Oakmark Funds, a global asset management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be seen here. A return of 24.44% was recorded by the fund for the Q4 of 2020, above its MSCI World benchmark that returned 13.96%. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.
Oakmark Funds, in their Q4 2020 Investor Letter said that Facebook, Inc. (NASDAQ: FB), as a high growth, strong cash generator company, given its lower P/E ratio compared to the S&P, is already trading at a bargain price. Facebook, Inc. is a social networking service company that currently has a $781.8 billion market cap. For the past 3 months, FB delivered a -0.94% return and settled at $274.50 per share at the closing of January 22nd.
Here is what Oakmark Funds has to say about Facebook, Inc. in their Investor Letter:
“Facebook currently sells at approximately $273 per share or 26 times consensus 2021 earnings estimates of $10.47 per share. That might not seem excessive for such a high-quality company, but it certainly would not meet our value criteria if that was the whole story. But it’s not. For starters, Facebook is expected to have $29 per share of cash at the end of 2021, and, as we all know, cash currently earns almost nothing. Subtracting cash from the stock price, we are only paying $244 per share for the business or 23 times earnings.
There is more. Analysts believe that WhatsApp, a popular messaging service owned by Facebook, reports a GAAP loss, yet its subscribers have quadrupled since Facebook acquired the service in 2014. If WhatsApp‘s current subscriber base was valued at the same price-per-subscriber as in 2014, it would now be worth $31 per Facebook share. Using analyst forecasts for revenue several years out, that $31 per share seems reasonable as it roughly matches Facebook’s current price-to-sales multiple.
In addition to WhatsApp, Facebook has also made significant investments in augmented reality/virtual reality (AR/VR)—about $5 per share by our estimate—and we believe those investments are, at a minimum, worth what they cost. AR/VR generates little revenue today and it is likely losing at least $1.00 per share. So, when we factor in both WhatsApp and AR/VR, we should deduct another $36 from Facebook’s stock price and add to earnings the estimated $1.50 of losses they generate.
After these calculations are figured in, we are paying $208 for core Facebook/Instagram with consensus estimates of $12 in 2021—a P/E of only 17x. For a high growth, strong cash generator like Facebook, an adjusted P/E of less than the S&P 500 strikes us as a bargain. And, if you haven’t yet tried the new $299 Oculus Quest 2 virtual reality gaming system (by Facebook), you’re in for a treat.”
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Last November 2020, we published an article telling that Facebook, Inc. (NASDAQ: FB) was in 230 hedge fund portfolios, its all time high statistics. FB delivered a 27.75% return in the past 12 months.
Our calculations showed that Facebook, Inc. (NASDAQ: FB) does not belong to the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.
