Stephen Yiu’s Blue Whale Growth fund is an investment product I keep a close eye on. Thanks to its strong performance in recent years (it was up 28.2% last year), it has become a relatively large position in my portfolio. Recently, the fund has taken a position in a high-quality S&P 500 growth stock I’m a fan of. Here’s a look at the trade in more detail.
A ‘long runway’ for profit growth
The stock I’m referring to is Uber Technologies (NYSE: UBER). It’s a global leader in rideshare and food delivery.
I don’t know exactly when Yiu and his team started buying the stock or the price they paid. They may have started buying at much lower prices in April when the stock market was under pressure.
One thing we do know, however, is that the stock is now a decent-sized position in the fund. At the end of May, it was a top-10 holding (note that the fund only held 28 stocks).
It’s worth pointing out that Yiu has elaborated on his bull case for the stock on the fund’s website. Here, he explains that Uber is now benefitting from “scale, pricing discipline, and powerful network effects that create a near-impenetrable moat.”
The result is a cash-generative business with “meaningful margin tailwinds and a long runway for profitability growth.” He goes on to say that both rideshare and food delivery remain “early in their global adoption curves” and that in the long run, Uber is ideally placed to be an “essential player” in the robotaxi revolution thanks to partnerships with autonomous vehicle companies.
Uber is uniquely positioned to be the single infrastructure layer connecting robotaxis to riders, no matter who owns the car.
Blue Whale Growth fund
A smart buy?
I really like this trade from Yiu. I couldn’t agree more with his investment thesis.
In recent years, Uber has transformed itself from an unprofitable business into a company generating huge profits and cash flows. It has been generating so much cash that last year it announced a whopping $7bn share buyback.
Meanwhile, the long-term growth story here looks really exciting. This is a company that’s continually expanding into new markets and offering new products (it recently launched fixed-route shuttles in major US cities). And it looks well placed to capitalise on the robotaxi revolution. With over 150m users worldwide, it can be the platform that self-driving car companies use to connect with users.
At today’s share price of $85, Uber trades on a price-to-earnings (P/E) ratio of 29, falling to 24 using next year’s earnings forecast. Given that revenues are growing at around 15% per year, these multiples are not particularly high, in my view.
Of course, if growth slows down, or profits take a hit due to regulatory issues, the stock could be volatile. In the past, it has often swung around at times (it has been on a wild ride this year).
Taking a long-term view, however, I think this stock has bags of potential. If one is looking for growth stocks to hold for the long run, I reckon Uber is worth considering.
