If you are looking for the best ideas for your portfolio you may want to consider some of Wedgewood Partners top stock picks. Wedgewood Partners, an investment management firm, is bullish on Booking Holdings Inc. (NASDAQ:BKNG) stock. In its Q4 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Booking Holdings Inc. (NASDAQ:BKNG) stock. Booking Holdings Inc. (NASDAQ:BKNG) offers online travel and related services. The stock is down 23.4% since the Wedgewood Partners pitch in January 2020. The stock is down amid the coronavirus pandemic.
Wedgewood believes that Booking Holdings Inc. (NASDAQ:BKNG) is a long-term growth stock in an attractive and growing industry. The company is expected to benefit from the changed advertising strategy. The company is shifting away from SEO advertising which in turn would positively impact its bookings.
For the quarter ended December 31st, 2019, Wedgewood Partners fund recorded a return of 9.57%, compared to 10.62% of Russell 1000 Growth Index and 9.07% of S&P 500 Index. This brings its 2019 full-year return to 31.96%, compared to 36.39% of Russell 1000 Growth Index and 31.49% of S&P 500 Index.
Let’s take a look at comments made by Wedgewood about Booking Holdings Inc. (NASDAQ:BKNG) in the letter.
“As we have been writing since Booking began discussing a change in its advertising strategy back in 2017, we believe investors have completely failed to grasp the significance of the Company’s strategic initiatives over the past few years. Booking had found that traditional search engine optimization (SEO) advertising, primarily with Google, was not generating the return in bookings/revenue and profits that it had generated in the past. Furthermore, Booking noted this was in some part due to metasearch providers (such as TripAdvisor) – of which Booking was the most important customer – competing directly with its online travel agency customers for bookings by investing in SEO themselves, rather than “staying in their lane” and functioning solely as a search service. This dwindling return on advertising spend had led to continually shrinking margins, as Booking had to invest more and more to generate the same level of booking growth.
Booking laid out a clearly articulated strategy to reduce its reliance on SEO advertising as well as its spend with the metasearch providers that were using Booking’s own ad dollars to compete against it, and it proceeded to execute this strategy exactly as laid out. This led to slowing – but still healthy – bookings growth, but it also led to rapidly accelerating profit growth, exactly as planned. Furthermore, and more importantly, its business model developed less reliance on more expensive forms of advertising, such as SEO, and its strategy changed the behavior of the major metasearch providers, dissuading the Company from competing directly against its customers, such as Booking.
We believe the considerable success of these initiatives – if the Company’s profit growth over the past few years, and struggles and strategy swings from its peers, were not proof enough – emerged in the third quarter 2019 earnings season. A day after two of its large peers, Expedia and TripAdvisor, reported massive profit shortfalls due to a change in Google’s landing page methodology that had caused these companies’ SEO spend to generate lower returns in their respective bookings, Booking reported that the quarter had been just fine, and that it didn’t really have much exposure to SEO any longer. Basically, while the rest of the industry is still relying on the advertising model Booking was using 2-3 years ago, Booking has reworked its model in a more efficient way, generating roughly the same bookings growth as everyone else, but doing it more efficiently.
We continue to see very clear proof that the Company’s strategic initiatives of the past three years – which have gone largely misunderstood and unappreciated by the broad market – have caused a positive shift in the Company’s business model and in the structure of the overall industry, both of which are firmly in the Company’s favor. Whether the market ever fully appreciates this theoretically or not, we believe the reality of the Company’s dominant and growing market position will continue to make this Company a long-term winner in an attractive, growing industry.”
In Q1 2020, the number of bullish hedge fund positions on Booking Holdings Inc. (NASDAQ:BKNG) stock increased by about 22% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Booking Holdings growth potential. Our calculations showed that Booking Holdings Inc. (NASDAQ:BKNG) is ranked #28 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 leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. 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.
