Alkeon Capital Management's 121 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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Alkeon Capital Management’s 121 Stock Portfolio: Top 10 Holdings Analyzed


Updated on June 17th, 2021 by Nikolaos Sismanis

Alkeon Capital Management is a privately owned registered investment adviser out of New York. The company was formed in 2002 as a spin-off from CIBC Oppenheimer.

Two key individuals govern the firm, Takis Sparaggis, President and CIO, and Alex Tahsili, who performs the Managing Director role.

They both oversee Alkeon Capital Management’s portfolio, which is valued at approximately $67.2 billion, of which around $21.8 billion is allocated in public equities.

Investors following the company’s 13F filings over the last 3 years (from mid-May 2018 through mid-May 2021) would have generated annualized total returns of 26.88%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.60% over the same time period.

Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.

You can download an Excel spreadsheet with metrics that matter of Alkeon Capital Management’s current 13F equity holdings below:

 

Keep reading this article to learn more about Alkeon Capital Management.

Table Of Contents

Alkeon’s Approach To Investing

Alkeon has stayed away from the spotlight for decades, publishing limited information regarding its operations and investment philosophy. An interview with management from its early days, however, reveals essential info which seems to hold up in the present day.

Its research process is a 100% bottom-up, fundamentally-driven, research-concentrated procedure to investing. Their flagship strategy involves identifying significant potential returns in Technology, Media, Telecom (“TMT”) in the broadest of scope. Applying a bottom-up strategy implies that Alkeon focuses on individual securities rather than on the overall movements in the securities market.

Mr. Sparaggis, who holds the final word for any investment, aims for a 12 to 24-month time horizon for Alkeon’s holdings and discourages short-term trading. Alkeon avoids timing the direction of the market and aims to generate alpha based on its exceptional stock-picking skills. It also has an elaborate network of industry contacts, with whom it is in continuous talks in order to identify industry trends before they become apparent to Wall Street.

Alkeon is primarily focused on investing in stocks with impressive growth rates. Many investors hesitate to invest in this type of stock due to their excessive price-to-earnings ratios but Alkeon has proved competent in identifying high-growth stocks that produce outsized returns. Notably, the average price-to-earnings ratio of the stock portfolio of Alkeon currently stands at 57.43.

In terms of risk management, the company’s in-house risk manager is responsible for periodic checks to ensure diversification among individual securities and sectors, liquidity, and overall fund exposures.

Finally, Alkeon manages its clients on a pari passu basis. In other words, clients are treated in an equal-footing manner, managed without preference. By comparison, some hedge funds may differentiate among multiple classes of clients, based on their available capital and reputation.

Alkeon’s Portfolio & Top Holdings

Around 1/3 of Alkeon’s portfolio consists of public equities, while the rest embodies several options, as hedge funds often do to alleviate their risk profile. The picks reflect management’s tech and media-oriented strategy. These two sectors occupy nearly 60% collectively.

Source: 13F filings, Author

Out of Alkeon’s 121 individual stocks, the top 10 holdings account for around 29.9% of its public-equities part of the portfolio. That figure reaches about 45.5% when it comes to its 20 larger picks, which indicates a relatively concentrated allocation of funds.

However, no holding accounts for more than 6% of the total portfolio, which is quite unique amongst the various funds we have covered. That being said, the fund’s sector diversification may be a bit weak due to the almost exclusive focus of Alkeon on the tech and media sectors.

During the period covering Alkeon’s latest 13F filing, the fund initiated and ditched the following entries:

New Buys (at least 0.5% of the total portfolio):

New Sells:

As of the fund’s latest 13F filing, the following are the top 10 holdings of Alkeon:

Source: 13F filings, Author

Alphabet (GOOG)(GOOGL):

Alphabet offers several well-known products, such as Ads, Android, Chrome, Google Cloud, Google Maps, Google Play, YouTube, as well as technical infrastructure. While the company’s expansion has lasted for more than a decade and a half, it is still a high-growth stock.

The company’s most recent quarter was once again a blockbuster, pushing the company’s LTM (Last Twelve Month) revenues and net income to a new all-time high of $196.6 billion and $51.3 billion, respectively.

The three-year revenue CAGR (compound annual growth rate) currently stands at an impressive 18.82%, despite the deceleration caused during the first couple of quarters during the initial pandemic outbreak.

The company is one of the most attractively priced stocks in the sector as well, trading at around 29 times its forward earnings, despite its consistent growth, massive moat, and pristine balance sheet.

With its robust profitability, Alphabet has accumulated a cash and equivalents position of $135 billion. As a result, the company can comfortably afford to burn up cash for its long-term bets, such as Waymo, and in the meantime return ample dollars back to its shareholders through buybacks. Alphabet has repurchased nearly $34 billion worth of stock over the past year, retiring shares at an all-time high rate.

Alkeon increased its stock position by 24% during the quarter, which means that the fund remains quite confident in the company’s long-term prospects. The stock accounts for 5.7% of Alekon’s portfolio.

Facebook Inc. (FB):

Alkeon has been holding Facebook since Q3-2014 and has been building its position continuously, currently featuring an average buying price of around $163. It is currently the fund’s second-largest position. The stock has nearly quadrupled since the initial purchase and is now hovering near an all-time high, thus showcasing a great success story for the hedge fund.

