Alkeon Capital Management's 126 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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Alkeon Capital Management’s 126 Stock Portfolio: Top 10 Holdings Analyzed


Updated on April 12th, 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 $61.0 billion, of which around $11.0 billion is allocated in public equities.

Investors following the company’s 13F filings over the last 3 years (from mid-February 2018 through mid-February 2021) would have generated annualized total returns of 31.36%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 12.50% 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 152.

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 half of Alkeon’s portfolio consists of public equities, while the rest embodies several options, as hedge funds do to alleviate their risk profile. The company’s picks reflect management’s tech and media-oriented strategy. These two sectors occupy around 63% collectively.

Source: 13F filings, Author

Out of Alkeon’s 126 individual stocks, the top 10 holdings account for around 32.2% of its public-equities part of the portfolio. That figure reaches about 50% when it comes to its 20 larger picks, which indicates a relatively concentrated allocation of funds.

However, no holding accounts for more than 5% of the total holdings, 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, with both their quarterly revenues and net income hitting an all-time high of $56.9 billion and $15.2 billion, respectively.

The three-year revenue CAGR (compound annual growth rate) currently stands at an impressive 18%, 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 31 times its forward earnings, despite its consistent growth, massive moat, and AAA balance sheet.

With its robust profitability, Alphabet has accumulated a cash and equivalents position of $136 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. Alphabet has repurchased nearly $32 billion worth of stock over the past year, retiring shares at an all-time high rate.

Alkeon trimmed its stock position by 18% during the quarter, though it purchased around $826 million worth of call options, which means that the fund remains quite confident in the company’s long-term prospects. The stock accounts for 4.8% of Alekon’s portfolio.

RingCentral (RNG):

RingCentral is the second-largest holding of the portfolio of Alkeon, comprising 4.6% 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 23 consecutive quarters. Furthermore, revenue growth remains robust, with the 3-year revenue CAGR at an impressive 32.9%.

The stock trades at a hefty forward P/E ratio of 248.5; 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 32% over the prior year’s quarter.

Alkeon trimmed its position by 4% 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 writing 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. Nearly $76 billion of stock was repurchased last year alone, which utterly mind-bending.

Alkeon increased its stake in Apple by 11% during the quarter.

Amazon.com, Inc. (AMZN):

Amazon is Alkeon’s fourth-largest holding, comprising 3.2% of its 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 around 90%. Hence, the stock’s seemingly high forward P/E of about 66 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 the third quarter, Amazon grew its revenue by 43.6% to $125.5 billion while net income reached new all-time highs of $7.22 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 the rally of Amazon stock this past year, amid massive net income growth expectations. However, investors should not expect an Amazon dividend payment any time soon.

Alkeon trimmed its stake by around 5% as shown in its latest quarterly filings.

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 has reached new all-time highs over the past four quarters, at nearly $26.1B.

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, though 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 $153.28 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 (59% buyback “payout ratio”), but long-term debt has been substantially reduced from $76 billion in mid-2017 to around $55 billion as of its last report.

Alkeon held its position steady during its latest quarter.

Shopify (SHOP):

Shopify is Alkeon’s sixth-largest holding, comprising 2.8% 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% YoY in 2020. 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 35 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 53 times its expected earnings in 2025. As a result, the stock will have material downside risk whenever it faces an unforeseen headwind.

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 seventh-largest position. The stock has nearly quadrupled since the initial purchase and is now hovering around an all-time high, thus showcasing the conviction of the hedge fund, which has been long in FB for years.

Facebook is currently enjoying excellent financials, with a net cash position of $62 billion (7% of the market capitalization of the stock). Facebook is one of the extremely few companies that have no debt. This is a testament to the strength of its business model and its perfect execution.

Moreover, even though half 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. Facebook delivered an all-time high top & bottom line of $28.07 billion and $11.2 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 26.7.

Recently FTC and a coalition of states announced filing lawsuits against Facebook, charging the company with an illegal monopoly. However, even if the company was to be broken into two different entities, this could unlock additional value for shareholders, due to Instagram’s potential valuation expansion.

Alkeon trimmed its Facebook by just 1% during the past quarter.

Pinterest (PINS):

Pinterest is Alkeon’s 8th largest holding and accounts for around 2.7% of Alkeon’s portfolio. The company has been publicly traded for just over a year; however, its shares have more than doubled since its IPO. Pinterest has greatly benefited from the ongoing pandemic, since online traffic for home improvement and related ideas have been snowballing. Q4 revenues hit an all-time high, further fueling investors’ excitement towards the company becoming one of the dominant idea-sharing social networks.

Pinterest was one of Alkeon’s biggest position increases during the quarter, purchasing nearly 3 million shares, which equates to 40% of its previous stake.

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 21 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 47 times its forward net income.

The company continued its consistent growth trajectory last quarter, delivering all-time high revenues and net income of $759 million and $173 million, respectively. Alkeon has been accumulating shares since 2014, while it increased its position once again during the latest quarter by 1%. The stock is currently Alkeon’s 9th largest holding.

Twilio Inc. (TWLO):

Twilio is a cloud communications platform that empowers developers to develop, scale, and operate customer engagement within software applications. The company has enjoyed strong growth over the past few years, as it serves the growing demand for cloud infrastructure. Twilio has posted higher quarter-over-quarter revenues for 27 consecutive quarters, while growth remains at a robust 55.3%. Still, amid one of the few consistent hyper-growth companies, the stock has attracted a rich price/sales multiple of 24.7.

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:

Athanor Capital’s 534 Stock Portfolio: Top 10 Holdings Analyzed

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

Akre Capital’s 26 Stock Portfolio: Top 10 Holdings Analyzed

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

Slate Path Capital’s 20 Stock Portfolio: Top 10 Holdings Analyzed

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