Each quarter, we take a look at the recent transactions of some of the top money managers around today–who we call our Ultimate Stock-Pickers. Last quarter, two stocks were high-conviction purchases for a dozen of our favorite managers. What’s considered a high-conviction purchase? A high-conviction purchase is one that makes a meaningful addition to a portfolio, as measured by the size of the purchase in relation to the size of the portfolio.
First up is Alphabet GOOGL. We recently increased our fair value estimate on Alphabet by about 9%. Alphabet beat expectations with its second-quarter results. The company enjoyed an impressive increase in search ad revenue, and YouTube saw continuing growth in its advertising and subscription revenue. What do we expect from Alphabet going forward? We think Alphabet’s cash flow will continue to grow, because we’re confident that Google will maintain its leadership in the search market. We also expect YouTube to contribute more to Alphabet’s top and bottom lines. We assign Alphabet a wide economic moat rating and think shares are worth $3,200 each.
Next is Facebook FB. We modestly increased our fair value estimate of Facebook after the firm reported better-than-expected second-quarter top- and bottom-line results. The economic recovery has driven higher ad spending, a big chunk of which is allocated to Facebook and its properties. What do we expect going forward? Facebook continues to enhance its platforms as it improves e-commerce functionality, increases video content, and introduces more audio content–all of which increases overall ad inventory. Facebook is also investing in innovation for the long run, including Metaverse, which we view as the next stage of growth and development in virtual reality. We assign Facebook a wide economic moat rating and peg its shares with a $407 fair value estimate.
Senior analyst Ali Mogharabi, associate analysts Malik Ahmed Khan and Justin Pan, and analyst Eric Compton contributed the research behind this report.