In this article we listed Eagle Capital’s top 5 stock picks. For our detailed discussion as well as a more comprehensive list please see Boykin Curry’s and Eagle Capital’s Top 10 Stock Picks.
5. Berkshire Hathaway Inc. (BRK-B)
Despite reducing the position by 10.34% in the third quarter, Berkshire is still 5.86% of Eagle’s overall portfolio. Berkshire Hathaway is probably the #1 stock pick among traditional value investors. Nomadic Value talked about Berkshire in its 2020 Q2 investor letter:
“We added to Berkshire Hathaway. I won’t spend too much talking about this, but BRK is as attractively priced as it’s been in some time. The press’s and FinTwit’s fascination with “Warren’s lost it” is at a cyclical peak and is complete noise. However, the valid bear argument is that BRK is too big to compound at good rates going forward, and subsidiary company performance will be weak for the next couple of years with its high exposure to air traffic (Precision Cast Parts and previously held airline stocks) and holdings in “old economy” manufacturing and retail businesses. Also, short-term there’s an unknown consequence of insurance claim payouts and/or refunds13 . We wouldn’t completely disagree with these judgments, and the optics are certainly bad when BRK doesn’t buy back shares in a quarter with a substantial sell-down. However, with a long-term lens and given the management style of BRK (conservative talk and overperform), we will likely be quite satisfied in the future – whatever that looks like. Meanwhile, we’ve gotten into a range where 30%-50% of BRK is free. Are the actual growth prospects for Berkshire this dire? Berkshire is our largest position.”
4. Amazon.com, Inc. (AMZN)
Eagle Capital reduced its Amazon.com position by 30% which accounted for 6.8% of the 13F portfolio at the beginning of October. It is great to see Amazon among the holdings of a traditional value investor. Most investors consider stocks growing at 20+% rates “growth stocks”. We think these stocks can also be classified as value stocks if there is a high probability that these stocks keep growing at these rates for a very long time and their current stock price doesn’t account for this growth potential. Baron Opportunity Fund talked about Amazon in its 2020 Q3 letter:
“Amazon.com, Inc. is the world’s largest retailer and cloud services provider. Shares were up on strong second quarter revenue metrics – with paid unit growth accelerating to 57%, a startling figure for a company of this scale – as Amazon benefited from recent investments in logistics and distribution to meet increased COVID-19-related demand. Amazon has the unique ability to deliver all the necessities of life safely to your doorstep, including groceries. Amazon also reported a stunning beat in operating profit, with $5.8 billion of operating income, almost six times Wall Street’s expected figure. While e-commerce penetration is rising rapidly and Amazon continues to grow its addressable market by entering new verticals, we continue to view Amazon Web Services as the more material driver of the company given its leadership in the vast and growing cloud infrastructure market and potential to compete in application software in the years to come.”
RiverPark Advisors is also bullish on Amazon. Here is what they said in their 2020 Q3 investor letter:
“Amazon: AMZN shares were a top contributor as the company again announced impressive quarterly results. Driven by the effects of the pandemic, AMZN’s year-over-year revenue growth accelerated to 40% in the second quarter, up from 26% growth for the first quarter. North American retail sales grew 43% to $55 billion, International retail sales grew 38% to $23 billion, Amazon Web Services revenue grew 29% in 2Q to $11 billion, and Amazon’s Other category, mostly driven by ad sales, grew 41% to $4 billion. With the continued acceleration in ecommerce and cloud computing adoption, management forecasted continued robust revenue growth for its third quarter, implying upwards of 33% year-over-year growth.
For the trailing twelve months, Amazon’s free cash flow grew 27% to $32 billion or $62 per share (up from $47 in the first quarter). We believe that Amazon’s revenue can grow from its TTM $322 billion to more than $800 billion annually, with free cash flow exceeding $150 per share by the end of 2025.”
