Business Studies Scholarship Program – What do you call a group of Unicorns? A Blessing.

Technological advancements have revolutionized the world. What do Apple, Alphabet/Google, Amazon, and Tesla all have in common? First, they’re some of the most popular stocks on the planet. Second, they have created millionaires and billionaires. And third, they’re all tech based. Instead of trying to find the next tech unicorn, my favorite stock idea is to increase my odds of getting a piece of the next tech unicorn by spreading my money across multiple options, while also still receiving gains from a core business with minimal risk. That’s why my favorite stock is SoftBank Group Corp. (SFTBY), a holding company run by the guy who made billions by investing in Alibaba years before it went public.

Q1 2020 hedge fund letters, conferences and more

By: Stephanie Wojda

stephwojda@gmail.com

1-716-207-5187

Name: Stephanie Wojda
From: London, UK
Grade: swojda7747@gmail.com
School: London Business School
Votes: 0

What Do You Call A Group Of Unicorns? A Blessing.

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

 

The Next Unicorn: A Secure Risk

SFTBY, a large-cap stock with a current value over $85 Billion, has a rare mix of stable and risky components all in one package. Its primary business revolves around providing telecommunication services, including mobile, broadband, and fixed-line communications, as well as mobile devices and PC software. All relatively safe business ventures. However, SFTBY also dabbles in e-commerce, internet advertising, microprocessors, software, baseball, renewable energy, and more. But the best part about SFTBY is that it runs the Vision Fund, a $100 Billion private equity fund that invests in promising, early-stage tech companies. Why try your luck investing in one or two tech companies, hoping to find the next unicorn, when you could invest your money in SFTBY and have your dollars go to work on several promising tech companies? It’s stability, risk, and diversification all in one stock (Disclaimer: it is always a good idea to invest in more than one stock from varying industries and while SFTBY shows potential, this stock alone does not make up for a fully diversified portfolio). SFTBY is even poised to launch a second Vision Fund in 2020.

Running the Numbers

According to Yahoo! Finance, the Enterprise Value for SFTBY has increased more than 11% over the past year, but the stock has maintained a relatively low Price-to-Earnings ratio of 18.76. This is a good indication that the stock is undervalued and is a cheap buy with a lot of potential.

Additionally, MorningStar shows the Price-to-Book ratio for SFTBY steadily decreasing since 2016 and confirms a market value that is now close to book value. A much more comfortable place than the 3.65 ratio this stock previously had. MorningStar also indicates that the Debt-to-Equity ratio is average compared to competitors, coming in just under 2, suggesting that investments going into the second iteration of the Vision Fund aren’t being fueled by costly debt.

All the numbers add up, but I feel as though this stock is largely ignored by my peers simply because it is not a well-known and popular branded business. It’s hard to ignore a strong brand. That’s the main reason Apple has become so successful. SFTBY has its hands in so many different buckets that I don’t think many market players are aware it exists! However, I think one thing all investors need to be weary of is that popularity doesn’t make something a good investment. The underlying business needs to be set up for success. While Tesla, for example, may have great innovative intentions that could change the world, how many years in a row can a company come in at a loss before it is done for good?

Looking Forward

SFTBY did take an initial hit during the coronavirus market downturn, and the company has some lessons to be learned after their investment in WeWork went awry, but that’s what makes this stock so attractive. It’s actually affordable! The big tech companies are still worthwhile investments, but only to those that can afford to buy them. I personally could afford to buy one or two shares of Tesla but the price is already so high that I likely won’t make more than a couple hundred dollars off that few of shares (and that’s being very optimistic). If I took those same dollars, and invested them in SFTBY, I could purchase 15-40 shares. Having that many shares of a company with the kind of potential that SFTBY has would likely be worth a lot more in the long run.

It’s also worth noting that SFTBY has largely rebounded from the mid-March downturn and may not be affordable for long. Unicorns have been known to appear when innovation is needed most, and given the current economic climate, I’d say we’re overdue for a sighting. SFTBY may be the best bet to tag along for the next rise to the top.

(Disclosure: The author of this essay purchased shares of SFTBY while doing research for this essay.)