Facebook has excellent financials, with a net cash position of $64.2 billion (6.8% of the market capitalization of the stock). Facebook is one of the few companies that have no debt. This is a testament to the strength of its business model and its clean execution.

Moreover, even though more than 1/3 of the globe uses at least one of the apps of Facebook on a monthly basis, its user base is still growing at double-digit rates. In fact, Facebook’s MAU growth rate has remained robust, never falling under the double-digits, which is hard to believe considering its 2.8 billion user base.

In its latest quarter, Facebook delivered an excellent quarter driving the company’s LTM (Last Twelve Month) revenues and net income to a new all-time high of $94.4 billion and $33.74 billion, respectively.

For these reasons, it would not be a complete surprise if Facebook paid a dividend at some point in the future.

Facebook remains one of the most cheaply valued growth stocks out there, still retaining 20%+ revenue growth, but trading at a forward P/E of just around 25. Therefore, we expect the company to continue executing strong stock buybacks.

As always, the usual risks include the frequent waves of adverse publicity, possible fines from the EU as has been the case in the past, and competition in pulling away ad buyers as growing platforms such as Pinterest (PINS) are also expanding constantly. Still, the company’s inexpensive valuation should account for these risks more than adequately.

Alkeon held its Facebook almost constant, purchasing just over 12,000 shares during the quarter.

Apple Inc. (AAPL):

Apple is currently the biggest company in the world in terms of its market capitalization, and the only company currently in the 2-trillion dollar club as of this article. Apple’s secret in delivering incredible shareholder value as of late, is the company’s ability to maximize its profitability by expanding its “services” sales, which are also of recurring nature.

As a result, the cyclicality involved with selling only hardware has evaporated, while the capital-light business model that services enjoy has resulted in Apple’s gross margins expanding. Management has been using Apple’s unparalleled cash generation to repurchase massive amounts of stock, boosting EPS over time.

Around $81.6 billion of stock was repurchased last year alone (more than Apple’s net income, though covered by free cash flow), which utterly mind-bending.

Alkeon sold less than 1% of its position last quarter.

RingCentral (RNG):

RingCentral is the fourth-largest holding of Alekeon’s portfolio, comprising 2.7% of its total value. The company offers software solutions that enable businesses to communicate and connect. Its products include RingCentral Office, which facilitates communication across various modes, including high-definition voice, video, SMS, and conferencing.

RingCentral greatly benefited from the coronavirus crisis, which led numerous companies to adopt a work-from-anywhere model. Companies now require communications solutions in which the employees can work efficiently with their colleagues and their customers from anywhere. RingCentral initiated cloud migration of business communications more than a decade ago and is now ideally positioned to benefit from the transformation of the business landscape.

The company has grown its revenue every single year in the past 11 years, with a greater than 15-fold increase over this period. It has also exceeded the analysts’ earnings-per-share estimates for 24 consecutive quarters. Furthermore, revenue growth remains robust, with the 3-year revenue CAGR at an impressive 32.8%.

The stock trades at a hefty forward P/E ratio of around 210. However, with gross margins north of 70% the company should be able to rapidly accelerate its profitability by the time its growth has matured. Therefore, valuing it based on its current (or next year’s) profitability, needs context around it.

RingCentral still has ample room to grow further. This was clear in the latest quarter, in which RingCentral enjoyed double-digit growth in messaging and triple-digit growth in video and mobile voice minutes on its Message Video Platform and thus grew its revenue 31.7% over the prior year’s quarter.

Alkeon trimmed its position by 10% during the quarter.

Amazon.com, Inc. (AMZN):

Amazon is Alkeon’s fifth-largest holding, comprising 2.7% of its portfolio’s total value. The internet infrastructure and retail giant has vastly outperformed the S&P 500 over the last three years. As a result, it has been a major contributor to the aforementioned out-performance of Alkeon versus the broader market.

Amazon benefits from a strong secular trend, namely the continuous shift of consumers from conventional shopping to online shopping. The online giant enjoys a wide moat, particularly given its enormous economies of scale. Amazon has grown its revenues and its earnings per share at a 3-year CAGR of nearly 30% and 90%, respectively. Hence, the stock’s seemingly high forward P/E of about 58 should be quite easily justified.

Even better, the secular shift from brick-and-mortar retail to online shopping has accelerated this year thanks to the pandemic.

In Q1, Amazon grew its revenue by 43.7% to $108.52 billion while net income reached new all-time highs of $8.11 billion. While the pandemic is likely to subside from next year, the consumers who have recently shifted from conventional to online purchases are likely to adopt online shopping for the long run thanks to its convenience.

This helps explain Amazon’s massive net income growth expectations. However, investors should not expect an Amazon dividend payment any time soon.

Alkeon held its stake stable during the quarter, purchasing just 441 additional shares.

Microsoft (MSFT):

Microsoft’s diversified portfolio of tech products and services has ruled the tech sector’s digital infrastructure. The company’s CEO Satya Nadella has transformed the company into a cloud powerhouse. As a result, Microsoft has managed to accelerate its growth and post all-time high earnings in the last two years.

