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Fundamental Equity Portfolio Manager, Outperforming the Market Newsletter
Tencent offers strong downside protection plus several sources of upside. Net of cash and investee stakes it trades at about a 9.5% free-cash-flow yield, and $21.6B net cash, $80.6B of listed stakes and about $50B of unlisted ones cover roughly 20% of its $506B market cap with no long-term debt. It dominates Chinese social media, gaming and music. Upside comes from conservative AI gains in ads and cloud, buybacks management says target an undervalued stock, and convergence to US peer multiples. … Show more
Tencent owns one of the best closed loops from intent to identity to payment to fulfillment, yet trades as if AI agents will bypass it. Weixin combines 1.44 billion users with chat, payments, Mini Programs and merchant reach, so its Xiaowei agent can hand work to services that already know the user, a distribution and return advantage. About $75 billion of cash and $128 billion of investments against a $491 billion market cap leave the operating business near 7x roughly $40 billion of earnings. … Show more
Tencent needs no catalyst because its EPS keeps compounding steadily, and a long stretch of low prices is ultimately a gift if it buys back a ton of stock. Owning it through Prosus adds a second layer of buybacks at a discount. x.comÂ
Tencent's EV/EBITDA is at its lowest in a very long time, which may make it time to start buying. x.comÂ
Baidu should soon become a growth stock again, heavily exposed to AI through cloud, AI apps, ASICs and robotaxis. AI-powered businesses now make up 50% of revenue, and cloud is growing 30-40%. Yet the stock trades at only 13x forward earnings on Goldman's estimates, an attractive risk-reward worth adding to. Holding shares in Hong Kong guards against a possible US delisting of Chinese names. x.comÂ
Chinese stocks are uninvestable for long-term investors because the value created goes to the Communist Party, not shareholders. The Chinese index is down 16% since 1991 while the S&P 500 rose 1,570% and the Nasdaq 3,440%, and Alibaba has gained just 27.8% in 12 years since its IPO. When companies grow too strong, the party hits them with megafines, sidelines founders like Jack Ma or blocks game releases as at Tencent, and foreign investors own only VIE contracts, not shares. x.com x.com x.com … Show more