3. Comcast Corporation (CMCSA)
Comcast is the third largest stock in Eagle Capital’s 13F portfolio despite the fact that the fund selling 6% of position during Q3. Eagle Capital initiated its position in the stock in Q4 of 2015. The company recently received four Emmy® Awards for innovation, advertising delivery, and technological development from the National Academy of Television Arts and Sciences (NATAS). It also has made a multi-year deal with World Wrestling Entertainment for its Peacock streaming video service. Here is what Longleaf Partners said about the stock in its 2020 Q3 investor letter:
“Comcast (18%, 0.83%), the cable and entertainment company, added to the strong absolute results in the quarter. Cable delivered one of its best quarters of net subscriber additions ever and grew EBITDA 5.5%, while losses from closed small business customers have moderated during reopening from the COVID lockdown. Sky, the European TV and broadband business acquired in 2018, retained subscribers at a high rate despite the extended absence of live sports. CEO Brian Roberts stated that Sky remains on pace to double its EBITDA over the next several years. Comcast’s new Peacock streaming service and Universal theme parks are ramping up revenues gradually, presenting more opportunities for Comcast to improve earnings significantly over the next several years. Despite the double-digit returns in the quarter, the company remains discounted. We were encouraged by Roberts’s statement in the quarter that he was committed to repurchasing shares again in the near future.”
2. Alphabet Inc. (NASDAQ: GOOG)
Alphabet is the second largest position in Eagle Capital’s portfolio, accounting for 8.02% of its 13F portfolio. Alphabet is another value stock perceived as a growth stock by most investors. We believe its earnings multiples will inch higher and higher as more value investors realize the upside potential and flock into the stock. Here is what Wedgewood Partners said about Google in its 2020 Q4 letter:
“Alphabet’s core Google revenues grew +9% during the quarter, a meaningful acceleration from the -8% decline during the COVID-19-impacted second quarter. The Google unit also unexpectedly showed some modest expense leverage after several quarters of heavy reinvestment, driving double-digit earnings growth at Alphabet. We would not be surprised if that leverage is short-lived. However, Alphabet continues to meaningfully under-earn relative to its potential, and we welcome any effort that brings forward, or at least highlights, the Company’s pent-up earnings power. On the latter score, Alphabet announced it will be providing more detailed operating segment profit data in the coming year.”
Not every fund manager is bullish on Alphabet though. Nelson Roberts Investment Advisors reduced its position in GOOGL:
“We trimmed our position in Alphabet Inc. to a market weight as we noted elevated risks for the company. Aside from the increasing regulatory threats, we reduced our portfolio’s total exposure to the five largest stocks in the S&P due to concerns about market concentration. Alphabet also has large exposures to travel and leisure customers that have been impacted by the shutdowns due to COVID-19.”
1. Microsoft Corporation (MSFT)
Microsoft is the largest holding of the Eagle Capital and also a long-running investment. Eagle Capital first owned the stock in Q1 2004. Currently, Eagle Capital holds 0.1628% ownership of the company, which is 9.29% of its overall portfolio.
Microsoft’s stock prices underperformed at the beginning of 2020 and dropped from $185 to $137 during the March crash. That was a buying opportunity as Microsoft shares currently trade at $234. Here is what Wedgewood Partners said about Microsoft recently:
“Microsoft continued to generate solid double-digit top-line, and operating earnings growth. The Company’s all-encompassing portfolio of “hybrid” cloud solutions is compelling for customers as IT organizations vacillate between on-premises and off-premises (and then likely on-premises again). For example, Microsoft 365 has added an array of features to make remote work easier, yet, as customer applications grow in compute intensity, those customers’ on-premises and edge computing topologies retain or grow in importance. Microsoft’s strategic pivot to be more customer-friendly and collaborative will sustain its growth and returns for several more years so we are happy with our position.”
Please also see Billionaire Larry Robbins’ Top 10 Stock Picks and 15 Best Undervalued Stocks To Buy Now.
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