Coatue Management recently disclosed its portfolio updates for the first quarter of 2020, which ended on March 31.
Founded in 1999 and headquartered in New York, Coatue Management is an employee-owned private hedge fund sponsor. It launches and manages various hedge funds for clients and is perhaps best known for its tech-focused hedge fund. The firm mainly invests in U.S. and non-U.S. publicly traded equity securities, but it also has short positions and investments in private equity and hedging markets. Chief Investment Officer Philippe Laffont (Trades, Portfolio), who founded the firm after leaving Tiger Management, takes a top-down approach to stock picking and focuses on the information technology sector.
During the quarter, the firm established 66 new stock positions and sold out of 299 holdings. The biggest buys were JD.com Inc. (JD, Financial) and Tesla Inc. (TSLA, Financial), while the biggest sells were ServiceNow Inc. (NOW, Financial) and Mastercard Inc. (MA, Financial).
JD.com
Coatue Management established a new stake of 9,752,558 shares in JD.com after selling out of its previous holding in the company in the fourth quarter of 2019. The trade had a 5% impact on the equity portfolio. During the quarter, shares traded for an average price of $39.92.
JD.com is a Beijing-based Chinese e-commerce company. It is one of the country’s largest retailers, holding a duopoly with Alibaba (BABA) in the business-to-consumer space. JD.com provides a full suite of services to retailers wanting to sell their goods to Chinese consumers, including marketing, analytics, logistics, warehousing and financing.
On May 26, shares of JD.com traded around $53.41 for a market cap of $78.24 billion and a price-earnings ratio of 95.14. According to the Peter Lynch chart, the stock trades above its intrinsic value but in line with its historical median value.
GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 2.12 is higher than 76.63% of competitors, while the Altman Z-Score of 4.13 suggests that the company is not in danger of bankruptcy. Despite a low operating margin of 1.41%, the company has grown its revenue and net income consistently over the years.
Tesla
The firm also established a new holding of 534,770 shares in Tesla after selling out of its previous investment in the company in the first quarter of 2017. The trade had a 3.55% impact on the equity portfolio. Shares traded for an average price of $619.73 during the quarter.
Tesla is most famous for its electric vehicles. Considered by many investors to be a tech stock from its outset, the Palo Alto, California-based company is also involved in solar energy through its SolarCity acquisition. Tesla’s CEO, Elon Musk, is also the founder of SpaceX, a private space travel company.
On May 26, shares of Tesla traded around $819.59 for a market cap of $151.89 billion and a forward price-earnings ratio of 244.62 (based on earnings estimates from Morningstar analysts). The stock price has risen 328% over the past 12 months and 95% year to date.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 3 out of 10. The interest coverage ratio of 1.21 and current ratio of 1.24 suggest low short-term liquidity, but the Altman Z-Score of 3.97 indicates the company is not likely to go bankrupt at the moment. The operating margin of 3.23% is lower than the industry median of 4.35%, and the weighted average cost of capital exceeds the return on invested capital, indicating low profitability.
ServiceNow
The firm reduced its holding of ServiceNow by 2,657,848 shares, or 97.12%, leaving a remaining investment of 78,911 shares. The traded impacted the equity portfolio by -5.97%. During the quarter, shares traded for an average price of $312.80.
ServiceNow is a software company based in Santa Clara, California. Its cloud computing platform allows customers to manage digital workflows in a way that is designed to be more intuitive and less complicated.
On May 26, shares of ServiceNow traded around $382.90 for a market cap of $73.25 billion and a price-earnings ratio of 112.31. According to the Peter Lynch chart, the stock is trading above its intrinsic value.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 1.55 is lower than the industry median of 2.26, but the Altman Z-Score of 11.92 suggests that the company is not likely to go bankrupt. The operating margin of 1.22% is lower than the industry median of 4.84%, while the ROIC recently surpassed the WACC, indicating a potential turn to profitability.
Mastercard
The firm also cut its position in Mastercard by 2,099,570 shares, or 99.82%, leaving a remaining investment of 3,793 shares. The trade impacted the equity portfolio by -4.99%. Shares traded for an average price of $298.41 during the quarter.
Mastercard is a financial services company that provides tech-based payment solutions to consumers, business, merchants, card issuers and governments around the world. It is one of the largest such companies in the U.S., alongside Visa Inc. (V).
On May 26, shares of Mastercard traded around $304.09 for a market cap of $305.46 billion and a price-earnings ratio of 38.92. According to the Peter Lynch chart, the stock is trading above its intrinsic value.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 10 out of 10. The cash-debt ratio of 0.86 is higher than 67.27% of competitors but lower than the company’s 10-year median of 5.27. The operating margin of 56.74% is higher than 86.60% of competitors and the company’s 10-year median of 53.93%. Both revenue and net income have shown strong upwards trends, though both have faltered in recent quarters.
Portfolio overview
As of the quarter’s end, the equity portfolio consisted of holdings in 160 stocks valued at $7.89 billion. The top holdings were Netflix Inc. (NFLX, Financial) with an 8.46% portfolio weight, Liberty Broadband Corp. (LBRDK, Financial) with 6.48% and Amazon.com Inc. (AMZN, Financial) with 6.67%.
In terms of sector weighting, the firm was most invested in technology, communication services and consumer cyclical.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
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