Charlie Munger’s Daily Journal Halves Alibaba Position

Summary

• The Chinese e-commerce company has seen its shares fall for more than a year.
• Munger’s company did not make any other changes to its equity portfolio.

Renowned investor Charlie Munger (Trades, Portfolio), the chairman of Daily Journal

DJCO
Corp. (DJCO, Financial), disclosed his California-based publishing company’s first-quarter portfolio earlier this week.

Also the vice chairman of Berkshire Hathaway

BRK.A
(BRK.A, Financial)(BRK.B, Financial), Munger is known for using his dry wit and keen mind when helping Warren Buffett (Trades, Portfolio) make investing decisions. He has developed a series of mental models that are framed as a latticework to help solve critical business problems.

While Munger’s Daily Journal has positions in five stocks, it only made changes to one of them during the three months ended March 31 according to 13F filings.

Investors should be aware that the 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but the reports can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

The guru slashed his company’s holding in Alibaba Group Holding Ltd. (BABA, Financial) by 50.17% during the quarter, selling 302,060 shares. The transaction had an impact of -13.87% on the equity portfolio. The stock traded for an average price of $115.52 per share during the quarter.

It now holds 300,000 shares total, accounting for 15.35% of the equity portfolio. GuruFocus estimates Daily Journal has lost 40.25% on the investment since establishing it in the first quarter of 2021.

The e-commerce giant, which saw its stock fall for over a year amid a crackdown on tech stocks by the Chinese government, has a $274.13 billion market cap; its shares were trading around $102 on Tuesday with a price-earnings ratio of 27.29, a price-book ratio of 1.79 and a price-sales ratio of 2.15.

The GF Value Line

VALU
suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and future earnings projections.

Additionally, Alibaba’s GF Score is moderate at 78 out of 100, receiving high ranks for profitability, growth and financial strength and low ranks for momentum and GF Value. As such, GuruFocus research has found the company is likely to have average performance over the long term.

The company reported its third-quarter 2022 financial results on Feb. 24.

For the three months ended Dec. 31, Alibaba posted net income of $3.2 billion, or earnings of $1.18 per share, on $38.06 billion in revenue. While revenue grew from the prior-year quarter, net income declined.

In March, the company upped its share repurchase program from $15 billion to $25 billion as the board said it continues to have confidence in its future growth.

GuruFocus rated Alibaba’s financial strength 7 out of 10 despite having inadequate interest coverage. Additionally, the Altman Z-Score of 2.88 indicates the company is under some pressure. The weighted average cost of capital also eclipses the return on invested capital, meaning the company is struggling to create value as it grows.

The company’s profitability fared better with a 9 out of 10 rating. Although the operating and gross margins are in decline, Alibaba has strong returns on equity, assets and capital that outperform over half of its competitors as well as a moderate Piotroski F-Score of 5 out of 9, meaning conditions are typical for a stable company. Despite recording consistent earnings and revenue growth, however, the predictability rank of three out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 8.2% annually over a 10-year period.

Of the gurus invested in Alibaba as of the end of fourth-quarter 2021, David Herro (Trades, Portfolio) had the largest stake with 1.38% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Dodge & Cox, Baillie Gifford (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Chase Coleman (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Al Gore (Trades, Portfolio), Frank Sands (Trades, Portfolio), Chris Davis (Trades, Portfolio), the iShares MSCI ACWI ex U.S. ETF (Trades, Portfolio), Ron Baron (Trades, Portfolio), Tom Russo (Trades, Portfolio) and Sarah Ketterer (Trades, Portfolio) also had significant positions in the stock.

Additional holdings and portfolio composition

The four other stocks that make up the Munger-backed company’s $213 million equity portfolio are Bank of America

BAC
Corp. (BAC, Financial), Wells Fargo

WFC
& Co. (WFC, Financial), U.S. Bancorp

TBBK
(USB, Financial) and POSCO Holdings Inc. (PKX, Financial).

The financial services sector has the largest representation in Daily Journal’s equity portfolio, while the basic materials and consumer cyclical spaces have much smaller presences.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com.