Joel Greenblatt, Gotham Asset Management managing principal and co-CIO, joins ‘The Exchange’ to discuss if stock picking can still win the game. They also discuss the pros and cons with active and passive investing.
There has been much talk in recent years about disruption and trying to pick companies that will disrupt their industries. The debate continued at the Morningstar Investment Conference as Bill Nygren of Oakmark Funds faced off with Morgan Stanley's Dennis Lynch. Q2 2021 hedge fund letters, conferences and more Persistence Morningstar's Katie Reichart moderated the Read More
Here Are Gotham Asset Management CIO’s Top Stock Picks
One of the names that you think is attractive to own is Booking Holdings parent of Priceline et cetera. Why and again is there something fundamental about this business that you like and you think it's misperceived or is it is the pricing simply off.
Well it usually has to be both. You know they have Booking.com, Priceline, Kayak, Open Table. So these are great businesses you can get it at a 40 percent discount to the S&P. It's growing a lot faster than the S&P both its sales and its eBid growth. And it's an asset light cash flow machine. It's in a very good business essentially in a duopoly with Expedia. You know they've been buying back massive amounts of stocks about 8 percent last year or so. So why. So bottom line is people are worried about competitors coming in. You know one of which could be Google and the other is Air B and B. And those are reasonable concerns on the other hand this is a network type of business where you're getting at a 40 percent discount to the S&P and it's much better business so you know if you buy a bucket of those which is what we do we own hundreds of stocks on the long side and 102 on the short side. We'll be right wrong on some of that. But you know if you take bets like this we have great businesses at cheap prices at big discounts and really you know 100 percent returns on capital with great network effects. It's a really good bet.
Let me by the way when you spoke with Leslie picker a couple of months ago you liked or owned Boeing is that still the case given all that's happened with obviously the crashes that they've suffered.
Sure so we're with Boeing we're about allocated about the same as the market. You know a lot of times you know everything can go well but there's always bad things that happen you know randomly and it's unfortunate obviously with the accidents that happened in Boeing but that happens all the time. That's what we own hundreds of stocks on the long side and hunters on this. We're trying to take good bets. Sure. And Boeing was a very reasonable bet to take. We were not overweighted but of course that's going to always hurt you when something unexpected and terrible like that.
And let's talk about one of the names that you're short on which is a line technology a great performer lately. The maker of Invisalign. Do you think that valuations out of whack.
Yeah well it's it's it's trading at over 100 times free cash flow. One of the highest valuations in the S&P 500 a lot of their Patana start coming started coming off in 2017. There's a lot of competition coming into the business. So and you know 50 percent discounts to the cost of their stuff. So really not a good case. I mean it's a great business but there's not a good case at this valuation level to be excited about it. It's actually pretty overpriced.