Alkeon Capital Management's 117 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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Alkeon Capital Management’s 117 Stock Portfolio: Top 10 Holdings Analyzed


Updated on October 8th, 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 $67.7 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-August 2018 through mid-August 2021) would have generated annualized total returns of 27.00%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.08% 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 117 individual stocks, the top 10 holdings account for around 32.8% of its public-equities part of the portfolio. That figure reaches about 49.7% when it comes to its 20 larger picks, which indicates a relatively concentrated allocation of funds.

However, no holding accounts for more than 5.2% of the total portfolio, which is quite unique among 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 sold the following entries:

New Buys:

New Sells:

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

Source: 13F filings, Author

Facebook (FB):

The social media giant is Alkeon’s largest holding, accounting for 5.2% of its portfolio. The company is one of the most reasonably valued in the tech/communications sector while still growing rapidly, despite more than 2.89 billion people using its services monthly.

Facebook is currently enjoying excellent financials, with a net cash position of $64 billion (roughly 6.6% 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 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. The company has reported an all-time high bottom line of $38.96 billion over the past four quarters, amid user growth and snowballing ARPU (Average Revenue Per User.)

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 23.7.

Alkeon trimmed its position by 11% during the quarter.

Alphabet (GOOGL)(GOOG):

Alphabet offers several well-known products, such as Google, 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.

Revenue growth has re-accelerated, with its most recent quarter posting growth of nearly 62%, 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 27.7 times its forward earnings, despite its consistent growth, massive moat, and strong balance sheet.

With its robust profitability, Alphabet has accumulated a cash and equivalents position of $135.8 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 $40 billion worth of stock over the past year, retiring shares at an all-time high rate.

Alkeon didn’t modify its position during the quarter. The stock accounts for around 4.9% of its portfolio.

Shopify (SHOP):

Shopify is Alkeon’s third-largest holding, comprising 3.6% 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 clearly 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 36.2 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 42 times its expected earnings in 2025.

Amazon (AMZN):

Being one of the five companies in the trillion-dollar-market-cap club, the company is currently the fourth-largest in the world, worth around $1.66T. As the company’s continuous advancements keep growing both in terms of its commerce and digital infrastructure, Amazon has become an unstoppable force.

However, investors should not expect a dividend from Amazon anytime soon.

Amazon delivered another solid quarter recently, with Q2 AWS net sales up 37% YoY to $14.81 billion, topping the $14.1 billion consensus estimate. Revenues grew to $113.1 billion, a 27.2% increase YoY, contributing to all-time high LTM (last twelve months) sales of $443.3 billion.

Due to scaling its operations, the company’s net income margins have expanded, reaching 6.64% last quarter. Amazon has turned into an increasingly profitable company. The stock is currently trading at a forward P/E of 59.2, but considering its EPS growth, it could be a reasonable valuation multiple.

Amazon stock accounts for 3.5% of Alkeon’s portfolio. The fund didn’t buy or sell any Amazon shares during the quarter.

RingCentral (RNG):

RingCentral is the fifth-largest holding of Alekeon’s portfolio, comprising 3.0% 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 any location. 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 25 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 around 159. However, with gross margins north of 70% the company should be able to rapidly accelerate its earnings growth. Therefore, valuing it based on its current (or next year’s) profitability needs context.

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. Revenue grew 36.4% over the prior year’s quarter.

Alkeon hiked its position by 15% during the quarter.

General Electric (GE):

Alkeon’s sixth-largest holding is the $113 billion diversified conglomerate, General Electric. The company operates in five segments: Power, Renewable Energy, Aviation, Healthcare, and Capital. General Electric continues to work through a major transformation, including taking a variety of actions to de-leverage its balance sheet. Various actions taken included reducing the quarterly dividend, accelerating the sell-down of Baker Hughes (to be fully monetized in three years), and selling some of its industrial and capital assets. Previously, GE had also sold Biopharma and Transportation assets.

Over the past decade, General Electric has managed to retain a solid cash position while reducing its long-term debt from ~$360 billion to $59.2 billion at the end of its latest quarter.

Alkeon is likely betting on General Electric succeeding in its prolonged transformation.

Microsoft (MSFT):

Microsoft is Alkeon’s seventh-largest holding, comprising ~2.8% of its portfolio. The fund held its position relatively stable during the quarter.

Microsoft is a mega-cap stock with a market capitalization of $2.2 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 $27.3 billion.

Annual revenue growth remains in the double-digits on a percentage basis, 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 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 $130 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 different. 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 $50 billion as of its last report.

It is impressive that a stock with a market capitalization of $2.1 trillion still has such a strong growth momentum. Shares are also trading at a P/E ratio of around 34.4, which is quite reasonable for a dominating tech behemoth.

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 currently 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. It is the fund’s eighth-largest position.

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. 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. The company has also not missed the analysts’ earnings-per-share estimates for 24 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 47.9 times its forward net income.

The company continued its consistent growth trajectory last quarter, delivering revenue growth of 14.1% to $728.2 million. Alkeon has been accumulating shares since 2014, but it trimmed its position by 8% during the previous quarter. The stock is currently Alkeon’s 9th largest holding.

Apple Inc. (AAPL):

Apple is currently the biggest company in the world in terms of its market capitalization, and the only company along with Microsoft 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. At the same time, the capital-light business model of services has resulted in gross margin expansion. Apple’s cash generation allows the company to repurchase massive amounts of stock, thereby boosting EPS over time.

Around $89.6 billion of stock was repurchased last year alone (more than Apple’s net income, though covered by free cash flow).

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

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 with excellent investment returns.

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

 

Additional Resources

See the articles below for analysis on other major investment firms/asset managers:

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