Billionaire Jeffrey Talpins’ Top 5 Stock Picks

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In this article, we discuss billionaire Jeffrey Talpin’s top 5 stock picks. For Talpin’s investment philosophy and his comments on certain stocks, please see Billionaire Jeffrey Talpins’ Top 10 Stock Picks.

5. Facebook, Inc. (NASDAQ: FB)

Value: $50,439,000
Percent of Jeffrey Talpins’ 13F Portfolio: 5.26%
No. of Hedge Fund Holders: 242

As of the end of the fourth quarter, 242 hedge funds in Insider Monkey’s database of 887 funds held stakes in Facebook, compared to 230 funds in the third quarter. SB Management is the biggest stakeholder in the company, with 12 million shares, worth $3.3 billion. FB ranks 3rd in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.

Oakmark Funds explained why they are bullish on Facebook in their 2020 Q4 investor letter:

“Facebook currently sells at approximately $273 per share or 26 times consensus 2021 earnings estimates of $10.47 per share. That might not seem excessive for such a high-quality company, but it certainly would not meet our value criteria if that was the whole story. But it’s not. For starters, Facebook is expected to have $29 per share of cash at the end of 2021, and, as we all know, cash currently earns almost nothing. Subtracting cash from the stock price, we are only paying $244 per share for the business or 23 times earnings.

There is more. Analysts believe that WhatsApp, a popular messaging service owned by Facebook, reports a GAAP loss, yet its subscribers have quadrupled since Facebook acquired the service in 2014. If WhatsApp‘s current subscriber base was valued at the same price-per-subscriber as in 2014, it would now be worth $31 per Facebook share. Using analyst forecasts for revenue several years out, that $31 per share seems reasonable as it roughly matches Facebook’s current price-to-sales multiple.

In addition to WhatsApp, Facebook has also made significant investments in augmented reality/virtual reality (AR/VR)—about $5 per share by our estimate—and we believe those investments are, at a minimum, worth what they cost. AR/VR generates little revenue today and it is likely losing at least $1.00 per share. So, when we factor in both WhatsApp and AR/VR, we should deduct another $36 from Facebook’s stock price and add to earnings the estimated $1.50 of losses they generate.

After these calculations are figured in, we are paying $208 for core Facebook/Instagram with consensus estimates of $12 in 2021—a P/E of only 17x. For a high growth, strong cash generator like Facebook, an adjusted P/E of less than the S&P 500 strikes us as a bargain. And, if you haven’t yet tried the new $299 Oculus Quest 2 virtual reality gaming system (by Facebook), you’re in for a treat.”

 



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