Summary
Portfolio's strategy is focused on investing in growth stocks with a long-term view.
Likely undervalued on the basis of forecasted earnings growth.
Well-diversified across a range of individual companies. High level of concentration in specific sectors such as software, fintech, cloud computing, cybersecurity, AI and others.
My Portfolio was started in early 2023 but major funding took place in March/April 2023.
Introduction
Investing in growth stocks has been a successful strategy for many investors in recent years. While this approach may be riskier than investing in established, dividend-paying companies, the prospect of significant long-term gains is a tantalizing proposition for many investors.
In my case, I have built a growth technology investment portfolio focused on companies in software, fintech, cloud computing, cybersecurity, and AI. The approach is based on the idea that these industries are constantly evolving and growing, and that companies operating in these sectors have the potential to generate large profits over the long term.
To achieve proper diversification, I have chosen leading companies in each of these sectors, rather than investing in a single name in each industry. My portfolio includes companies such as Microsoft, Datadog, Mercadolibre, Hubspot, The Trade Desk, Alphabet, Shopify, SuperMicroComputer, Upstart, Airbnb, Global-e, among others.
In addition to sector diversification, I also make sure to maintain a proper balance between large and small companies. As a long-term investor, I look for companies that have a sustainable competitive advantage and clear leadership direction in their respective markets.
In my view, owning between 25 to 30 stocks strikes a sweet spot. At this level of diversification, an investor can enjoy the benefits of diversifying across different companies while also making strategic stock-picking bets that can have a significant impact on portfolio returns.
In summary, my growth technology investment portfolio is designed to take advantage of the long-term growth potential of leading companies in the software, fintech, cloud computing, cybersecurity, and AI sectors. While this strategy may be riskier than conventional investments, investing in growth technology is a prudent approach for investors seeking significant long-term returns.
The Big Picture
The main macro perspective has not changed much in recent weeks. As we approach the end of 2023, it's likely that stocks will be priced based on expectations for 2024 and beyond. With greater visibility into both inflation and interest rates, I am cautiously optimistic about returns for the full year.
For investors with a long time horizon of 3-5 years or more, the potential for upside is exceptionally attractive. Many tech stocks reached historic lows in valuation last year, and the macro environment has tremendous room for improvement compared to the current record levels of uncertainty. However, a recession may be necessary before we reach that point, which could make the market environment unpredictable in the short term.
That is why my Portfolio's investment philosophy is based on long-term growth stocks, where despite short-term fluctuations, the fundamentals and growth potential of each company, as well as the management team, are solid and undervalued. These small/mid-caps are not as closely followed by analysts as large ones, making it more feasible to find undervalued companies below their fair value.
Overall, SaaS stocks are currently trading at historically low valuations, a complete reversal from just two years ago when they were trading at historically high valuations. This is why it may be worthwhile to re-examine this asset class.
Portfolio Composition
I have started a new investment account with initial funding of $40,000 added around mid-February 2023. The idea is to add $2-3k in cash each month and wait for investment opportunities where timing and momentum are favorable in the companies I follow.
Regarding the monitoring of my portfolio, each week I will analyze 3 companies in order of exposure, as well as momentum, future expectations, quarterly earnings analysis, undervalue purchase price, target price, among others. Likewise, in the exclusive section of Artabria Partners there will be an update when Buys/Sells of any company in the portfolio are made.
Similarly, every week I will make a pick of 2 stocks from my watchlist of companies that I believe are suitable and potentially buying in the short term.
The current portfolio return, as of May 18, is over 20.5%. So far, I have not divested any stocks, nor do I plan to in the future, unless the core company's long-term outlook, expectations, and management team change substantially -not just because of a quarter Revenue/EPS missed consensus. So the idea is to Buy & Hold if there is no significant changes.
So my portfolio is as follows:
Top Picks 2023
My top picks for this 2023 are HUBS, MELI and DDOG. I will provide a brief summary of highlights for these three stocks, which I will analyze more deeply in the following week.
HubSpot, Inc (HUBS)
Provides a cloud-based CRM platform for businesses in the Americas, Europe, and the Asia Pacific. Also appears to be well-positioned with a unique product strategy to credibly capitalize on generative AI in the near term and is consistently beating expectations.
Despite its current high valuation - since has appreciated nearly 60% YTD - HubSpot still has significant potential to sustain its double-digit growth rate. Therefore, I believe that this stock will continue to trade at a premium multiple and outperform in the next 5-7 years. Considering the company's expanding product portfolio, large total addressable market (TAM), AI potential, and ongoing growth, it seems reasonable to have faith in its prospects. Hence, I want to reaffirm my buy recommendation for this stock.
MercadoLibre, Inc (MELI)
Operates online commerce platforms in Latin America. Its marketplace allows businesses, merchants, and individuals to conduct sales and purchases online, while also its FinTech platform enables online transactions and money transfers. The company also offers investment and loan services, as well as logistics and advertising solutions. MercadoLibre was founded in 1999 and is based in Montevideo, Uruguay.
MercadoLibre caught my attention because of its massive scale and competitive advantages. Like HUBS, MELI is not cheaply valued today but for several reasons including the strong earnings momentum, I believe its stock will move higher in the coming months. Most important is its dominant position which makes it well-positioned to capitalize on the rapidly expanding e-commerce market in Latin America.
Most recent quarter earnings Q1 2023, the company's total revenue for the quarter hit $3 billion, showing an increase of 58.4% YoY on an FX-neutral basis. The income from operations was $340 million, which led to an operating income margin of 11.2%.
In conclusion, MercadoLibre is a solid company with strong potential for long-term growth in the Latin American online commerce market. Although short-term volatility may occur, its competitive strengths and growth opportunities make it a promising investment opportunity for the next years.
Datadog, Inc (DDOG)
A cloud observability and security platform that offers a range of products for monitoring infrastructure and application performance, log management, digital experience monitoring, and more. The company serves clients in North America and globally, and was founded in 2010, with its headquarters located in New York City.
Datadog's market cap is $27.9 billion, with a P/S (FWD) multiple of 13.4 based on the expected 2023 revenue. Despite paying more than 10x sales, the company's above-average growth and improving margins should be taken into consideration. Predictions show that by 2027, the company could reach revenues of $5.84 billion, bringing the P/S (FWD) ratio down to around 5. By then, the P/E (FWD) ratio would be 25, which is conservative compared to the S&P500 IT sector average of 22.2. This indicates that the current valuation is not exaggerated and should not discourage long-term investors so I would like to reiterate my recommendation to buy this stock.
Disclosure: I have a beneficial long position in the mentioned stocks of either through stock ownership, options, or other derivatives.
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