For all of the volatility of February, overall monthly performance for Project $1M wasn't much changed. After a strong performance in January, February was far more sedate, but with marked ups and downs through the month. What was notable in February was that the volatility in the markets in general was magnified and amplified in Project $1M specifically.
Volatility is something that this portfolio has seen in spades since its inception. A cursory look at the comparison versus the S&P 500 below shows the notable presence of major movements in monthly performance compared to the index. What is also notable is that while Project $1M certainly has had far more volatility than the S&P 500, by far, the overall trend has been steady and positive movement higher since inception.
The volatility is not much of a surprise to me. I am running a much more concentrated portfolio than the S&P 500. I have fewer than 20 components, compared to the S&P 500's 500. Further, my top 10 positions account for more than 50% of the portfolio value. I'm also very heavily invested in technology positions in my account.
Priceline (Booking.com) rediscovers its mojo
After last November's unceremonious sell-off, Priceline rediscovered its mojo and definitively put to rest any suggestions that it has gone ex-growth. Priceline (BKNG) delivered revenue growth of ~19% year over year, comfortably surpassing market estimates, and saw its stock rise some ~6% post earnings announcement. Booking Holdings was the largest positive contributor to Project $1M performance in February, and the position was up some 9% for the month. In recognition of the fact that the Bookings.com portal is now the largest overall contributor to the business, Priceline has renamed its business Booking Holdings.
I still believe that the investment thesis behind Booking Holdings is still very much intact. Properties in Europe and Asia tend to have incredibly fragmented ownership, and the service of an operator such as Bookings to aggregate inventory in a way that it can enable discovery by consumers fills a need in the online travel market. As economic growth in emerging market economies continues, some of that increase in disposable income will be spent on leisure travel, particularly to destinations in Europe where Booking.com has dominant share. Priceline's investment and partnership with Ctrip.com (CTRP) leaves it well positioned to capture this incremental demand.
Mercadolibre accelerates LATAM e-commerce domination
Mercadolibre (MELI) continued its strong run again in February, building on a solid month in January, where the stock was up some 21%. February saw overall gains of 5%.
I reassessed my view of MELI recently. I had argued before that Mercadolibre was a great business that had probably gotten ahead of itself in terms of valuation. This was because the PE ratio was over 100, and the PEG ratio was over 4. However, what's been interesting to see in MELI's results is that the business is moving for outright domination and a complete lock on LATAM e-commerce within the next 2-3 years.
Recent results suggest that it may in fact get there within this time. In its quest to 'put the pedal to the metal', Mercadolibre is sacrificing short-term profitability. However, I argue that this is ultimately to shareholders' benefit, and MELI may well appear a bargain at these levels in hindsight.
Baidu's recovery from 'cancer scandal' on track
Baidu (BIDU) is displaying signs that it is finally getting over the 'cancer scandal' that got the company in hot water with the regulators and had significant business and financial impacts for Baidu. Baidu revenue plummeted in the wake of a student's death over a spurious cancer cure found via Baidu search. Baidu's stock plunged over 20% to a low of $160 in mid-2016, and revenues significantly declined as advertisers avoided Baidu. Those dark days are well behind Baidu, with the stock price now up near $260. Baidu was up almost 7% in February and a major contributor to $1M's performance.
With that said, I am still leery of the political and regulatory environment in China, which is less than transparent. That lack of transparency can make these businesses targets of the government at will. There is no reason to believe that Baidu's business may not see another attack that's of a similar nature to what it experienced just a couple of years ago. This is the main reason that I require a large margin of safety for any Chinese investments and why I keep a cap on my investment in these businesses.
Celgene (CELG) continues tripping over its feet and just keeps going from bad to worse. The company's latest blunder was an incorrect filing for Ozanimod. I should have learnt from management's prior blunders and pared back my position, but I just can't help myself in persisting with this business. I love the Celgene model. It really functions as a biotech venture capital business, outsourcing drug development, taking large equity positions in promising biotech startups with the potential for acquisitions of start-ups that rise to the top. The Juno acquisition is an example of this type of play. I really do believe that this is the right model for drug commercialization and that Celgene is making the right moves with its cash windfall from its Revlimid franchise.
I also believe Celgene has been beaten down beyond what is warranted and will reward my persistence with this business. Still, I also have the luxury of persisting with Celgene, because the business performance of most of the other positions in Project $1M has been very good, and this has led to good share price performance as well. Celgene now only accounts for 2.5% of Project $1M value, and thus its continued poor performance isn't having major impacts on my portfolio returns.
Overall, it was a case of much drama and excitement through February for very little change for the portfolio last month. Doing nothing again proved to be the right course of action.
I'll be back in March to wrap up Q1 2018 for the portfolio.