RGA Investment Advisors, an investment management company, released its fourth quarter 2024 investor letter. A copy of the letter can be downloaded here. At first glance, 2024 seemed to be another exceptional year for equity markets, but a closer look revealed a markedly different situation. Even the overarching narrative held its complexities. According to the prevailing story, the S&P 500 achieved impressive results, driven by excitement surrounding AI developments. The letter discussed this not to justify the fund’s performance, but to emphasize the unusual nature of 2024 in the equity markets and to pinpoint where significant tensions currently exist. These tensions also indicate areas with the greatest potential for future returns. Such imbalances cannot remain unchanged indefinitely, regardless of one’s views on AI or the geographical allocation of successful entities. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
In its fourth quarter 2024 investor letter, RGA Investment Advisors emphasized stocks such as Dropbox, Inc. (NASDAQ:DBX). Dropbox, Inc. (NASDAQ:DBX) offers a content collaboration platform globally. The one-month return Dropbox, Inc. (NASDAQ:DBX) was 9.72%, and its shares lost 0.46% of their value over the last 52 weeks. On February 5, 2024, Dropbox, Inc. (NASDAQ:DBX) stock closed at $32.63 per share, with a market capitalization of $9.837 billion.
Ariel Appreciation Fund stated the following regarding Dropbox, Inc. (NASDAQ:DBX) in its Q4 2024 investor letter:
“One idea we’ve reflected on extensively over the past few years is our tendency to favor attractive spreadsheet math over grappling with deeper questions about duration. A prime example is a company like Dropbox, Inc. (NASDAQ:DBX). On paper, the numbers look incredibly compelling—both intrinsically, when constructing a DCF, and relatively, when comparing valuations to peers. However, the terminal value component—the projected value of the business beyond the explicit forecast period—remains an enduring question mark. While we dedicate significant effort to evaluating the probability of terminal value risk materializing, this focus introduces several unfortunate side effects: 1. The market will continue to discount the company’s multiple as long as questions about terminal value persist. 2. The stock’s volatility will exceed that of the underlying business. 3. The investment will consume disproportionate mindshare relative to its weight in our portfolios. 4. Management decisions may become questionable, influenced by perceptions of terminal value risk.
The challenge we face with Dropbox, as it relates to terminal value risk, is that the company is no longer growing, yet management continues to allocate resources to R&D as though growth were imminent. One quote from the Q1 2024 Dropbox earnings call stood out as particularly frustrating in this regard…” (Click here to read the full text)
A close-up of a laptop displaying a popular content collaboration platform.
Dropbox, Inc. (NASDAQ:DBX) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 29 hedge fund portfolios held Dropbox, Inc. (NASDAQ:DBX) at the end of the third quarter which was 43 in the previous quarter. While we acknowledge the potential of Dropbox, Inc. (NASDAQ:DBX) as an investment, our conviction lies in the belief that 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article we discussed Dropbox, Inc. (NASDAQ:DBX) and shared the list of most undervalued tech stocks to invest in. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.