Dear Superinvestor Bulletin Follower,
At The Superinvestor Bulletin our porfolio is based exclusively on the highest conviction ideas of the world's greatest investors.
How do we decide who the greatest investors are? It is simple...we base our opinion on long track records of outperformance. Most of the investors we follow have generated pre-fee returns of close to 20 percent annualized for years.
The Superinvestor Bulletin portfolio is made up of the best ideas from these investors with the added bonus that we don't have to pay any of their fees!
Following this investors so far has produced very good results for us. You can take a free trial of our service for two weeks to see exactly what we are doing and how we do it:
seekingalpha.com/author/superinvestor-bulletin/research
There is also a full past issue that can be accessed here:
michaelburrys16portfolioweighting.gr8.com/
I would love to have you join our subscriber base. We are building something that is going to last for years. This next man may be someone who we borrow an idea from at some point in the future...
Saber Capital - Very Much On Our Radar
Over time our Superinvestor list will grow. I love reading letters from hedge fund managers both experienced and new.
I think many of you would enjoy reading the most recent letter from Saber Capital's John Huber. Here it is in its entirety:
www.superinvestorbulletin.com/2017/02/14/saber-capital-2016-investor-letter-up-23-8-before-fees/
This gentleman has clearly embraced the foundation of value investing that Warren Buffett has generously taught all of us who will listen.
I very much enjoyed all of John's letter. Here is what he had to say about his largest position which is Apple:
Apple is a company I began looking at in the fall of 2015 when the stock dropped from around $130 to $90 in a matter of just a few months. This was a massive $200 billion swing in market value, which I felt like was likely an overreaction one way or the other. As I began to think about Apple over the ensuing months, I came to realize one key variable that I think gave me a somewhat variant view from the majority of those who followed the company. As I visited stores, talked to consumers, studied their ecosystem, and considered the competition, I eventually came to the conclusion that Apple shouldn't be analyzed as a computer hardware manufacturer, it should be thought of as a consumer brand.
Consumer brands like Nike, Coca-Cola, or Starbucks all do somewhat similar things: they buy commodities (their raw materials) and sell brands. Nike's shoes and shirts might be nice, but the material isn't all that different than Russell's or Champion's, but you may not have even heard of the latter two companies and you likely have paid a 100% markup or more for Nike gear. The commodity material is similar, but Nike gets its 50% gross margins thanks to the brand that it has built over time.
I think from a 30,000 foot view, the key variable in my investment thesis for Apple was that the company had a superior consumer brand (as evidenced by the fact it takes nearly all of the smartphone industry's profits despite having less than a fifth of the market share). I felt this consumer brand was strong enough and durable enough to allow the business to continue to sell its hardware at very profitable levels.
Of course, the great business inside of Apple is their services business (the App Store, payments, music, etc…). The App Store did $28 billion in revenue last year, of which Apple gets a 30% cut which is nearly pure profit. The services business alone will reach somewhere around $30 billion this year, enough to place it inside the Fortune 100 if it were a standalone enterprise.
There are now over 1 billion Apple devices that are actively being used around the world, and this "installed base" continues to grow (over 100 million new active devices were added last year alone). Each of the billion devices act like miniature retail stores for Apple, collecting very high margin revenue on a recurring basis from the apps, games, music, storage, and payments.
While this services business depends on the hardware, I believe Apple's brand will lead to very predictable sales-hundreds of millions of iPhones, iPads, and Macs are sold each year, and I am willing to bet that this will be the case 5 years from now as well. The argument against Apple has often been that it's difficult to predict what product they'll be selling, given the rapid change in the technology landscape. I'd argue that whatever products become mainstream in the future, Apple will produce one that customers will buy. Two short years ago, Apple was not in the watch business. They are now the second largest watch company in the world.
When you look at Apple from a consumer standpoint, and observe the behavior of Apple's customers, it becomes clear that the company has something intangible that competitors like Samsung and others lack. Namely, I believe the company has a durable brand that will continue to lead to predictable sales over time.
When you combine this general view of the business with the incredibly cheap price the stock was trading at, it became apparent to me that there was significant value present in the shares. For less than $95, you were getting a very high-quality business that was producing $9 or $10 of free cash flow per share, and you got $30 per share of net cash to boot. At a P/FCF multiple of around 7 (after subtracting the excess cash), it seemed to be a no-brainer. Even at today's valuation of 10 or 11 times free cash flow, it still is very reasonably priced for such a good business.
We bought the stock in early January 2016, and added more in subsequent months, and it remains our largest position in the portfolio.
If John or any other hedge fund manager would be interested in participating in an interview series with us on Seeking Alpha please contact me (superinvestorbulletin@gmail.com).
For everyone else, have a great day!
Reese Morgan
Editor, The Superinvestor Bulletin
