Lee Ainslie (Trades, Portfolio), founder and managing partner at Maverick Capital has sold out two holdings: Charter Communications Inc. (CHTR, Financial) and Baidu Inc. (BIDU, Financial) .
Charter Communications is a cable operator that provides services in the U.S. for residential and commercial customers. The company focuses on television and internet subscription services, while offering upgrades such as increasing internet speed, as well as providing on demand television channels to help monetize their services.
Charter Communications has a market cap of $20.55 billion, an enterprise value of $53.83 billion, a P/B ratio of 345.47 and a quick ratio of 0.22.
Charter Communications has a few severe warning signs according to GuruFocus:
- Gross margin has been in long-term decline. The average rate of decline per year is 3.2%.
- When the Sloan ratio (27.54%) is higher than 25% or lower than -25%, earnings are more likely to be made up of accruals.
- Piotroski F-Score of 3 is low, which usually implies poor business operation.
Subscription services companies are an extremely risky purchase and they will become obsolete within the next decade. There are more economical ways to watch programs such as YouTube and various other streaming sites on the internet. I like Lee Ainslie (Trades, Portfolio)'s decision to sell out on this holding.
Baidu Inc. is also traded in Germany, Mexico, and Singapore.
The company is a Chinese language internet search provider. Currently Baidu ranks as the fourth-most globally searched website and the company ranks number one in China as the most searched website according to Alexa.com.
Baidu has a market cap of $65.34 billion, a P/E ratio of 34.90, an enterprise value of $60.41 billion and a quick ratio of 3.09.
Below is a Peter Lynch chart for Baidu
Baidu has one good sign according to GuruFocus, which is the company has shown predictable revenue and earnings growth.
I believe that selling this holding was a mistake for Ainslie for the following reasons:
The company is trading far below its intrinsic value.
The company’s book value has grown at an average rate of 52% over the past 10 years.
The company ranks #1 in China in search and #4 globally.
Using Google as a search engine is not permitted in China, giving Baidu a global differentiation advantage against the top competition.
Disclaimer: Author does not currently own any shares of either of these holdings.
Cheers to your investment success.
