Portfolio Review - August 2023
Portfolio Review - August 2023
Being Greedy When Others Are Fearful
Welcome back to the Wolf of Harcourt Street Newsletter.
Every month, I'll provide you with an update on my portfolio, including all of the transactions, the current allocation, and my buy list. In addition, I'll share a recap of the articles you may have missed from the previous month.
Transactions
New Position
Adyen (ADYEN.AS)
"Be greedy when others are fearful" is a famous investment principle coined by the legendary Warren Buffett. It suggests that in the world of investing, opportunities for significant gains often arise when the market is in a state of panic or pessimism.
After reporting H2 2023 earnings on 17 August, Adyen stock has dropped almost 50%. Investors got spooked because percieved competition in North America, where rivals cut prices, slowed its revenue growth and hiring costs hit margins. Still, Adyen posted net revenue growth of 21% and and an EBITA margin of 43%.
Adyen addresses the complex challenges of global payment processing, helping businesses efficiently manage diverse payment methods, currencies, and regulations across multiple markets.
Adyen stands out through its unified platform, providing seamless, all-in-one payment solutions that simplify the complexities of cross-border transactions, enhance customer experiences, and enable businesses to scale globally with ease.
Adyen is a stock that I have studied at length previously. However, I was not comfortable with the risk/reward it when it traded at €1,500 a share at a forward P/E of over 150.
While the stock is not cheap, I think that 33x earnings for a company that is growing +20% annually is very reasonable.
I added to my position in the following:
Evolution Gaming Group (EVVTY)
Evolution Gaming is a position that I initiated last month. Rather than regurgitating what I said last month, I want to share an interesting observation about the company. In the 2022 annual report it is revealed that one customer accounts for 14% of revenue which equates to €204 million.
While this might appear as a customer concentration risk, something else sticks out to me. For a single customer to spend this amount of money and not in-house or build the product themselves suggests that Evolution has a very strong competitive advantage.
When I opened the position last month the stock traded at 20x earnings. During August, this fell to 18x so I was more than happy to increase my position.
Allocation
Portseido is the tool that I have been using to track my portfolio for a number of years. I really like the charts that it produces and how it tracks performance. They also added a feature to automatically track dividends too. To top it off, it is effortless to update for new transactions. The team have kindly given me an affiliate link so if you would like to sign up you can click here.
Buy List
Stocks that are on my radar to add this month:
Chevron (CVX) - Chevron reported Q2 2023 earnings on 28 July. The company achieved an eighth consecutive quarter with a return on capital employed greater than 12% and a quarterly record in shareholder distributions exceeding $7 billion. Management discussed some details about completion of ongoing projects on the conference call. The Tengizchevroil (TCO) joint venture aims to deliver daily production exceeding 1 million barrels of oil equivalent and generate around $5 billion of free cash flow, assuming Chevron share prices at $60 Brent in 2025. The company is printing cash and expects to finalize the acquisition of PDC Energy in August after a shareholder vote.
PepsiCo (PEP) - I initiated a position in PepsiCo in February of this year. Fortunately (or unfortunately), the stock soared to all-time highs in the subsequent months so I did not get the opportunity to build out the position. The stock has pulled back over the past month and now trades at 22x earnings which is lower than the 25x I paid in February despite the share price now trading higher. This is a great example of a company trading at a higher share price but a lower valuation from growing its earnings.
The above charts are from Koyfin which is the tool that I use to screen and analyse stocks. In my opinion, it is the most comprehensive financial data and visualisation tool that makes the research process so much easier for investors. If you would like to try it for yourself, you can click here to sign up and receive a 10% discount.
Adyen (ADYEN.AS) - I would be comfortable increasing the weight of my Adyen position at the current level but I would be especially interested if it drops closer to 30x earnings.
In Case You Missed It
Some of the articles you might have missed during the past month:
Final Words
New positions are like buses, you wait months and then two come along almost at once! This is the advantage long-term investors have over institutions or traders. We can wait long enough for new opportunities to present themselves.
This was a busy month for earnings as demonstrated by the number of earnings reviews that I published. What you will notice in my portfolio allocation is that there is a clear divergence between the companies that are firing on all cylinders and the ones that are not performing as well. MercadoLibre and Microsoft are two examples of the former and hold 11.4% and 8.6% weights respectively. On the opposite side of the spectrum, NIO and Sea Limited both posted disappointing results and hold 2.1% and 1.9% weights.
Nepotism does not exist when it comes to portfolio management. The right to sit at the top of the table is earned. It is also important to remember that one bad quarter does not define a company or warrant panic selling.
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Happy investing
Wolf of Harcourt Street
Contact me
Twitter: @wolfofharcourt
Email: wolfofharcourtstreet@gmail.com