We recently compiled a list of the 10 Best Stocks to Buy According to Eminence Capital’s Ricky Sandler. In this article, we are going to take a look at where Sea Limited (NYSE:SE) stands against the other stocks.
Investing prowess runs in Ricky Sandler’s family. The manager of prominent hedge fund Eminence Capital had a 13F portfolio worth more than $7 billion at the end of the first quarter of 2024. His father was a research analyst at Goldman Sachs, one of the premier investment banks in the world, and later went on to manage a hedge fund. Sandler has had a somewhat similar career trajectory, beginning as a research associate for Mark Asset Management before making his name as a hedge fund manager at Fusion Capital Management. In 1999, Sandler founded Eminence Capital, growing the small fund into a multi-billion dollar investment firm over the course of two decades. The fund focuses on uncovering value in the market through fundamental research, an art that seems to be dying on Wall Street as fast money schemes become more popular.
The investing philosophy of Sandler has been influenced by his work at Mark Asset Management and Fusion Capital Management. At the former, Sandler learned the importance of focusing on a bottom-up research strategy aimed at picking great businesses. At the latter, Sandler learned that investing in good businesses was not enough. In order to create wealth, money managers had a duty to invest in great businesses at value prices, thereby creating room for future growth. Sandler calls this the “quality value” approach to investing. He made these comments in an appearance on the Equity Mates podcast last year. Sandler, in remarks made during the podcast, stressed that investors should not only buy at good prices but should also not stay invested in equities when they become too expensive. Young investors would do well to pick up on this simple yet effective tip.
At Eminence Capital, Sandler has developed a long-short equity strategy that has paid huge dividends for clients. Per the hedge fund manager, the Asian debt crisis in the late 1990s was one of the formative events in his life that led him to understand the value of an effective shorting strategy. During the crisis, the International Monetary Fund had to pump in more than $40 billion into large economies in East Asia to contain the spread of the meltdown to the world economy. The company Sandler was a part of at the time owned stakes in many mid-cap Asian firms that were hit particularly hard by the crisis, leading to huge losses for his fund. Sandler now makes sure that his stock pickers spend at least half of their time developing individual stock shorts, a strategy that aims to build up the defenses of his fund should the market take a turn for the worst.
Sandler believes that in the present economic environment, only investors that have valuation discipline and short selling skills will be able to keep pace with the changing dynamics of the stock market. However, he also underlines that long bets remain equally important. The New York-based manager outlines his long investing philosophy as owning mispriced stocks that have the potential to take a turn for the better in the coming two or three years. Sandler emphasizes the importance of investing in ownable companies — businesses that he describes are well-positioned competitively, sound structurally with trusted management teams, and able to generate solid cash flows. Sandler urges money managers to invest only in firms that they would be comfortable investing in for their family portfolio. A look at the top picks in his latest 13F portfolio illustrates this strategy in action.
Our Methodology
For this article, we scanned the stock portfolio of Eminence Capital according to the 13F filings submitted at the end of the first quarter of 2024. We selected the top 10 stocks from this portfolio. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 61
Eminence Capital’s Stake: $167,259,761
Sea Limited (NYSE:SE) is a Singapore-based technology company with interests in a wide array of businesses that include digital entertainment, ecommerce, and fintech. Eminence Capital bought a stake in the company during the fourth quarter of 2024. In the first quarter of 2024, Sandler effectively doubled this stake. This underlines his bullish call on the stock even as it emerges from a strong 2023, with solid revenue growth, improved profitability, market expansion, and positive financial outlook. In earnings for the first quarter of 2024, posted in mid-May, the company reported a revenue of more than $3.7 billion, up over 22% compared to the revenue over the same period last year.
There are several reasons why Sandler believes that Sea Limited (NYSE:SE) stock may still be mispriced, even after gaining more than 23% in value over the past year. One of these is the growth of Free Fire, a popular video game across the world that is played by tens of millions. After the post-COVID bust, video games sales are turning around. The digital financial services offered by the firm are also booming. In the recent earnings report, the firm reported that digital services grew revenues by 21% from the previous year. It highlighted that the loan book reached $3.3 billion, increasing 29% from the prior year.
In a recent investor letter, Lakehouse Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:
“At the portfolio level, the biggest contributor to performance during the month was Sea Limited (NYSE:SE) (+18.2%), which performed well as both Shopee and its primary competitor, TikTok Shop, raised take-rates meaningfully across several countries during the quarter. This is a noteworthy development as we are now starting to see mounting evidence of more rational competitive behaviour from the dominant players in Southeast Asia’s e-commerce market, which in turn,signals a more favourable industry structure lay ahead.”
Overall SE ranks 10th on our list of the best stocks to buy according to Eminence Capital’s Ricky Sandler. You can visit 10 Best Stocks to Buy According to Eminence Capital’s Ricky Sandler to see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of SE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.