Hayden Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 93.2% for the quarter, outperforming their benchmark, the S&P 500 Index which returned 20.0% in the same quarter. You should check out Hayden Capital’s top 5 stock picks which helped them beat the market by nearly 73 percentage points. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.
In the said letter, Hayden Capital highlighted a few stocks and Amazon.Com Inc (NASDAQ:AMZN) is one of them. Amazon.Com Inc (NASDAQ:AMZN) is a technology company based in Seattle. Year-to-date, Amazon.Com Inc (NASDAQ:AMZN) stock gained 71.1% and on August 12th it had a closing price of $3,162.24. Here is what Hayden Capital said:
“We can see that sales have grown 3.9x over the last 6 years. Using revenue multiples is frequently criticized, since a company can artificially inflate sales quickly by simply giving away products / services below cost, thus actually destroying shareholder value 8 . But in Amazon’s case, they not only grew revenues by 290%, but did it by growing their higher-margin business lines (Amazon Web Services & 3rd Party Marketplace)!
For example, Amazon Web Services (AWS) grew from $4.6BN revenue in 2014 to an estimated ~$45.6BN in 2020E. This would be ~880% growth in 6 years. Additionally, AWS has 30%+ operating margins, compared to low-single digit margins for the core retail business, so every dollar of AWS revenue is worth ~6 – 8x more than that in retail.
Amazon doesn’t disclose marketplace figures neatly (where third party sellers own the inventory, instead of Amazon itself), but we know from numerous global marketplace benchmarks, that margins tend to hover around the 30 – 40% operating margin level. Additionally, in Amazon’s 2018 shareholder letter, Bezos disclosed that third-party marketplace had grown from 49% of sales in 2014, to 58% in 2018 (LINK). Based on this and our own estimates, I estimate that marketplace sales have grown ~390% over the last 6 years, or more than twice that of the ~180% for Amazon’s traditional first-party retail business.
Of course, higher-margin business lines command higher revenue multiples (since Amazon keeps more of each dollar of revenue). As a result, it only makes sense that Amazon’s multiples have also expanded during this period. In 2014, Amazon was trading at 1.6x EV / sales, but today is at 4.6x 2020E EV / sales.
When you multiply the sales increase by the multiple expansion, you can see how Amazon has achieved its 10x stock price performance.”
Copyright: melpomen / 123RF Stock Photo
Earlier this week, we published an article revealing that Third Point is bullish on Amazon.Com Inc (NASDAQ:AMZN) stock. The investment firm believes that the company would likely continue to benefit from its e-commerce and cloud computing businesses.
In Q1 2020, the number of bullish hedge fund positions on Amazon.Com Inc (NASDAQ:AMZN) stock increased by about 24% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Amazon’s growth potential. Our calculations showed that Amazon.Com Inc (NASDAQ:AMZN) is ranked #1 among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 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
At Insider Monkey we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:
Disclosure: None. This article is originally published at Insider Monkey.
