GuruFocus’ Most Broadly Held model portfolio consists of the 25 stocks that have the highest number of guru owners, rebalanced annually.
Below is a chart comparing the performance of the Most Broadly Held model portfolio to the S&P 500. As we can see, this model portfolio has significantly beaten the S&P 500 since its inception on Dec. 30, 2005:
Overall, high guru ownership can often be a positive sign for a stock considering the success of the Most Broadly Held model portfolio. Thus, we will take a look at the top five stocks in the Most Broadly Held list that are trading below their intrinsic values as estimated by the GuruFocus Value chart.
The GF Value chart takes the following factors into consideration when estimating the intrinsic value of a stock:
- Historical multiples such as the price-earnings, price-sales, price-book and price-to-free cash flow ratios.
- A GuruFocus adjustment factor based on the company’s past returns and growth.
- Future estimates of business performance from Morningstar analysts.
Facebook Inc. (FB, Financial) is a social media giant based in Menlo Park, California. It was founded by Mark Zuckerberg and several fellow Harvard students. Since its launch in 2004, it has become an icon of the social media industry and expanded into news, advertising, business, data collection and other avenues.
As of the most recent regulatory filings, 55 gurus own shares of Facebook, including Baillie Gifford (Trades, Portfolio), Frank Sands (Trades, Portfolio), Pioneer Investments, Chase Coleman (Trades, Portfolio) and Steve Mandel (Trades, Portfolio).
On Oct. 15, the stock traded around $324.66 for a price-to-GF Value ratio of 0.89, earning it a rating of modestly undervalued.
Facebook’s stock has been dropping since early September, battered by a Federal Trade Commission antitrust lawsuit that aims to retroactively unbundle its acquisitions of Instagram and WhatsApp as well as reports from a whistleblower documenting how the company has prioritized profits over user safety in many ways. For all of its flaws, though, Facebook remains the dominant name in social media with a growing user base worldwide. What matters to investors is the company’s financials; if Facebook’s profits were to slip, then there could be cause for real worry.
Alibaba Group Holding
Alibaba Group Holding Ltd. (BABA, Financial) is a Chinese multinational conglomerate with holdings in e-commerce, retail, internet and technology assets, among many others. By volume, Alibaba is the largest e-commerce company in the world, with millions of merchants and hundreds of millions of users.
As of the most recent regulatory filings, 43 gurus own shares of Alibaba, including Baillie Gifford (Trades, Portfolio), Primecap Management, Ken Fisher (Trades, Portfolio), Dodge & Cox and Frank Sands (Trades, Portfolio).
On Oct. 15, the stock traded around $167.27 for a price-to-GF Value ratio of 0.45, earning it a rating of significantly undervalued.
Alibaba is similar to Amazon (AMZN, Financial), but its main difference with its American counterpart is that it is just as involved with corporate bulk e-commerce as it is with individual customer e-commerce, and it has a bigger domestic addressable market since it is a Chinese company. However, many investors are hesitant to buy shares of Alibaba due to the potential for antitrust measures to affect growth and profits. Until Chinese regulators hammer out a clearer picture for where they want to go regarding big tech regulations, Alibaba’s valuation will likely remain depressed.
Berkshire Hathaway Inc. (BRK.B, Financial) is the conglomerate headed by famous value investor Warren Buffett (Trades, Portfolio) and his partner Charlie Munger (Trades, Portfolio). The Omaha, Nebraskia-based group owns a wide variety of businesses, including Geico and other insurance companies, Berkshire Hathaway Energy, BNSF and a sizable investment portfolio.
As of the most recent regulatory filings, 39 gurus owned Class B shares of Berkshire Hathaway, including Diamond Hill Capital (Trades, Portfolio), Tom Russo (Trades, Portfolio), Pioneer Investments, Hotchkis & Wiley and Chris Davis (Trades, Portfolio).
On Oct. 15, the stock traded around $283.97 for a price-to-GF Value ratio of 0.89, earning it a rating of modestly undervalued.
The unrealized gains and losses from equity holdings are considered part of a company’s earnings, meaning that for companies like Berkshire that have large equity portfolios, earnings can fluctuate wildly depending on the movements of the stock market. This makes it more difficult to get a measure of Berkshire’s value using most yardsticks. However, Berkshire bought back a record $24.7 billion of its stock, or 5% of total shares outstanding, during 2020, followed by $6.6 billion worth of share repurchases in the first quarter of 2021. This seems to indicate that Buffett saw the conglomerate as undervalued, though that could have changed by now as the stock has gained 24% this year.
Intel Corp. (INTC, Financial) is a semiconductor technology company based in Santa Clara, California. The company is the world’s largest producer of PC microprocessors, and its mobile processors have been a key driver of growth in recent years.
As of the most recent regulatory filings, 27 gurus owned shares of Intel, including Primecap Management, Ken Fisher (Trades, Portfolio), Seth Klarman (Trades, Portfolio), Daniel Loeb (Trades, Portfolio) and Chris Davis (Trades, Portfolio).
On Oct. 15, the stock traded around $54.35 for a price-to-GF Value ratio of 0.89, earning it a rating of modestly undervalued.
Intel has strong upside potential considering the growth that needs to happen in the advanced semiconductor manufacturing industry in order to keep up with demand. Over the decades, an increasing amount of U.S. chip production has been outsourced to lower-income countries in order to take advantage of cheaper labor, and while this has been nice in terms of helping the companies buying the chips to report higher profits, it hasn’t exactly worked well during the chip shortage. On the other hand, Intel has a lot of catching up to do if it wants to compete with the top chip suppliers.
New York-based Bristol-Myers Squibb Co. (BMY, Financial) is one of the largest biopharmaceutical companies in the world. It concentrates its research and development primarily in the areas of oncology, hematology, immunology, cardiovascular and fibrosis.
As of the most recent regulatory filings, 27 gurus owned shares of Bristol-Myers, including Dodge & Cox, the Vanguard Health Care Fund (Trades, Portfolio), Warren Buffett (Trades, Portfolio), Primecap Management and Andreas Halvorsen (Trades, Portfolio).
On Oct. 15, the stock traded around $58.26 for a price-to-GF Value ratio of 0.81, earning it a rating of modestly undervalued.
Bristol-Myers’ stock has floundered due to the introduction of a bill in Congress that, if passed, would allow Medicare to negotiate drug prices with pharmaceutical companies. It is estimated that if this bill becomes law, it could cost the U.S. pharmaceutical industry up to $50 billion in annual revenues. For comparison, the industry generated $539 billion in revenue last year. Considering the fact that 37% of Bristol-Myers’ revenue is generated outside the U.S., we get a worst-case scenario of 6% revenue loss, assuming zero growth. One other thing to consider is that more people would be able to afford medication if it was cheaper, which could reduce the revenue impact. Overall, this seems to be a standard case of the market overreacting to headlines.
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