Argosy Investors recently released its Q4 2020 Investor Letter, a copy of which you can download here. Full-year 2020 performance was 29.8% in select accounts. The S&P 500 by comparison returned 18.4%. You should check out Argosy Investors’ top 5 stock picks for investors to buy right now, which could be the biggest winners of 2021.
In the Q4 2020 Investor Letter, Argosy Investors’ highlighted a few stocks and JD.Com Inc (NASDAQ:JD) is one of them. JD.Com Inc (NASDAQ:JD) is an e-ommerce company. In the last three months, JD.Com Inc (NASDAQ:JD) stock gained 7.7% and on January 15th it had a closing price of $87.77. Here is what Argosy Investors’ said:
“JD.com (JD) is worth spending some time on because it is doing some very interesting things and there are some risks worth mentioning. As a refresher, JD.com is a leading Chinese eCommerce retailer that competes with Alibaba, Pinduoduo, and others. Most large tech-oriented businesses globally operate as conglomerates. Think about Google. They own YouTube, Waze, Google Cloud, and Waymo Self-Driving, just to name a few. Amazon owns its first-party retail division, its third-party marketplace, Amazon Video, Kindle, Audible, Amazon Web Services, and Alexa, to name a few. Alibaba has Taobao, TMall, Alibaba Cloud, Alipay, Ant Financial, and more.
JD.com has been making conscious decisions to break its business up into its component parts, which in our opinion helps surface the value of each business. JD’s enterprise value is about USD $120 billion today. JD spun off its JD Health business worth USD $28 billion (like Teladoc in the US), may spin off its JD Cloud business (similar to AWS in the US), has sold shares in its JD Logistics business and is shooting for a valuation of USD$40 billion in 2021 via an IPO, and JD Digits which provides supply chain and consumer loans was expected to be valued at nearly USD $30 billion before Ant Financial was prevented by the Chinese government from completing its IPO. The combined values of these business segments within JD is about $98 billion, leaving $22 billion for JD’s core retail business (and its cloud business) which is on track for over USD $100 billion in sales this year and growing over 20% per year. Assuming a 5% long-term margin for JD Retail, that segment is generating USD $5 billion of operating profit (EBIT). Given their strong market position, investors could value JD’s retail business alone at 20x EBIT, valuing JD retail at $100 billion. By comparison, Amazon was valued at over $175 billion during the year in which it earned USD $100 billion in revenue, so we continue to believe JD is being undervalued, despite a more competitive environment with Alibaba in China than Amazon faces in the US.
There is a lot to be excited about for JD. If JD.com operated in a different country, we would be unquestionably excited about JD’s prospects. However, due to being based in China, given some other anti-business moves by Chinese officials, and given retaliatory US actions in the capital markets, we have concerns about how our investment will be treated over the long term. In the most extreme scenario, which we think is very unlikely, we could lose the entire value of our investment. This concern may be what is preventing these companies from being fully valued in the US marketplace. The NYSE has given some insight into the likely path if JD.com were forced to delist from US exchanges because they have pursued a path of delisting Chinese telecom providers from US exchanges in the last few weeks. The plan involves giving investors until November to sell down their stakes in those companies. We plan to follow this developing regulator environment closely, and despite our optimism about JD, we may sell shares of JD to protect your capital from permanent loss, as remote an outcome as that may be at present.”
In Q3 2020, the number of bullish hedge fund positions on JD.Com Inc (NASDAQ:JD) stock decreased by about 2% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t believe in JD’s growth potential. Our calculations showed that JD.Com Inc (NASDAQ:JD) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 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
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Disclosure: None. This article is originally published at Insider Monkey.