Alphabet (GOOG, Financial)(GOOGL, Financial) aka Google is one of the most popular stocks with gurus. In the aggregated guru portfolio its weighting is fourth only to Wells Fargo (WFC, Financial), Valeant Pharmaceutical (VRX, Financial) and Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial). Because the distribution of assets under management is quite top heavy, a few gurus heavily influence the aggregated portfolio. Valeant making the top four is also a product of a few gurus who run heavily concentrated portfolios like Glenn Greenberg (Trades, Portfolio) and Bill Ackman (Trades, Portfolio) who are betting the ranch on the troubled pharmaceutical.
Wells Fargo, Berkshire Hathaway and Google are widely owned and important positions to many gurus. If we look at the number of gurus holding a certain stock Wells Fargo comes in at No. 1 again, but if we would add up the number of gurus holding GOOG and GOOGL it would surpass Wells Fargo easily with 31 > 26.
That is not fair because many investors hold both share classes.
John Burbank, CIO of Passport Capital LLC, just joined the ranks of guru Google owners. He likes the company a lot, too, because he immediately made it the sixth-largest individual stock holding while holding hundreds of stocks.
Contrary to many value investor gurus Burbank uses a top-down macroeconomic approach to select securities in addition to fundamental analysis. It is no wonder he likes Google because the firm represents an option on global GDP. Search is a vital functionality to every economy and many frontier markets will build up their economies based on a digital infrastructure. There are competitors, but Google is quite dominant in gaining market share in almost all markets except China and Russia.
As GDP increases, Adspend increases and Google’s revenues increase. Because of the business model with tremendous operating leverage, EPS increase at a higher rate than revenues, which means that as long as GDP grows, Google EPS grows at an exponential rate.
If you add to that the fundamentals that attract value gurus like the $103 of cash per share and the extremely limited amount of debt in addition to the forward P/E of 20x which is modest in comparison to that of the average Standard & Poor's 500 constituent given the company’s far above average prospects it is no wonder the company is so popular with gurus.
They started piling in over the last two years as Google’s valuation lagged its fundamentals but keep getting on board since the arrival of new CFO Ruth Porat, who has been a catalyst for the stock to start appreciating. Since she arrived the new corporate structure has been announced, we are getting a clearer picture of the profitability of core Google, Google initiated a buyback, and noncore investments are being curtailed.
Hiring someone from the financial industry, ex-Morgan Stanley to be precise, clearly indicated that Larry Page meant business. Google founders Page and Sergey Brin have historically expressed a strong preference for engineers and want to have as little to do with bankers as possible. However, Page is becoming more and more interested in the business of capital allocation and is clearly using Warren Buffett as an example.
For instance, the holding company structure is inspired by Berkshire Hathaway. The lagging share price made it more difficult to attract the absolute top talent, which Google prides itself on, and that is why they are determined to get the stock to appreciate even if that means having to hire an investment banker.
It makes sense to me that Google is one of the most popular stocks with gurus. Both the incentives at the executive level – did I mention Page and Brin own billions of dollars worth of shares? – and the fundamental characteristics at the company level are highly attractive. Burbank is the last guru to get on, but it wouldn’t surprise me if he is not the last.
Disclosure: Long GOOG
