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SUMMARY
Parkev Tatevosian, CFA, discusses his recent purchases of Netflix, Eli Lilly, and MasterCard, highlighting their undervaluation and strategic benefits. He provides fair value estimates and explains how these additions enhance both diversification and risk management in his investment portfolio.
MAIN POINTS
- Recent market volatility prompted the purchase of Netflix, Eli Lilly, and MasterCard as undervalued stocks.
- Netflix's acquisition attempts and prudent management are examined, with a focus on its competitive positioning.
- Eli Lilly is added for its leadership in weight loss treatments and the diversification it brings to a portfolio lacking healthcare exposure.
- MasterCard is purchased amid valuation dips and geopolitical risks, balancing the portfolio alongside Visa.
- The combined purchases reduce overexposure to AI-related stocks and enhance portfolio diversification.
DETAILED ANALYSIS
Recent volatility in the stock market created opportunities to acquire shares in companies perceived as undervalued. Netflix was selected despite recent declines in its share price, attributed in part to unsuccessful acquisition attempts of Roku and Warner Brothers. These acquisition efforts, while not resulting in deals, allowed Netflix to secure a significant payment and demonstrated management's discipline in not overpaying for assets.
The company’s strategy of participating in acquisition talks also increases costs for competitors, many of whom have weaker balance sheets. The calculated fair value for Netflix is $125 per share, with recent purchases made at $78 and $80, even as the current market price stands at $72. The investment thesis centers on Netflix’s expanding original content library, its best-in-class streaming platform status, and the attractiveness of its ad-supported tier, which offers substantial content at a low monthly price.
Eli Lilly was added to the portfolio primarily for its market leadership in weight loss treatments and a robust pipeline of innovative drugs. Shares were purchased at approximately $1,100, with a fair value estimate of $1,443. A key rationale for this addition is the diversification benefit, as pharmaceutical stocks like Eli Lilly typically exhibit low correlation with broader economic cycles.
This characteristic helps stabilize the portfolio, especially since it previously lacked healthcare exposure.
MasterCard was acquired following a dip in valuation, influenced by geopolitical tensions and regulatory risks in Europe, where authorities are considering reducing reliance on Visa and MasterCard networks. Despite these risks, the slow pace of European regulatory change and the high profitability of both companies support the investment case. The purchase also serves to balance the portfolio’s allocation between Visa and MasterCard, each now representing about 8%.
Collectively, these acquisitions not only target undervalued opportunities but also reduce concentration in AI-related holdings, such as Nvidia, thereby enhancing overall portfolio diversification and risk management.
LINKS
- YouTube channel membership for exclusive perks and early access.
- Special offer for The Motley Fool Stock Advisor.
- Parkev Tatevosian's book on a six-step investing framework.
- Fiscal.ai investment research tool with a viewer discount.
- Webull sign-up for bonus shares and commission-free investing.
- Substack newsletter subscription for monthly updates.