In this article, we discuss the top 3 stock picks of Charlie Munger’s Daily Journal. If you want our detailed analysis of Charlie Munger’s history, investment philosophy, and hedge fund performance, go directly to Charlie Munger’s Daily Journal Portfolio: Top Stock Picks.
3. Alibaba Group Holding Limited (NYSE:BABA)
Daily Journal’s Stake Value: $71,519,000
Percentage of Daily Journal’s 13F Portfolio: 27.65%
Number of Hedge Fund Holders: 115
Charlie Munger’s acquisition of an Alibaba Group Holding Limited (NYSE:BABA) stake in the first quarter of 2021 amid the Chinese tech crackdown made headlines. After acquiring a position in Alibaba Group Holding Limited (NYSE:BABA) in Q1 2021, Munger increased his holding in the tech giant in Q3 and Q4. According to the 13F filings from the fourth quarter of 2021, Munger added 300,000 Alibaba Group Holding Limited (NYSE:BABA) shares to his previous position, and now holds a total of 602,060 shares, worth $71.5 million. The stock accounts for 27.65% of Daily Journal’s Q4 investment portfolio.
On January 7, JPMorgan analyst Alex Yao lowered the price target on Alibaba Group Holding Limited (NYSE:BABA) to $180 from $210 and kept an Overweight rating on the shares. The analyst stated that he is “turning more cautious” on China’s online consumption outlook and cut Alibaba Group Holding Limited (NYSE:BABA)’s December quarter customer management revenue growth assumption to negative 2% year-over-year from positive 5%. The analyst thinks the stock will continue to be under pressure in the near future, “despite low valuations.” However, when Munger purchased Alibaba Group Holding Limited (NYSE:BABA) shares in Q4, his endorsement of the stock outweighed any concerns that stemmed from JPMorgan’s assessment.
Alibaba Group Holding Limited (NYSE:BABA)’s shares fell 4% on January 18, when the Biden administration launched an investigation of the company’s cloud business, citing national security concerns. The US officials are looking into how Alibaba Group Holding Limited (NYSE:BABA)’s cloud server saves the personal information and intellectual property of American users, and whether the Chinese government can access that information. Two possible outcomes of the investigation could occur, including limiting the way American customers’ database is maintained on Alibaba Group Holding Limited (NYSE:BABA) cloud, or prohibiting the use of the tech giant’s services by American clientele altogether.
Fisher Asset Management is the largest Alibaba Group Holding Limited (NYSE:BABA) stakeholder from the 115 hedge funds that were bullish on the stock in the third quarter of 2021. Billionaire Ken Fisher’s fund owns 14.2 million shares of Alibaba Group Holding Limited (NYSE:BABA), worth $2.10 billion.
Here is what ClearBridge Large Cap Growth Strategy has to say about Alibaba Group Holding Limited (NYSE:BABA) in its Q3 2021 investor letter:
“Large cap companies continue to serve an ever more global marketplace, leading us to research growth opportunities beyond the U.S. We first purchased Alibaba, China’s leading e-commerce and digital payments platform, in 2018 to gain greater exposure to the emerging Chinese consumer market. Recently, Alibaba has borne the brunt of Beijing’s regulatory crackdown on technology companies that began in late 2020 with the postponement of the Ant Financial IPO. While the stock was the primary detractor from performance in the third quarter, with the Chinese government’s antitrust investigation of Alibaba now closed and Ant Financial being revamped, we believe Alibaba is moving past major regulatory risks. The stock now trades at a substantial valuation discount relative to its growth potential. We continue to view Alibaba as a durable business with the potential for sustained revenue and profit growth and the scale to weather periods of disruption due to its size, balance sheet and importance to the Chinese economy.”
2. Wells Fargo & Company (NYSE:WFC)
Daily Journal’s Stake Value: $76,374,000
Percentage of Daily Journal’s 13F Portfolio: 29.52%
Number of Hedge Fund Holders: 88
Wells Fargo & Company (NYSE:WFC) is a California-based multinational financial services corporation, serving customers globally, with offices in 35 countries. Wells Fargo & Company (NYSE:WFC) operates via its subsidiary, Wells Fargo Bank, which is one of the Big Four American banking institutions.
Charlie Munger has reiterated his preference for Wells Fargo & Company (NYSE:WFC), calling it his “favorite” bank, and has consistently held his stake in the bank without selling any shares since 2017. Even though Warren Buffett got disenchanted with Wells Fargo & Company (NYSE:WFC) after its accounts scandal, Munger stated that the management was not malevolent intentionally and just gave in to short-term temptations, hence he was lenient with his decision to hold the shares. He owns a $76.3 million position in Wells Fargo & Company (NYSE:WFC), which represents 29.52% of total fourth quarter investments at Daily Journal.
Publishing its Q4 2021 financial results on January 14, Wells Fargo & Company (NYSE:WFC) announced earnings per share of $1.25, beating estimates by $0.25. Revenue over the period jumped 16.35% year-over-year to $20.86 billion, outperforming estimates by $2.19 billion. The stock gained 1.9% when Q4 results were publicly announced, as the above consensus figures reflect the company’s efforts to reduce expenses and increase lending.
