"Hello World!" Welcome to my first post on HughesInvest, and the first feature post analysing my new paper $100,000 portfolio, known as the Hughes Fund. Within this first post I will aim to provide a brief thesis towards each trade (with more in-depth analysis to come over the next few weeks) and give a general overview of the principals the fund will follow, it’s going to be a long one so let’s get straight into it!
Firstly, let’s talk about the opening trades I have made on the Hughes Fund and how I am thinking about each stock amidst the current volatile market.
Amazon - Amazon is eating the world, and everybody wants to be along for the ride. Not only is it the "homepage of shopping" but additionally most of AMZN's profits come from its very attractive cloud business, AWS, of which the previous CEO Andy Jassy is now taking over from Jeff Bezos showing a lot of promise for further growth. It aggressively reinvests its capital into expanding into attractive new markets such as healthcare delivery. With expected growth of 20%+, I am willing to pay over 20x EBITDA for this asset and grow my position on weakness.
Facebook - Facebook is one of the cheapest, high quality stocks in the tech realm today. It is trading on average at 13.6x forward EBITDA yet is expected to maintain growth of around 20%+ going forward. It is highly profitable and has proven to be extremely competitively managed by Zuckerberg, who I would not bet against to continue the ‘copy the competition’ strategy successfully deployed to maintain market share against newer smaller social media platforms such as Snapchat and Tiktok. Facebook’s biggest risk is the recent antitrust crackdowns, to which I believe it to be the least vulnerable.
Microsoft - Microsoft is a high-quality compounder that is equally weighted towards cloud services, business software, and personal and gaming computing. It is the dominant force in business software and will continue to expand its reach across organizations. Microsoft still holds on to a healthy 10% growth rates in its maturity and trades roughly at 20x forward EBITDA. Not cheap, but a fair price for such a high conviction, foundation asset.
Ishare Green Energy ETF – Acting as another compounder. This ETF choice allows wider exposure to the global movement towards green energy creation, storage and consumption alongside overall green infrastructure. As global governments strengthen their march towards a cleaner planet, the most recent of which as seen in Bidens infrastructure bill, this ETF allows us a piece of the pie without sacrificing the fulltime requirements needed to research every green company ‘sprouting’ and instead focus of my strongest conviction equities.
Peloton - Peloton is trading on average at 14x forward Gross Profit, which is extremely cheap for a company growing at 100% year over year. I believe that growth will not fall off a cliff after the pandemic, and that the company is replacing the fitness market with "connected fitness". We don't need to believe that every middle-class household has a Peloton, just that many wealthy families have them and that they can continue their growth into the traditional gym/hotel/building segments. Actively buying on weakness.
AT&T - HBO Max is one of the most undervalued assets in the market right now. It has the 3rd highest value of streaming products and the content of WarnerMedia behind it. AT&T should also benefit from an economy reopening with its wireless and business segments. Poor management concerns prevent a 5-star conviction but has shown so far that with HBO Max they are finally getting things right. Even with a small ceiling for capital gains, being paid a 7% dividend yield to ‘sit and watch’ is very attractive.
Uber - Uber is well balanced between stay-at-home (UberEats) and return-from-home (Uber Taxi). Pandemic aside, the company should be growing by 40%+ and only trades at 10x forward gross profit. Additionally, a recent abandonment of self-driving investments has relinquished the thorn which has plagued Uber’s profitability. Overall, in the shorter to middle term, this is a nice hedge against return-from home news.
Bitcoin - Bitcoin is internet gold. The bull case is that over time, Bitcoin's market cap will approximate that of golds at $9 trillion dollars, which implies a $500,000 Bitcoin price.
Disney - DIS is a great mix of growth (Disney+) and reopening (Parks). They are trading on average at 32x forward EBITDA, which is very expensive, but we believe Parks will aid the stock to normalized levels and we believe Disney's content assets through Disney+, Hulu+, and ESPN+ will be worth $200B in the future (as much as NFLX). That represents 30-40% upside from current prices if they deliver.
Tesla – I won’t waste any of your time trying to justify Tesla stock price movements with pure fundamentals here. To clarify my position on Tesla, I am a mild $TSLA bull. I believe there is more upside to the stock on a 10-year timeline and that Tesla will continue to grow and innovate, but the elevation and uncertainty of the stock’s valuation keeps it as a riskier position. However, don’t bet against Elon. It’s really hard to argue that Tesla will continue to knock it out of the park in terms of sales and popularity. The only question that I am left with is the target price for Tesla, I have settled upon a somewhat bullish $1000.
Futu - Futu is my play on a "Robinhood" for the Chinese speaking world. China has a strong and growing middle class and we love the secular demographic story here. At $154, FUTU is trading at about 30x forward Gross Profit, but seeing 150%+ growth. Even with conservative assumptions, I believe this will deliver 15%+ fundamental returns in the future.
UP Fintech - Tiger is my second play on a "Robinhood” for the Chinese speaking world. Like Futu, we are bullish on this secular trend. At $18, TIGR is trading for 16x forward gross profit, but also growing at over 100% per year. This is our highest upside pick however as a small company suffer from much higher levels of volatility and therefore risk. I will concentrate buying here on weakness.
Zillow - Zillow is now trading at 16.1x forward gross profit, very reasonable for 40%+ expected growth. Both analysts and I expect a large growth spurt for Zillow once the pandemic subsides and housing inventory floods the market. We are willing to own it due to its dominance and growth trends, along with the upside potential, but at $133, I am not over buying it.
Cash – As a long-term compounding investment portfolio we do not want too much free cash as to avoid opportunity loss as such to ensure we are fully exploiting our picks, however maintaining level-headed risk management takes effect here and we do not want to be over tilted or stuck in the mud as the Macroeconomic market continues to shift, more on this later, alongside allowing enough free capital to actively buy favourable stocks on weakness.
Finally, to wrap up this first rather long post I will overview the key principals I will aim to follow throughout the Portfolios lifespan:
- Remain diversified, without overcommitting to a certain play. Even when excited about a stock, I keep positions to under 8%, unless they are “core” positions.
- Keep my “head on a swivel” and actively and pre-emptively adjust the portfolio in accordance with critical Marco economic shifts such as when yields started to rise, it is better to leave some money on the table by reducing position sizes early than to be caught in a wider sell off.
- To not be stubborn with our positions and be willing to quickly change our positioning as any market and extraneous, macroeconomic shifts come.
- Just remember that these trades shouldn’t be chased or taken as gospel, as a paper portfolio any trades or risks taken on the website are purely for educational and theoretical purposes, if you wish to trade alongside this portfolio, I must insist you conduct your own thorough research prior and only invest capital you are willing to lose.
Please also find a permanently featured post updated weekly showing graphs containing the current portfolio assets, a % breakdown of each asset class allocation and a historical graph of the portfolios performance which is currently +5.1% since inception which can be found here.
Thank you for reading and I look forward to chatting to you on my first weekly news digest, overviewing interesting stories of the prior week, which when live can also be found here.
