If you are looking for the best ideas for your portfolio you may want to consider some of Tao Value’s top stock picks. Tao Value, an investment management firm, is bullish on Sea Ltd (NYSE:SE) stock. In its Q3 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Sea Ltd (NYSE:SE) stock. Sea Ltd (NYSE:SE) is an internet company.
On October 30, 2019, Tao Value had released its Q3 2019 investor letter. The investment firm said that Sea Ltd (NYSE:SE) was new position in Q3 2019. The stock has posted a return of 370% in the trailing one year period, outperforming the S&P 500 Index which returned 15.1% in the same period. This suggests that the investment firm was right in its decision.
Tao Value fund posted a return of 1.26% in the third quarter of 2019, underperforming the S&P 500 Index which returned 1.87% in the same quarter. Let’s take a look at comments made by Tao Value about Sea Ltd (NYSE:SE) in the Q3 2019 investor letter.
“Sea is a new position from the “Great Operation at Reasonable Price” category. It is a Singapore based technology company with an interesting combination of businesses, namely a cash-gushing game business called Garena (think of Tencent), a market leading and near-monetization-inflection marketplace business called Shopee (think of Taobao) & a small but fast growing fintech business called AirPay (think of Alipay).
Sea crosses all my Sun Tzu’s five factor check and is undoubtably a high-quality business. It has accomplished at least 2 exceptional achievements: 1) As a latecomer, it organically built Shopee and surpassed Alibaba-backed first comer Lazada to reach leading position in most countries in the region. Note this is quite rare in network effect enabled platforms, where the “first comer advantage” term was coined; 2) it organically transitioned from game publishing/operating to game developing, with the launch of the widely successful Free Fire (a mobile battle royale games swept all ASEAN, also South America). Based my study of factors driving above two achievements, I conclude Sea has structural advantages in both e-commerce & gaming segments within ASEAN markets.
In term of valuation, Mr. Market has started to recognize the high-quality businesses of Sea. The stock rallied 150+% year to date. However, I still think the current price is fairly valued, if not undervalued to its intrinsic value. Even assuming Sea at the similar quality of peers (thus using comparable’ multiples), I value the gaming business for $14.4 billion (at mobile game peer P/E low end of 18 times $800 million 2019 Adj. Income), and the ecommerce business for $4.5 billion (at Chinese ecommerce peer P/E low end of 0.3 P/GMV times $15.5 billion 2019 GMV). This gives us $19 billion equity value (translates to $42.7 per share,) without even considering AirPay business. It is compared to the stock currently trading at $29. If revisiting the assumptions and adjust for the fact Sea is in a much earlier stage market and better quality than peers, I think Sea could be priced more than double of current price in a few years.”
Last month, we published an article revealing Tao Value’s bullish investment thesis on Sea Ltd (NYSE:SE) stock in its Q3 2020 investor letter. This suggests that the investment firm has been bullish for a long time on Sea Ltd (NYSE:SE).
In Q2 2020, the number of bullish hedge fund positions on Sea Ltd (NYSE:SE) stock increased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Sea’s growth potential. Our calculations showed that Sea Ltd (NYSE:SE) is ranked #20 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.