Argus analyst Stephen Biggar on January 18 raised the price target on Wells Fargo & Company (NYSE:WFC) to $65 from $55 and kept a Buy rating on the shares after the Q4 earnings beat. The analyst noted that Wells Fargo & Company (NYSE:WFC) offered robust guidance for 2022, while its net charge-offs remained low in Q4.
Boykin Curry’s Eagle Capital Management is the largest Wells Fargo & Company (NYSE:WFC) shareholder as of Q3 2021, holding a $1.56 billion stake. Overall, 88 hedge funds were bullish on the stock in the third quarter.
Here is what Davis Global Fund has to say about Wells Fargo & Company (NYSE:WFC) in its Q3 2021 investor letter:
“…This second chart highlights that financials remain the cheapest part of the market today and continue to be extremely attractive. Strong capital ratios, conservative lending practices, already record low interest rates and now a strengthening economy, all paired with low valuations, bode well for future returns.
Take our top financials holding in Wells Fargo, for instance. Wells Fargo is trading at 1.3x tangible book value, while we expect return on equity (ROE) to be in the mid-to-high teens over time. Even in this low-rate environment, the current multiple is only 12x 2021 owner earnings, and our IRR estimate is 12–13%. Wells Fargo has performed well this year, up 51% year-to-date, yet still looks very attractive, which speaks to how undervalued it was and why it is so important to be patient when investing in high-quality companies trading at low valuations. Rather than invest on the basis of unpredictable near-term catalysts, we prefer to be patient as earnings and cash build up, even if the stock price does not immediately reflect the economic reality. We continue to like our positions in financials.”
1. Bank of America Corporation (NYSE:BAC)
Daily Journal’s Stake Value: $102,327,000
Percentage of Daily Journal’s 13F Portfolio: 39.56%
Number of Hedge Fund Holders: 72
Bank of America Corporation (NYSE:BAC), a multinational investment bank and financial services company, is the largest holding in Charlie Munger’s Q4 portfolio, with the billionaire holding 2.30 million shares of the company, worth $102.3 million, representing 39.56% of his total investments for the period. When Munger first invested in Bank of America Corporation (NYSE:BAC), he stated that he does not buy stocks based on a company’s ratios, rather his investment decisions are based on how the firm actually functions. He invested in Bank of America Corporation (NYSE:BAC) during the peak financial crisis of 2009, and acquired the shares at a heavy discount.
On October 20, Bank of America Corporation (NYSE:BAC) announced a quarterly per share dividend of $0.21, in line with previous. The dividend was paid on December 31 to shareholders of record on December 3. Bank of America Corporation (NYSE:BAC) announced in April 2021 its plans to repurchase $25 billion in common stock over time. By the end of Q3, the company had repurchased stock worth $14 billion under this program.
Piper Sandler analyst Jeffery Harte raised the price target on Bank of America Corporation (NYSE:BAC) to $57 from $54 and kept an Overweight rating on the shares on January 11. The analyst continues to believe that Bank of America Corporation (NYSE:BAC) is the large cap bank stock to own for 2022.
Bank of America Corporation (NYSE:BAC) disclosed on January 6 that it will redeem all $500 million of its 3.335% fixed/floating rate senior bank notes, which were originally due January 2023, on January 25, 2022.
Among the hedge funds tracked by Insider Monkey in Q3 2021, Harris Associates is one of the leading Bank of America Corporation (NYSE:BAC) stakeholders, with 59.4 million shares worth $2.5 billion. Overall, 72 funds were bullish on the stock in the third quarter.
Here is what Oakmark Funds has to say about Bank of America Corporation (NYSE:BAC) in its Q3 2021 investor letter:
“Earlier this year, one of our holdings, Bank of America, announced that it was raising its minimum hourly wage from $15 to $20 and would increase it to $25 by 2025. The company received great press for placing the well-being of its employees above profits. But was it really either/or? Bank of America’s chief human resources officer spoke to the bigger picture: “A core tenet of responsible growth is our commitment to being a great place to work…that includes providing strong pay and competitive benefits to help them and their families, so that we continue to attract and retain the best talent.” Bank of America understood that engaged, high-caliber employees are more productive, less prone to turnover and, therefore, less expensive in the long run. Increasing the pay for employees wasn’t elevating employees above shareholders; it was the right thing to do for employees and for shareholders.
If an increase to $20 was good, why stop there? Why not $50 per hour? Because the benefits the business receives at $50 don’t justify the expense. The bank would no longer be able to price its products competitively and would lose business. The employees would “win” in the short term, but eventually the lost business would lead to job cuts, meaning both employees and shareholders would lose. The negative effects of stakeholder overreach are no different than when CEOs overreach to inflate short-term profits. Both hurt shareholders and stakeholders.”
You can also take a look at 10 Biotech Stocks To Buy According To Chinese Billionaire Lei Zhang and Top 10 Stock Picks of Apocalyptic Investor Crispin Odey.
