Thursday, September 11, 2014

What are we doing with Alibaba?

Next week marks the highly publicized IPO launch of Alibaba. Alibaba is an ingenious blend of Google and Amazon in the grand ecosystem of China. It provides e-commerce along with corralling revenue from paid search. Its success story rivals the most successful technology companies that have ever come to the marketplace.

Alibaba plans to offer 320 million shares with an initial indicated price range of between 60 and 66. Facebook, by comparison, offered 421 million shares at 38 on its initial day. At the estimated price range, Alibaba would rank in size as one of our top 20 largest companies by market capitalization, ahead of IBM and Amazon, and trailing Facebook by a slight amount.

Alibaba is a profitable engine. According to its accounting, they generated $1.7 billion in profits from $6.5 billion in sales last year. They boast a staggering 48% operating margin.

On any IPOs like this, we try to gain as many shares as we can for our clients. Since the size of this offering vastly exceeds GoPro, which came out earlier this summer, it is likely that our clients will be able to participate.

Will Alibaba provide profits ? Yes, most likely. The enthusiasm for this offering is enormous. The picture is more murky over the longer term. Alibaba faces intense competitive pressures from the likes of Baidu and Tencent as it seeks to protect its fat margins and cash flows.

We plan to invest in this company during this IPO phase/craze. At this point, our intentions would be to hold it only for the short term, which means, only for a few weeks.

Friday, September 5, 2014

Building a better portfolio

A key component to “making assets thrive” is investing in companies that are truly representative of the best in industry. These businesses are fascinating, captivating, and are changing the landscape of business. Examples of these are Facebook, Linkedin, Netflix, and Tesla. These have been premier stocks over the past two years. Naturally, companies like these are superb investments for a portfolio.

Buying and holding long term winners remains challenging. Often times, a stock like Tesla, for example, will appreciate 50% only to retreat 25%. Then, you ask the question, will it recover or fall further?

Our aim is to markedly improve our work at finding solid long term holdings for our client portfolios. This means a laser focus on research which can determine which stocks are worth holding for the long pull. These would be stocks that we would intend to hold through market fluctuations. This period would ideally exceed one year. We also want to identify these core holdings and communicate them to you. Your expectation should be that these stocks will be a cornerstone of your long term investment gains.

One of these stocks is Gilead Sciences, a drug research firm. Among other products, Gilead’s main drug is Sovaldi which treats Hepatitis C. The market for this drug is huge and growing. The World Health Organization estimates 130-150 million people are infected with this virus. Gilead estimates sales of this drug alone to be north of $14 billion in 2014 following its approval in December 2013. Meanwhile, total companywide sales for 2014 are estimated to be north of $24 billion. This is up from $11 billion in 2013! The impact of the products from this accelerating drug company could be far reaching. In the category of breakthrough medicine, Gilead holds the characteristics of a good long term investment.