PLTR - 8 Stocks Run By Billionaires That Could Potentially Trump The Market

2023-03-28 12:57:29 ET

Summary

• This article is a secondary piece to a previous article based on 100 Baggers.
• The article will discuss a current portfolio of stocks run by Billionaires.
• CEOs with excessive net worth may be good stewards of capital.

The Billionaires' Portfolio

Following up on my Buy And Hold Coffee Can Portfolio For The Next 15 Years piece referencing the book 100 Baggers, this is a second piece that follows a portfolio strategy also mentioned in the book. The book itself follows several fund managers that had hit it big with stocks that turned $10,000 into $1 million and the methodologies they used to achieve those discoveries. The most prevalent of which was the small-cap, high-earnings growth high quality company. Another admirable mention was the Billionaire portfolio. Buying shares of companies run by individuals with a net worth of $1 Billion or more.

These individuals more often than not tended to be founders with a significant incentive to grow the value of the company due to their large personal equity stakes. On the other hand, individuals that achieved this status while not being founders were long-time company partners or employees with an equivalent desire to compound the value of their stake in the company by growing it and thus enriching themselves by virtue of the share appreciation.

Finding the Companies

Oddly enough, in the 1990s when this strategy was put together, information on individual CEO net worth was extremely hard to come by. Fund manager Matt Houk said his team had to scour the libraries for data to figure out who had attained a personal fortune from their running of the company. Now you can simply do a web search for any CEO + net worth and bada bing! They're all right there. To my surprise, there were not a whole lot of them. I've found 8 solid leads run by Billionaires of profitable companies. I've left out some of the recently IPO'd companies as their fortunes are not yet based on running a profitable business; an example would be Alex Karp at Palantir (PLTR).

Most of these CEOs also have the propensity to not pay a significant dividend, if one at all. This probably has to do with their confidence in compounding capital for the investors rather than giving it to them in a dividend payment. While I am primarily a dividend guy, I can not fault the logic as long as the keys are being handed to a competent driver. In the examples laid out below, the charts say these drivers are very competent indeed.

I have included the total return on the charts of companies where there is a significant dividend paid during the reign of the mentioned CEO.

Warren Buffett

Starting with Berkshire Hathaway (BRK.B)(BRK.A), Warren Buffett is the all time long-term king of compounding capital. Warren Buffett is not only one of the wealthiest individuals in the world but also touts Berkshire Hathaway as having one of, if not the highest, net worth of a company on the planet at over $600 Billion considering assets minus liabilities. The frugal Billionaire has taken good care of his investors.

Per Bloomberg: "He is one of the best-known fundamental investors in the world as a result of his immense investment success possessing a net worth of over $108 billion as of February 2023, making him the world's fifth-wealthiest person."

Berkshire has been popular recently due to the risk-off nature of the market. The conservative balance sheet management has always been a plus for Berkshire, avoiding debt and focusing on reinvesting the float of their insurance companies and cash flow from privately held businesses upstream into their blue chip holdings portfolio. With a debt-to-equity ratio of only 26% and $128 Billion in cash, this is about as safe a company that exists in my opinion.

Buffett himself has said they are a buyer of Berkshire at 1.25 X book value, with the stock trading at a TTM book value of 1.4 X, it might be slightly overvalued. Forward earnings are slated at 20 X, also making this a rich valuation based on the Graham Number eyeball test where the price-to-book times the price-to-earnings should not exceed 22.5.

Mark Zuckerberg

As of March 2023, Zuckerberg's net worth was $73 billion according to the Forbes Real Time Billionaires making him the 15th richest person in the world. Mark Zuckerberg owns about 13.6% of Meta (META), making this a stereotypical founder stock. The stock is one of my larger holdings that I bought after the sell-off in tech. They generate high returns on invested capital and have a "cash printer" advertising business. I wrote my first buy article here , and the stock is up 107% since then.

Meta is down quite a bit from its all-time highs, but still a not too shabby 436% since the company went public. With a market cap under a trillion, I believe this one has a lot more upside to come.

The price target at the time of my article followed a GAAP PEG ratio data set excluding the slowdown in growth post Metaverse spending. Assuming that the 20% CAGR engine of Facebook is still intact without the Metaverse, I came up with a high price based on a 20.5 X multiplier of $261 at that time. Using that same multiplier times forward EPS estimates of $9.65, gives us a lower current price target of $193. Meta is a hold for me at these prices after the double from the bottom.

