HomeInvesmentCharlie Munger Plunges Deeper Into Alibaba

Charlie Munger Plunges Deeper Into Alibaba

Summary

  • Munger’s Daily Journal only added to one holding during the third quarter.

Renowned investor Charlie Munger (Trades, Portfolio), the chairman of Daily Journal Corp

DJCO
. (DJCO, Financial), disclosed his California-based publishing company’s third-quarter portfolio earlier this week.

Also the vice chairman of Berkshire Hathaway

BRK.B
(BRK.A, Financial)(BRK.B, Financial), Munger is known for using his dry wit and keen mind when helping Warren Buffett (Trades, Portfolio) make investing decisions. He has developed a latticework of mental models to help solve critical business problems.

While Munger’s Daily Journal has positions in five stocks, he only added to one of them during the three months ended Sept. 30.

The guru boosted his position in Alibaba Group Holding Ltd. (BABA, Financial) by 82.71% during the quarter, buying 136,740 shares. The trade had an impact of 8.99% on the equity portfolio. The stock traded for an average price of $182.30 per share during the quarter.

He now holds 302,060 shares total, which account for 19.86% of the equity portfolio.

The e-commerce giant, which has seen its stock fall in recent months amid a crackdown on tech stocks by the Chinese government, has a $388.4 billion market cap; its shares were trading around $143.14 on Tuesday with a price-earnings ratio of 17.48, a price-book ratio of 2.56 and a price-sales ratio of 3.37.

The GF Value Line

VALU
suggests the stock is significantly undervalued currently based on historical ratios, past performance and future earnings projections.

GuruFocus rated Alibaba’s financial strength 7 out of 10. The company has a good cash-debt ratio, a comfortable level of interest coverage and a robust Altman Z-Score of 3.83, indicating it is in good standing. The return on invested capital also eclipses the weighted average cost of capital, indicating good value creation is occurring as the company grows.

The company’s profitability fared a bit better with an 8 out of 10 rating. Although the operating margin is in decline, Alibaba has strong returns on equity, assets and capital that outperform a majority of competitors as well as a moderate Piotroski F-Score of 5, meaning conditions are typical for a stable company. Despite recording consistent earnings and revenue growth, the predictability rank of three out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 8.2% annually over a 10-year period.

Baillie Gifford (Trades, Portfolio) is Alibaba’s largest guru shareholder with a 0.95% stake. Other top guru investors include PRIMECAP Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Dodge & Cox, Frank Sands (Trades, Portfolio), Pioneer Investments, Chase Coleman (Trades, Portfolio), Chris Davis (Trades, Portfolio), Al Gore (Trades, Portfolio), Ron Baron (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Tweedy Browne (Trades, Portfolio), Tom Russo (Trades, Portfolio), Ray Dalio (Trades, Portfolio), David Herro (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).

Additional holdings and portfolio composition

The four other stocks that make up Munger’s $213 million equity portfolio are Bank of America Corp

BAC
. (BAC, Financial), Wells Fargo & Co

WFC
. (WFC, Financial), U.S. Bancorp

TBBK
(USB, Financial) and POSCO (PKX, Financial).

The financial services sector has the largest representation with a weight of 82.05%. The basic materials and consumer cyclical spaces have much smaller presences.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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