5. Alphabet Inc (NASDAQ: GOOGL)
Shares of Alphabet Inc (NASDAQ: GOOGL) outperformed the broader market index year to date, thanks to prospects for increased advertisement revenue. It is the sixth-largest stock holding of Ken Fisher’s portfolio, accounting for 2.50% of the overall portfolio.
Polen Capital stated in the first quarter investor letter that Google was among the top contributors to its performance. Here is what Polen Capital stated:
“For our top contributors, each generated strong returns for different, but fundamentally based reasons, in our opinion. Alphabet saw renewed strength recently as advertisers generally resumed spending after a short pause during the pandemic.
Alphabet experienced some challenging quarters in 2020 as many companies paused their advertising spend. But, the business bounced back recently, spurring a strong recovery in the company’s share price. Even during such a challenging period, the company still compounded revenue at 14% in constant currency for 2020.
This is partly due to Alphabet’s multiple growth engines. For example, while its search business was negative one quarter and only grew by 6% during another, YouTube ads and Google Cloud Platform (GCP) grew at over 30% and 46% during the quarter, respectively. YouTube and GCP combined now contribute over 50% of the company’s growth, which we believe is a testament to a strong culture of innovation, a long-term mindset, and prudent capital allocation. With search bouncing back this most recent quarter–growing 17% –we believe that Alphabet continues to be well-positioned to durably compound earnings at or above 15% for many years to come. It remains one of our largest positions.”
4. Visa Inc (NYSE: V)
The payment technology company Visa is among Ken Fisher’s favorite stocks. His hedge fund held a position in Visa since 2012 and the firm added to its existing position during the first quarter. Shares of Visa rallied only 3% year to date amid investors concerns over global traveling and tourism outlook.
Wedgewood Partners, an investment management firm, highlighted a few stocks including Visa in the first quarter investor letter. Here is what Wedgewood Partners said:
“Visa payment volume recovered along with consumer spending habits, finishing up +5% during the December quarter; but it skewed heavily toward online purchases, particularly with debit. Historically, Visa has had a meaningful portion of its volume derived from higher-yielding credit card spending related to cross-border travel and entertainment (T&E). As many countries maintain closed borders, Visa’s cross-border T&E segment has stayed depressed. However, we expect this business will rebound as borders inevitably reopen to COVID-19 vaccinated populations. In the meantime, we trimmed Visa to help fund a re-established position in Booking Holdings, which should disproportionately benefit from the aforementioned reopening as well.”
3. Amazon.com, Inc (NASDAQ: AMZN)
The world’s largest e-commerce platform Amazon.com, Inc (NASDAQ: AMZN) is weighted around 3.96% of the overall portfolio at the end of the first quarter. The firm has been holding a position in Amazon since 2011. Shares of Amazon underperformed since the beginning of this year.
Polen Capital expressed its views about Amazon in the first quarter investor letter. Here is what Polen Capital stated:
“We purchased Amazon in February 2021, which accounts for 5% of the Portfolio’s weighting. For most of the last decade, Amazon did not meet our guardrails. We also did not have enough visibility into future free cash flow margins to indicate that the company would sustainably meet our guardrails and, relatedly, if valuation supported the double-digit annualized returns we seek. We now believe we have that visibility.
In 2008, almost all of Amazon’s revenue and operating profits came from its e-commerce business. Amazon Prime and Amazon Web Services (AWS) were new and relatively small back then. The company had roughly 5% operating profit margins overall, entirely from the e-commerce business. In 2009, the company began harvesting its retail business profits to accelerate investment in its distribution and logistics infrastructure globally and very heavily build out and scale AWS data centers.
The company’s return on equity began to decline at that time and turned negative for three full years from mid-2012 to mid-2015 (margins and free cash flow declined similarly). So, beginning in 2010 and continuing to mid-2018, Amazon’s business was outside our guardrails. We chose to stick to our guardrails and not own Amazon.
Amazon’s profit drivers have changed quite dramatically over the years. Starting in the back half of 2018, Amazon came back above our hurdles. Revenue generation overcame ongoing heavy investments in areas such as delivery infrastructure, data center infrastructure, and shipping.
Our research suggests that today, after considering cost allocation, Amazon’s underlying profit drivers from higher-margin AWS and Advertising could grow much faster than its low-margin e-commerce business (excluding Prime), its historical driver of revenues and operating profits.
Amazon Prime, AWS, and Advertising together account for only about 20% of revenue today, but we believe over 150% of operating profits. Looking forward, growth of higher-margin businesses means Amazon’s total margins and profit dollars could rise quite dramatically.
It is important to note that Amazon proved to be an exception to our guardrails. Based on our experience, very few companies that remain outside our guardrails for an extended period operate from a position of competitive strength but rather, from a position of competitive pressure. Today, we feel we have better visibility into the future earnings growth and margins from AWS and Advertising and believe these could drive 30%+ annual earnings growth for the next five years. Even with significant P/E multiple compression, we would still expect double-digit investment returns.”
2. Microsoft Corporation (NASDAQ: MSFT)
Shares of Microsoft Corporation (NASDAQ: MSFT) rallied 10% so far this year, extending twelve-month gains to 33%. In addition to share price appreciation, the company also offers dividends to investors. The firm raised its stake in Microsoft Corporation by 2% to 3.98% of the overall portfolio.
Polen Capital highlighted the confidence in Microsoft Corporation in the first quarter investor letter. Here is what Polen Capital said:
“We have written extensively about Microsoft in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. It continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and the stock continues to reflect the fundamentals.”
1. Apple Inc (NASDAQ: AAPL)
The tech giant Apple Inc (NASDAQ: AAPL) is the largest stock holding of Fisher Asset Management. The firm held 62.8 million shares of Apple at the end of the first quarter, accounting for 5.40% of the overall portfolio. Shares of Apple underperformed this year due to investors’ shift towards value stocks.
Distillate Capital, an investment management firm, stated in the first quarter investor letter that Apple is a smart long-term buy. Here is what Distillate Capital said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.
You can also take a peek at Will Bill Gates’ Divorce Affect These Stocks? and Best Tech and Dividend Stocks to Buy According to Billionaire Chase Coleman.