Jamie Dimon

Dimon's net worth is estimated at $1.8 billion, pretty good for a non-founder. JPMorgan (JPM) has helped keep the most stable price for a SIB [systematically important bank] bank since the GFC in 2008-09 which helped boost Dimon's net worth, with an estimated $485 million in JP Morgan stock. Dimon's letters have been heralded by Warren Buffett himself and he has been looked at as one of the main orators opining on the forward state of corporate earnings and the economy. As JP Morgan Chase has financial products in almost all economic sectors, he is well suited to know what is happening at any given time, maybe even more so than Janet Yellen or Jerome Powell. The total return on JP Morgan Chase & Co is over 473% since Jamie Dimon took over.

Bank stocks track the Graham number well with their earnings being tied directly to assets on the balance sheet. The SQRT of 22.5X $90.29 [book value] X $12.09 [TTM EPS]= $156.71. The stock is currently cheap as are most bank stocks if you can stomach the volatility and trust their balance sheets.

Sundar Pichai

According to a Google search, the Google (GOOGL)(GOOG) CEO's net worth just crossed into Billionaire territory at $1.3 Billion. It should be accurate as I imagine he could edit it otherwise on his own search engine! He has reduced his holdings quite a bit but still owns around $200 million in Google stock. Whether he has a major stake in the company or not, his net worth was certainly built on his hard work and effort at Google. Google stock is up 269% since he became CEO.

This stock is on my buy list and one of the cheapest tech blue chip stocks out there in my opinion. The TTM EBITDA numbers for Google/Alphabet are at $90.771 Billion. With 12.849 Billion shares outstanding, that equates to $7.064 in EBITDA per share. The EBITDA CAGR, incorporating the TTM as our terminal value to end 2022, would equal a trailing 5-year growth rate of 17.8%. Using 17.8 as a multiple and $7.064 as our multiplicand, we get a price target of $125.73. This stock is well within my price target and a strong buy on seeking alpha's quant system.

Tim Cook

Tim Cook, like Pichai, also just entered the Billionaire party estimated at a $1.8 Billion net worth as of 2023. At Apple (AAPL) he has been a wizard of capital stewardship.

Cook is estimated to have at least $526 million of Apple stock and has built his net worth through both ownership and large amounts of compensation. Since Cook took over, the stock is up over 1,400% on a total return basis, amazing in this period! While I have expressed my concerns over Apple's lack of innovation and attachment to the China supply chain, early investors who have held have been richly rewarded. I would buy Apple at a cheaper price if it ever gets there. The stock has fans and rightly so.

I looked at a standard GAAP PEG ratio for APPLE and came up with the following: Considering $3.00 per share in 2018 as our beginning number and $6.15 as our 2022 terminal EPS, we get a GAAP CAGR in earnings of 15.4%. Using the TTM EPS of $5.91 as our multiplicand and 15.4+.61(Peter Lynch dividend yield kicker of .61%)=16.02 and our multiplier gives us a fair value based on GAAP earnings of $94.67. That would be deep value. Apple has not tracked the rest of the Nasdaq downward so this is wishful thinking. However, I only look for significant value when placing outsized tech bets with low yields. The management controls my fate, so the growth has to be adequate relative to my entry price.

Jensen Huang

I have to admit, even after writing an article about the overvaluation of Nvidia (NVDA), Jensen Huang has been the most outstanding grower of capital on the list. I figured in the near term it would have been Elon Musk, but it's Jensen. Kudos good sir. As of January 2023, Huang's net worth is US$16.3 billion according to the Bloomberg Billionaires Index .

This stock truly defies gravity. NVIDIA is really hard to evaluate and does not track its other semiconductor peers. I have written on NVIDIA trying to give it a liberal price based on a Non-GAAP PEG ratio , and it still didn't pencil. Either way, this stock is more of a bet that NVIDIA has the secret sauce to all things artificial intelligence. As a stock with large founder ownership, I think you can be sure Jensen will do everything in his power to lead NVIDIA to a bright future. If you followed this founder from the beginning, Kudos to you, 32K% return is tops on this list!

Even being the most optimistic of optimists, Peter Lynch advises not to use more than 25% as your high forward CAGR estimate for any growth company. Using 25 X as our multiplier and the forward GAAP estimate in earnings-per-share at $4.5, we still come up with a high price target of $112.5. This stock is one of the most richly valued stocks in the entire market. It's not impossible that they grow into these large shoes after a FED pivot and a return to economic growth out of the doldrums of negative cyclicality. Might be time to take some profit on this one, but that's up to you my friends, Jensen is definitely an intangible asset that is hard to quantify.

