Joel Greenblatt (Trades, Portfolio) is the founder of Gotham Capital and famous for incredible annual returns of 40% between 1985 to 2005. He also authored “The Little Book That Still Beats the Market” and my favorite, "You Can Be a Stock Market Genius." On Monday, he shared two stock picks with CNBC, one on the long side and one on the short side.
Booking Holdings (BKNG, Financial)
Booking owns great businesses like Priceline, Booking.com and Open Table. You can get it at a 40% discount to the S&P 500, Greenblatt said. It is growing much faster than the S&P 500 both in sales and Ebit. It is an asset-light free cash flow machine and essentially a duopoly with Expedia. It bought back 8% of its stock last year.
There are risks, though. Valuation is likely modest because people are worried competitors are coming in, like Alphabet (GOOG, Financial) (GOOGL, Financial) and Airbnb. Those are legitimate concerns, but it is a network-type business, Greenblatt said. Network-type businesses tend to have fairly strong competitive moats, and they can often hold their own against new competition. These typed of businesses can often do really well in a duopoly situation. Greenblatt owns many stocks and is confident that owning many of these types of situations will work out well.
Align Technology (ALGN, Financial)
Align Technology is a medical device company that is focused on dentists. Invisalign, a teeth aligner system, is probably its best-known product. However, Align is trading at 100x free cash flow. That's not something value investors tend to like very much. In addition, many of its patents started coming off in 2017. Much competition is also encroaching on its space. It has been a good business, but there isn't a good valuation case to be made for it because it is overpriced.
This is a heatmap of Greenblatt's portfolio as tracked by GuruFocus:
Disclosure: no positions.