Microsoft is now a mega-cap stock with a market capitalization of $1.9 trillion.

Supported by the company’s strong profitability, management has been consistently raising buybacks over the past decade, to further reward its shareholders. The amount allocated to stock repurchases hovers near all-time high levels, amounting to around $26 billion over the past four quarters.

Revenue growth remains in the double-digits, so it’s likely to see capital returns accelerating moving forward. The company is also growing the dividend at a double-digit rate. Still, at the current yield which stands below 1%, investors should expect the majority of their future returns in the form of capital gains.

Despite that, Microsoft’s cash position has been growing continually, with the company currently sitting on top of a massive $125 billion cash pile.

Further, while many companies have chosen to utilize the current ultra-low interest rates to raise cheap debt and buy back stock, Microsoft’s approach has been prudent and thoughtful. Not only are current earnings extensively covering buybacks (46% buyback “payout ratio”), but long-term debt has been substantially reduced from $76 billion in mid-2017 to around $50 billion as of its last report.

Alkeon trimmed its position by around 20% during its latest quarter.

Cadence Design Systems (CDNS):

Cadence Design Systems provides software, hardware, services, and reusable integrated circuit design blocks worldwide. The company benefits from some generational growth drivers, such as 5G, artificial intelligence, and hyper-scale computing. Thanks to these growth drivers, Cadence Design Systems enjoys strong growth in the demand for its relevant software and hardware solutions as well as its Intelligent System Design.

It is thus not surprising that the company has more than doubled its earnings per share in the last two years. It is also admirable that the company has not missed the analysts’ earnings-per-share estimates for 22 consecutive quarters. This impressive performance helps explain the fact that the stock has more than doubled in the last two years. The stock has undergone a valuation expansion during this period as well, currently trading at 43.1 times its forward net income.

The company continued its consistent growth trajectory last quarter, delivering an all-time high net income of $187.17 million. Alkeon has been accumulating shares since 2014, while it increased its position once again during the latest quarter by 2%. The stock is currently Alkeon’s 7th largest holding.

Shopify (SHOP):

Shopify is Alkeon’s eighth-largest holding, comprising 2.2% of the total value of its portfolio. Shopify provides a cloud-based commerce platform, which enables merchants to adapt to the e-commerce era. The company obviously benefits from a secular trend, which has decades to run, namely the shift from brick-and-mortar purchases to online purchases. The pandemic has caused this long-term trend to accelerate at an enormous pace.

As a result, Shopify saw its revenues grow by 85.6% last year. Due to the company’s recurring revenues, accelerated growth, and positive catalysts surrounding e-commerce, the stock is currently trading a forward price/sales of 33 which is one of the highest valuation multiples in the industry.

Thanks to the tremendous growth potential of its business, Shopify is expected to keep growing its revenues and its earnings at a breathtaking pace for several more years. Nonetheless, the market has already priced in a large portion of future growth in the stock price. To provide a perspective, the stock is currently trading at 52 times its expected earnings in 2025.

Synopsys, Inc. (SNPS):

Synopsys develops electronic design automation software products used to compose and test integrated circuits. Both the company’s top & bottom lines have expanded rapidly over the past few years, as Synopsys benefited greatly from the growing global demand for chips.

Analysts are expecting annualized earnings growth of around 15% in the medium term. However, trading at a forward P/E of over 40 while still not paying a dividend, current investors face a very thin margin of safety.

The position was held nearly flat during Alkeon’s latest quarter.

Booking Holdings Inc. (BKNG):

The traveling industry giant Booking Holdings was adversely impacted last year as the pandemic dried international traveling completely. Despite the company recording only just over 1/3 of its past revenues over the past four quarters, Booking remains profitable due to its asset-light business model which enjoys high profit margins.

The company’s future success will rely on how strongly international travel demand resumes, which is still an unknown factor. Shares have recovered massively from last year’s lows, with investors pricing Booking as if its profitability levels will even exceed its past ones.

The stock is currently trading at 67 times its FY2021 net income and 25 times its FY2022 income. If the company fails to deliver on investors’ hiked expectations, the stock is likely to correct to more reasonable levels.

Alkeon boosted its equity position by 37% during the quarter, becoming increasingly confident in the company’s recovery scenario.

Final Thoughts

Despite Alkeon’s low profile and preference to not attract media attention, the company is a silent achiever. Displaying market-beating returns by unlocking the alpha potential on multiple stocks, management has delivered for clients by taking excellent care of their capital.

You can download an Excel spreadsheet with metrics that matter of Alkeon Capital Management current 13F equity holdings below:

 

Additional Resources:

Pershing Square: Bill Ackman’s 7 Stock Market-Beating Portfolio

Bridgewater Associates’ 411 Stock Portfolio: Top 10 Holdings Analyzed

Appaloosa Management’s 40 Stock Portfolio: Top 10 Holdings Analyzed

Viking Global’s 75 Stock Portfolio: Top 10 Holdings Analyzed

Lone Pine Capital’s 37 Stock Portfolio: Top 10 Holdings Analyzed

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