Merion Road Capital, an investment management company, released its second quarter 2022 investor letter. A copy of the same can be downloaded here. In the second quarter, Merion Road Small Cap Fund returned -6.0% compared to a return of -17.3% for the Russell 2000 Index. The MRCM Long Only Large Cap returned -20.5% compared to a -16.1% return for the S&P 500 Index. The quarter was challenging for the fund and the market as a whole. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.
Merion Road Capital discussed stocks like Alphabet Inc. (NASDAQ:GOOG) in the second quarter investor letter. Alphabet Inc. (NASDAQ:GOOG) is a multinational technology company headquartered in Mountain View, California. On September 20, 2022, Alphabet Inc. (NASDAQ:GOOG) stock closed at $101.83 per share. One-month return of Alphabet Inc. (NASDAQ:GOOG) was -11.27% and its shares lost 27.08% of their value over the last 52 weeks. Alphabet Inc. (NASDAQ:GOOG) has a market capitalization of $1.323 trillion.
Here is what Merion Road Capital specifically said about Alphabet Inc. (NASDAQ:GOOG) in its Q2 2022 investor letter:
“The Long Only portfolio was down a bit more than 20% during the quarter. Our largest holding, Alphabet Inc. (NASDAQ:GOOG), was unsurprisingly the largest detractor for the period. GOOG needs no introduction as it likely touches all of our lives multiple times a day. The biggest risk to GOOG is their exposure to advertising budgets, a historically cyclical category spend. While GOOG was able to grow their topline during the 2008-2009 period, they did so by taking share from traditional media. Today digital advertising already accounts for ~65% of total US ad spend; therefore, the potential benefits from further share gains are likely to be outweighed by a shrinking pie. Obviously, this is very short term oriented and will be a footnote 5 or 10 years down the road. But even looking at near-term operating performance, it is possible that advertising might prove to be less cyclical than prior periods. With the growing presence of ecommerce and direct to consumer offerings, the “advertising as the new rent” argument makes sense to me.
While their cash cow (search) is an excellent business that would be hard to displace, other assets like Google Cloud and YouTube are deserving of even higher multiples. Furthermore, the company owns several assets that are under-monetized like maps, Android, and Waymo. Equally as important is the increasingly shareholder friendly posture of the company as exemplified by their improved financial disclosure, increasing share repurchases, and pending share split. At 19x trailing earnings ex. cash on the balance sheet (but inclusive of losses incurred in the fast-growing cloud business as well as other “moon shots”), it is hard to think of a more attractive risk-adjusted return.”
Alphabet Inc. (NASDAQ:GOOG) is in 6th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 153 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the second quarter which was 160 in the previous quarter.
We discussed Alphabet Inc. (NASDAQ:GOOG) in another article and shared the list of stocks in the portfolio of billionaire Chris Rokos. In addition, please check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other leading investors.
Disclosure: None. This article is originally published at Insider Monkey.