1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Grahamites
Grahamites
Articles (293) 

The Tech Companies in My Portfolio

Brief discussions of technology stocks I own

Over the past two to three years I’ve written quite a few articles on the tech sector and why value investors should embrace tech stocks as opposed to avoid them at all cost. I’ve been asked quite a few times whether I personally own any technology stocks. The answer is yes. In fact, more than 20% of my portfolio is currently allocated to technology stocks. 

For technology companies, the most important question for me is whether the business will survive in 10 years, and the best defense against demise is culture. In that regard, I’m most convinced by Alphabet, Alibaba and Amazon.

Alibaba (NYSE:BABA)

Alibaba is one of the best companies in the world. Unfortunately I wasn’t wise enough to appreciate how entrenched and inevitable Alibaba is until I moved back to China last year.

Besides the well-known e-commerce platform, Alibaba is well-positioned in a few of the most important industries for China's future. Alibaba’s ecosystem is the most powerful in the world, along with Amazon (NASDAQ:AMZN)'s. For example, Aliyun (Alibaba’s Cloud Service) has passed IBM to become the world’s fourth-largest cloud service provider. Cainiao Logistics is leading the charge in the huge and strategically important logistic sector. Ant Financial is dominating fin tech. And Youku is one of the top three internet video platforms in China along with Baidu’s IQiYi and Tencent’s Tencent Video.

Alibaba’s investments in health care and movie and entertainment are also very well thought out and executed. Most importantly, Alibaba’s culture is probably one of the best in the world. This is a company I plan to hold for the long term.

Tencent (TCEHY)

I like Tencent less than Alibaba (NYSE:BABA). It’s a great business, but I have less respect for Tencent because I’ve seen how the young generation of Chinese is addicted to gaming and how WeChat is taking more time from our lives with each passing day.

That being said, Tencent will likely to remain one of the biggest tech power house globally. Like Alibaba, Tencent is well-positioned to reap the benefits of China’s economic transition. In many areas, Tencent has proven to be a tough competitor for Alibaba in many areas either on its own or through collaborating with its partners such as JD.com (NASDAQ:JD), Pinduoduo and Meituan Dianping.

JD.com (NASDAQ:JD)

Believe it or not, of all the Chinese tech companies, I invested in JD.com first. I jumped into it in 2016 and have held it since then.

Originally, I was impressed with JD’s logistic capabilities and the combined vision of Richard Liu, Pony Ma and Hilllhouse’s Zhanglei. Even Alibaba was at least a few years behind in terms of logistics capabilities. JD has taken share from Alibaba in the all-important B2C e-commerce market and has also expanded its ecosystem greatly in the past few years. JD’s logistic system has become best-in-class in China.

But I’m less convinced with JD.com today because as the online growth slows, JD has aggressively expanded into the offline retail markets even though the company has very limited experiences in offline retailing. Through talking to JD’s largest competitor in the offline retail market, Suning, I got the feeling that many of JD’s retail store partners are not making money. I still hold my investments in JD but will be constantly reevaluating the management team’s decisions.

MakeMyTrip (NASDAQ:MMYT)

I invested in MakeMyTrip in 2016 after researching the global OTA space. The thesis was simple. Priceline (PCLN) and Expedia(EXPE) have proven that OTA’s business model is one of the best. After years of brutal price wars, China’s OTA market got consolidated and Ctrip (NASDAQ:CTRP) became the de-facto monopoly. MakeMyTrip checked all the boxes of the success factors of Priceline and Ctrip back then and India was years behind China. So it looked like an obvious time travel play.

There are a few subsequent events that are important in MMYT’s thesis – the merger between Go Ibibo and MakeMyTrip, Paytm’s entrence into the space with Alibaba’s backing, and Meituan’s entrance in China’s OTA market, causing some headaches for Ctrip.

Alphabet (GOOGL)

Of all the U.S. tech companies, I’ve only owned Alphabet (GOOGL). I know quite a few Googlers -- they are all super smart and open-minded, high-caliber engineers. In some ways I’m betting on the talents Google has.

Alphabet’s ad business is still a great business even though the growth has slowed down. I like it when Alphabet spends heavily on R&D and other bets. It will generate mountains of cash, and there are plenty of redeployment opportunities.

I admire Amazon enormously, but Amazon’s valuation has always looked high compared to what I’ve calculated as its earnings power. Ditto with Booking Holdings (NASDAQ:BKNG), previously called Priceline (PCLN). I’ve never gotten entirely comfortable with Facebook even though I’ve seen how it has totally disrupted the advertising market, hurting quite a few of the companies I used to follow.

There are a few tech companies on my watchlist beside Amazon, Booking Holdings and Facebook.

IQiyi (NASDAQ:IQ) is one of the big three internet video companies in China. The business model is similar to Netflix (NFLX) combined with the SVOD version of major media companies. Chinese users have just recently started paying for great media content and IQiyi, Tencent Video and Alibaba’s Youku are the “big three” players. It’s too early to call who will be the biggest winner in this market, but there’s enough room for all three.

The recently IPOed Xiaomi is another company I’m closely watching. I think Xiaomi is a great company although very few people understand its greatness. It’s not a smartphone company even though most of the current revenues and profits are derived from its smartphone business. Xiaomi has copied the best from Goolge, Apple, Alibaba, Haidilao and Tongrentang. Founder and CEO Lei Jun is intelligent, energetic, hard-working and honest. It’s a great company run by a great jockey.

Disclosure: Long BABA, GOOG, JD, MMYT and TCEHY.

About the author:

Grahamites
A global value investor constantly seeking to acquire worldly wisdom. My investment philosophy has been inspired by Warren Buffett, Charlie Munger, Howard Marks, Chuck Akre, Li Lu, Zhang Lei and Peter Lynch.

Rating: 4.3/5 (6 votes)

Voters:

Comments

salleeaz
Salleeaz - 2 months ago    Report SPAM

No mention of YY?

Grahamites
Grahamites premium member - 2 months ago

Salleeaz: In my view YY's moat is narrow if any and less sustainable in the long run. I could be wrong though.

salleeaz
Salleeaz - 2 months ago    Report SPAM

Thank you.

georgedona
Georgedona premium member - 2 months ago

Excellent companies you own! Well done!

Please leave your comment:


Performances of the stocks mentioned by Grahamites


User Generated Screeners


HOLKLSUTop 20 Group Q3 2018 SHUT Sect
david.paige1stock%20screener%202.0
HOLKLSUEquity Income Group Q3 2018 SH
blovedayBest Backtest Results
muhua.huangmaster
mathew94Penny
mathew94Earning1Month
ralphdQuality Growth
salvatore34stock screener 2.0
DBrizanall 19SEP2018 942P
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat

{{numOfNotice}}
FEEDBACK