Brian Roberts

A good Wikipedia synopsis on Roberts tells the following:

Roberts is chairman and CEO of Comcast Corporation. He was named President of Comcast Corporation in 1990 at only 31 years of age when the company had $657 million in annual revenue. Comcast Corporation's annual revenue has since grown to $94.5 billion.

Comcast (CMCSA), was one of the 100 bagger stocks mentioned in the 100 Baggers book. Roberts is the son of Founder Ralph J. Roberts and can be considered a quasi-founder. With an estimated net worth of $1.8 Billion, Roberts has done well for himself but could have probably done better considering his positioning in the company's history. I wrote an article on Comcast recently and the company has all kinds of catalysts in front of it, namely in the expansion of its theme-park business and the addition of the Super Nintendo brand in North America. This is a founder stock I am in for a decent amount and it has a great dividend to boot!

Coming up with a price target in my coverage of Comcast, I used the Graham number formula; the SQRT of 22.5 X [EPS] X (Book Value), our inputs would be $19.18 Book Value, and our forward EPS equivalent to analyst average estimates of $3.63 a share. Therefore SQRT 22.5 X ($3.63) X ($19.18)= $39.57, basically trading right at fair value with this GAAP metric.

Reconfiguring it to get a high end based on EBITDA, we have $35.9 Billion in EBITDA TTM and 4.22 Billion shares outstanding. This would give us an EBITDA per share of $8.5. A reconstituted formula of SQRT 22.5 X($8.5) X (19.18)= $60.56 a share, basically right back to its September 2021 high. Blending the two would give us an average price target of $50 a share.

Elon Musk

I would have assumed the total return on Tesla (TSLA) would have topped the list, but Jensen Huang trumped Elon Musk in this regard. That being said, Musk tops the list in total net worth at around $200 Billion depending on where Tesla stock sits on any given day. This is the most founder-centric stock that exists amongst Billionaires today in large caps. Although the ride in Tesla stock is the antithesis of a SWAN stock, what do you expect from a product that can do 0-60 in a few seconds? I wrote a Tesla article after it was decimated and the return has been ridiculous ever since.

Tesla has proved that it can compound revenue at a higher clip than any other vehicle company that currently exists. This founder stock is rife with both innovation and salesmanship by its CEO. Hard to say where I would enter again, but for those that have held onto this since the beginning, an 11k% return is a handsome reward.

Taking Peter Lynch's advice, I like to max out my growth multiple at 25% (25 X) per annum even if a company is exceeding that CAGR in the near term. With 3.164 Billion shares outstanding and TTM EBITDA of $17.439 Billion, that currently gives us an EBITDA per share of $5.51, the number I will use as my multiplicand. To wind up at the crosshairs of a PEG ratio of 1 or less on an EBITDA basis assuming a max growth rate of 25%, I will simply use 25 as my multiplier times $5.51. This spits out a fair value of $137.75. Tesla has gone back to a hold in my book, but it is not terribly overvalued.

Honorable Mention

SoftBank (SFTBY) and Masayoshi Son have been a favorite of mine in the past, but I exited after a lot of bets on Chinese private equity soured. With a 34% stake in SoftBank and a $20 Billion net worth, he is renowned for having one of the best bets of all time in his initial purchase of Alibaba (BABA) before it went public turning $20 million into more than $50 Billion at one point .

The company is an eccentric holdings company based around tech plays and private equity liquidations post-IPO. This stock has not produced returns worth mentioning over time, but there may be a play here centered around the future of AI and robotics. I like Masayoshi, he's proven himself to have made a few genius bets, especially on the private equity side.

Conclusion

After writing this article I came to realize that I had owned many of these companies, minus NVIDIA. These companies have been some of the most admired for one reason or another, and their leaders have been a big reason why in my view. Building a net worth of a Billion or more is no simple feat, there are only about 600 Billionaires in the United States and a couple thousand worldwide. Many do not own publicly listed companies, and their net worth is far more difficult to evaluate. These 8 listed individuals are much easier to evaluate due to their public persona and disclosures.

While there might be more Billionaire stocks out there in the wild that I have not included, consider this the "blue chip" Billionaire portfolio that I can recommend with confidence. Some of these are overvalued and some undervalued. However, picking a swath of these based on Billionaire leadership alone and disregarding fundamental value has shown to have worked in the past as referenced in 100 Baggers. This portfolio is chock full of fan favorites and there is good reason why. No one becomes a Billionaire by accident, it is usually only through excellent capital management or innovation that one gets that crown.

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