After gaining 52.9% in 2020 and 51.6% in 2019, the Blue Harbinger Disciplined Growth portfolio is down nearly 2.3% this year, as top growth stocks take a breather. In this report we review one new trade in the portfolio, as well as 2 very attractive growth stocks (that we own) that will likely be trading much higher a few years from now if you can force yourself to ignore the near-term volatility.
For starters, here is a look at the long-term performance of the strategy. As you can see, it continues to dramatically outperform the S&P 500 over the long-term. And this is a good time to remind investor that they should NOT allow short-term volatility to distract them from the long-term opportunity.
The strategy was down 4.99% in May as the pandemic trade continues to unwind and top growth stocks continue to face some near-term pain. To put this performance in a little perspective, Cathie Wood’s ARKK ETF (a pandemic trade darling) was down 7.18% in May (that strategy is heavily concentrated in high growth stocks). However, short-term volatility is often the price you pay for the best long-term performance. We continue to believe this strategy is extremely well position to continue posting market-beating long-term returns. Here are a couple examples of stocks we own in this portfolio that we really like as long-term investments, especially after the recent price declines.
Teladoc (TDOC):
Sentiment is driving shares of this telehealth leader lower in the near term. However, the long-term story is still very much intact as the growth rate and growth opportunity remain high and large, respectively. Specifically, investors are turned off in the near-term by the company’s signal of little membership growth for 2021, as well as the loss of a Fortune 500 company contract. However, the company remains on track to deliver 30%-40% revenue growth in the medium-term. In our view, the market’s negativity is overblown, and an attractive buying opportunity exists. You can read our latest full report on Teladoc here.
Futu Holdings (FUTU):
If you are looking for a very high long-term growth stock, then put this Hong Kong based online brokerage and wealth management firm near the top of your watchlist. Revenues are expected to grow at over 100% this year and next. And the company’s impressive integrated platform (e.g. stock trading, margin financing, wealth management, market data and interactive social features) is expanding thanks to its high R&D budget and important relationship with Tencent (the preeminent Chinese internet juggernaut). We added shares of thi stock to the portfolio just last month, and you can access our previous full report here.
New Trade:
We completed one new trade within the Disciplined Growth portfolio, and it may strike you as unusual, but it is not. Specifically, we sold shares of high growth Singapore-based online entertainment company Sea Limited (SEA) and purchased shares of energy manufacturing and logistics company Phillips 66 (PSX).
We sold Sea Limited based on its recent strong performance—which led to a very high valuation, especially considering the market rotation and the increasing pressure inflation fears may put on high growth stocks (Sea is NOT profitable, it just has very high revenue growth). As inflation rises, there is a higher premium placed on companies earning more now and a discount added to companies with only future earnings (such as Sea). This was an extremely profitable position for us, and it was time to move to a better opportunity.
Our purchase of Phillips66 may seem unusual considering it is not a high growth tech stock, but it is undervalued and has significant upside considering its healthy and growing current earnings, and the helpful tailwinds it will continue to receive from inflation and from rising energy prices. The Disciplined Growth portfolio had been positioned somewhat aggressively to take advantage of last year’s pandemic trade, but as market conditions change our discipline kicks in and we’ve added this as exposure to a new strong sector—energy. We believe shares of PSX have very healthy upside, and you can read our recent full report here.
The Bottom Line:
Overall, we really like the positioning of the Disciplined Growth portfolio going forward. And although it is facing some near-term volatility this year (after extremely strong performance in 2020 and 2019), we believe it has dramatic upside potential in the quarters and years ahead.
Sometimes, investors are their own worst enemy as they panic when conditions get volatile, and that is often exactly the wrong time to panic. For many investors, if they could just set up a solid long-term growth portfolio and then fall asleep for years (like Rip Van Winkle did) that would help them avoid silly short-term trading mistakes and instead improve their long-term investment performance.
Over the long-term, the Disciplined Growth portfolio has dramatic upside potentially, and we look forward to continuing strong gains in the years ahead. Disciplined long-term investing is a winning strategy. Be smart.