Wedgewood Partners, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of +4.8% was reported by the fund for the Q1 of 2021, outperforming its Russell 1000 Growth benchmark that delivered a 1% return, but below both the S&P 500 and Russell 1000 Value Index that had a 6.2% and 11.3% gains in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Wedgewood Partners, in their Q1 2021 investor letter, mentioned Booking Holdings Inc. (NASDAQ: BKNG) and shared their insights on the company. Booking Holdings Inc. is a Norwalk, Connecticut-travel technology Company that currently has a $100.5 billion market capitalization. Since the beginning of the year, BKNG delivered a 10.19% return, extending its 12-month gains to 72.27%. As of April 14, 2021, the stock closed at $2,454.22 per share.
Here is what Wedgewood Partners has to say about Booking Holdings Inc. in their Q1 2021 investor letter:
“We reinitiated a position in Booking Holdings during the quarter. The long-term outlook for the global hospitality industry is substantially better compared to when we sold, given the recent emergence of several, well-tolerated, highly efficacious, and widely distributed COVID-19 vaccines. As vaccines are administered to a larger percent of the global population, we expect the negative trends of COVID-19 to tail off, with cross-border travel rapidly improving later in 2021 and into 2022 and beyond. In addition, the market does not appreciate Booking Holdings’ formidable and competitive position in the alternative accommodations (AA) industry, particularly within the fast-growing, professionally managed subsegment of AA. Prior to the COVID-19 outbreak, the stock was trading at valuation multiples that reflected overly pessimistic assumptions about the Company’s competitive positioning in the online travel agency (OTA) market. The stock has changed little compared to pre-COVID-19, and the implied competitive pressure is still much too pessimistic as the Company will play a key role in aiding properties to repopulate with customers after a dramatic drawdown.
It is a matter of “when,” not “if” the critical proportion of the global population – necessary to end the COVID-19 pandemic – becomes vaccinated. We do not know with certainty when this will happen, but we assume it will be sometime in the next year with the U.S. ahead of most developed markets. However, travelers will make plans well before this. For example, we observe U.S. hospitality search trends on Google are at never-before-seen highs. Airlines continue to post both consecutive weekly and monthly gains in air travel activity. Although the Company’s offerings tend to skew more toward European hospitality, the U.S. is a good barometer for what the pace of reopening will look like once European vaccinations catch up with the U.S.
The Company (Booking.com) generates the vast majority of its revenues from traditional hotels. However, we estimate that the Company is the second largest provider in the AA industry, second only to Airbnb. Despite having slightly inferior economic returns compared to traditional hotel OTA, investors view the AA industry as more attractive, particularly due to a larger and less saturated total addressable market. While Airbnb certainly has a brandlevel competitive advantage in alternative accommodation compared to Booking.com, the long-term trend of alternative accommodations is toward higher commodification and increased professional management, where branding plays less of a role and conversion becomes more important. Although the trend toward professional management slowed during the pandemic, this is temporary and will resume as travel normalizes. In any case, we think Booking Holdings is capable of generating over $4 billion in AA revenues in the next few years, which is three-quarters the size of Airbnb (which ended the quarter valued at over $100 billion market cap). Again, alternative accommodations are only about 25% of the Company’s revenues, with most of the balance of revenues coming from higher-return traditional hotels, which we would argue are more valuable than AA revenues. Given that the Company ended the quarter at a market-cap discount to Airbnb, we think the Company shares could double as the market realizes the tremendous opportunity Booking Holdings has in both traditional hotels and AA.”
Our calculations show that Booking Holdings Inc. (NASDAQ: BKNG) ranks 19th in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Booking Holdings Inc. was in 108 hedge fund portfolios, compared to 113 funds in the third quarter. BKNG delivered a 12.45% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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