaoBao and Tmall—in combination with its logistics capabilities may well provide the most efficient way to purchase and receive goods in many of China’s lower-tier cities. Important to the investment case, Alibaba’s core commerce business continues to compound at high rates while enjoying low total addressable market penetration and multiple competitive advantages, not the least of which consist of two-sided network effects between merchants and consumers. At approximately 19x next twelve month’s earnings, we think Alibaba will provide a favorable investment outcome even if it must pay fines or modify some business practices. We continue to expect earnings growth in excess of 20% over the next three to five years. Even if earnings growth were to fall to 15%, we think it would still result in a favorable outcome at the price at which we added to the position.”
3. Alphabet Inc. (NASDAQ: GOOGL)
The share price of Alphabet Inc. (NASDAQ: GOOGL) saw significant gains this year amid prospects for higher ad revenue due to the resumption of tourism and travel activities. In the first quarter, its revenue grew 34% year over year, with expectations for a further boost in the second half of the year.
Artisan Partners, a high value-added investment management firm, expressed confidence in Alphabet’s future prospects. Here is what Artisan Partners stated:
“Large-cap tech companies have been resilient through the pandemic—Alphabet among them. A top contributor, Alphabet’s Play Store and Google Cloud are in demand as businesses accelerate online activity which, along with strong YouTube user growth, is helping stabilize temporarily weaker search ad revenue trends. Through the lens of our disciplined bottom-up research process, we view Alphabet as one of the best businesses in the world, capable of expanding revenues at a rapid rate for years to come, with a bullet proof balance sheet and an average asking price. It’s a name we’ve owned since 2012 and for which we continue to have high hopes regarding future prospects.”
2. Amazon.com, Inc. (NASDAQ: AMZN)
The world’s largest e-commerce platform Amazon.com, Inc. (NASDAQ: AMZN) is among billionaire Ken Fisher’s favorite stocks. His hedge fund held a $5.61 billion worth of stake in Amazon.com at the end of the first quarter, accounting for 3.96% of the overall portfolio. The shares of Amazon have been under pressure since the beginning of this year due to investors’ concerns over the post-pandemic trends. However, the company still manages to sustain the upward trend, with year-over-year first-quarter revenue growth of 43%.
In the first quarter investor letter, Polen Capital highlighted the confidence in Amazon. Here is what Hayden Capital stated:
“We purchased Amazon in February 2021, which accounts for 5% of the Portfolio’s weighting. For most of the last decade, Amazon did not meet our guardrails. We also did not have enough visibility into future free cash flow margins to indicate that the company would sustainably meet our guardrails and, relatedly, if valuation supported the double-digit annualized returns we seek. We now believe we have that visibility.
In 2008, almost all of Amazon’s revenue and operating profits came from its e-commerce business. Amazon Prime and Amazon Web Services (AWS) were new and relatively small back then. The company had roughly 5% operating profit margins overall, entirely from the e-commerce business. In 2009, the company began harvesting its retail business profits to accelerate investment in its distribution and logistics infrastructure globally and very heavily build out and scale AWS data centers. The company’s return on equity began to decline at that time and turned negative for three full years from mid-2012 to mid-2015 (margins and free cash flow declined similarly). So, beginning in 2010 and continuing to mid-2018, Amazon’s business was outside our guardrails. We chose to stick to our guardrails and not own Amazon.
Amazon’s profit drivers have changed quite dramatically over the years. Starting in the back half of 2018, Amazon came back above our hurdles. Revenue generation overcame ongoing heavy investments in areas such as delivery infrastructure, data center infrastructure, and shipping.
Our research suggests that today, after considering cost allocation, Amazon’s underlying profit drivers from higher-margin AWS and Advertising could grow much faster than its low-margin e-commerce business (excluding Prime), its historical driver of revenues and operating profits.
Amazon Prime, AWS, and Advertising together account for only about 20% of revenue today, but we believe over 150% of operating profits. Looking forward, growth higher-margin businesses means Amazon’s total margins and profit dollars could rise quite dramatically.
It is important to note that Amazon proved to be an exception to our guardrails. Based on our experience, very few companies that remain outside our guardrails for an extended period operate from a position of competitive strength but rather, from a position of competitive pressure. Today, we feel we have better visibility into the future earnings growth and margins from AWS and Advertising and believe these could drive 30%+ annual earnings growth for the next five years. Even with significant P/E multiple compression, we would still expect double-digit investment returns.”
1. Apple Inc. (NASDAQ: AAPL)
The technology company Apple Inc. (NASDAQ: AAPL) is Fisher Asset Management’s largest stock holding, accounting for 5.40% of the overall portfolio. Following a stunning rally last year, Apple stock price has been struggling to trade in the green this year. Nevertheless, strong revenue growth will back its share price in the days ahead. The company generated 53% year-over-year revenue growth in the March quarter.
Distillate Capital, an investment management firm, believes Apple stock is undervalued based on a free cash flow basis. Here is what Distillate Capital stated:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
You can also take a peek at 10 Best Cyclical Stocks to Buy Now and Top 10 High Growth Stocks To Buy in 2021.
