Longleaf Partners Fund, an investment management firm under Southeastern Asset Management, published its “Longleaf Partners International Fund” first quarter 2021 investor letter – a copy of which can be downloaded here. A return of 6.73% was delivered by the fund for the Q1 of 2021, outperforming its MSCI EAFE benchmark that had a 3.48% gain in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Longleaf Partners International Fund, in their Q1 2021 investor letter, mentioned Baidu, Inc. (NASDAQ: BIDU) and shared their insights on the company. Baidu, Inc. is a Beijing, China-based internet technology company that currently has a $72.2 billion market capitalization. Since the beginning of the year, BIDU delivered a -0.78% return, while its 12-month gains are up by 112.54%. As of April 22, 2021, the stock closed at $214.56 per share.
Here is what Longleaf Partners International Fund has to say about Baidu, Inc. in their Q1 2021 investor letter:
“Baidu (3%, 0.70%), the dominant artificial intelligence (AI) company in China, was another top contributor for the quarter. Baidu reported fourth quarter results ahead of the market’s expectation. The advertising business saw gradual recovery compared to the first half of the year. A key area of outperformance was the non-advertising revenue, which grew 52%y year-over-year (YoY) and now comprises 18% of Baidu Core. The total addressable market value of Baidu’s non-advertising business (ex-autonomous driving) is 10x the size of online advertising, and the expected compound annual growth rate (CAGR) to 2025 for non-advertising is three times faster than that of online marketing. The recent YY Live acquisition should help to further boost the non-advertising mix. Baidu’s cloud business grew 67% YoY in the quarter with an annualized run rate of US$2 billion. Baidu also made progress in Apollo, the company’s autonomous driving platform. Apollo has been granted the first driverless testing permit and received the first qualifications for commercialized autonomous driving operations in China. Baidu has set up an EV joint venture with automotive maker Geely, which could accelerate Apollo’s adoption in the industry. In March, Baidu completed a secondary listing in Hong Kong, hedging any potential risks from a forced delisting in the US. The significant investment and market leadership in Chinese autonomous vehicles and AI are material underappreciated sources of value for the company. Baidu issued 10-year bonds at 2.375% last October, which implies a cash flow multiple of 42x. Baidu currently trades at 21x earnings, but excluding cash, listed securities, and investments, and assigning zero value for their loss-making Cloud and A.I. businesses, Baidu trades at 13.4x free cash flow (FCF), equivalent to a FCF yield of 7.5%. In December, the company upsized its buyback program from $3 billion to $4.5 billion to take advantage of its severe undervaluation.
In one of the more dramatic price moves we have seen this year, Baidu’s share price spiked by 57% in the first seven weeks through late-February, after adding 71% in 2020. Taking advantage of this February strength, we cut the Baidu position in half. However, towards the end of the quarter, Baidu’s price plummeted as a result of forced liquidation sale of Archegos Capital Management’s substantial holdings in Baidu by their lenders. On March 26th, banks liquidated their margin collateral in Baidu stock through a series of block trade transactions. A massive $23.7 billion and $12 billion worth of Baidu traded on March 26th and 29th. This huge margin call is completely unrelated to Baidu’s fundamentals and our investment thesis.”
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Our calculations show that Baidu, Inc. (NASDAQ: BIDU) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Baidu, Inc. was in 51 hedge fund portfolios, compared to 43 funds in the third quarter. BIDU delivered a -15.11% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 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. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
