HomeMost PopularThe Moats And Monopolies Portfolio Update Q3 2023

The Moats And Monopolies Portfolio Update Q3 2023

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About Me

I may not have all the official credentials, but my background in retail banking and experience dealing with high net worth individuals has given me a deep understanding of the markets and stock ideas. Now, as an educator and a fairly new analyst, I strive to bring humility, kindness, and honesty to my contributions to the Seeking Alpha community.

With that said, I’d like to provide an update on my Moats and Monopolies portfolio for the third quarter of 2023.

Investing Philosophy

Before we dive into the details, let me share my investing philosophy. As I approach my 40s, my investing horizon is focused on the long term, with a goal of using my portfolio to retire early. I believe in being a part owner of the companies I invest in and prefer a concentrated portfolio of high-quality assets.

I avoid short-term trading, options, and trying to time the market. Instead, I aim to achieve alpha by holding a small number of assets over an extended period to benefit from compounding growth. I am primarily invested in the stock market, with minimal exposure to alternative investments and bonds.

When selecting investments, I prioritize companies with defensible moats or monopolistic characteristics that allow them to sustain high free cash flow margins and deliver long-term growth. Quality assets have manageable debt and a track record of maintaining returns on capital employed above 20%.

My approach also involves avoiding companies I don’t understand and those overly reliant on market cycles or commodities. While dividends are nice, my focus is on total return rather than dividend income. Lastly, I believe in understanding what I own, which is why my Moats and Monopolies portfolio consists of just 20 stocks and a few ETFs.

Changes to the Portfolio

Buys

Enphase (ENPH) – Enphase is a leading developer of micro-inverters for solar panels. Its expansion into battery storage and home charging solutions for electric vehicles positions it well for future growth. Temporary headwinds, such as stock level issues and market disincentives, have caused a significant selloff, creating a buying opportunity. With strong financials, including a healthy free cash flow margin, low debt, and high returns on invested capital, Enphase is poised to benefit from the long-term tailwinds of renewable energy.

Games Workshop (OTCPK:GMWKF) – Known for the popular Warhammer brand, Games Workshop is a unique company with a loyal customer base. Recent licensing deals, including one with Amazon Prime for a potential TV series, add to its strong potential for growth. With solid financials, including impressive free cash flow margins and a high dividend return, Games Workshop is a great small-cap investment with long-term growth prospects.

Linde (LIN) – As a leading industrial gas company, Linde benefits from the growing demand for industrial gases and hydrogen fuel for decarbonization efforts. With its market dominance, Linde has a strong position to capitalize on these trends. While it may not have the highest margins, its acquisition of Praxis and post-merger efficiencies are expected to drive future growth.

Sells

Starbucks (SBUX) – While Starbucks has been a solid investment in the past, it has reached saturation levels in its domestic markets and relies on emerging markets for growth. This could impact its future margins, and its current free cash flow margins are lower than desired. Concerns around CEO transition and unionization attempts further drove the decision to sell.

Deere & Company (DE) – Deere is a good company with a strong track record, but its high capital expenditures, low free cash flow margins, and increasing debt raised questions about its future prospects. The complexity of evaluating the risk associated with offering loans and payment plans to its business customers added to the decision to sell.

PayPal (PYPL) – Despite its attractive valuation, PayPal’s history of poor decision-making and increasing competition in the digital payment space led to the decision to sell. The new CEO appointment and user dissatisfaction were additional factors influencing this choice.

Netflix (NFLX) – While Netflix provides premium content and has been a rewarding investment, concerns about media industry shifts and competition led to the decision to sell. The rise of user-generated content and uncertainties surrounding the company’s ability to adapt to the digital transition were key factors.

Nintendo (OTCPK:NTDOY) – Nintendo’s position in the gaming industry and potential for licensing its intellectual property initially made it an attractive investment. However, uncertainties about its readiness for the digital shift and the desire to streamline the portfolio resulted in the decision to sell.

Technology ETFs – In an effort to focus my assets, I sold two technology-focused ETFs and increased my investment in the Nasdaq 100. This allows me to take advantage of market drawdowns and aligns with my long-term investment strategy.

Portfolio Overview

Now, let’s take a look at my Moats and Monopolies portfolio at a high level:

  • Visa (V) – 5.23%
  • MSCI Inc – 5.18%
  • Adobe (ADBE) – 5.15%
  • Mastercard (MA) – 5.00%
  • Microsoft (MSFT) – 4.78%
  • S&P Global (SPGI) – 4.61%
  • Alphabet – 4.66%
  • Moody’s – 3.99%
  • MercadoLibre – 3.84%
  • Amazon – 3.85%
  • Canadian Pacific Railway – 3.76%
  • LVMH – 3.84%
  • Union Pacific – 3.60%
  • Apple – 3.46%
  • Booking Holdings – 3.11%
  • Games Workshop – 2.65%
  • Evolution Gaming – 3.05%
  • Linde – 2.82%
  • Rightmove PLC – 2.43%
  • Enphase – 2.43%
  • ETFs – 14.25%
  • Bitcoin – 1.36%
  • Cash – 6.95%

Total Number of Stocks: 20

Total Holdings (including cash): 24

Median Market Cap: €113,999 billion

Mean Average Age of Company: 61 years

Weighted Gross Profit Margin: 72.94%

Weighted Levered FCF Margin: 27.42%

Weighted ROIC: 35.32%

Weighted WACC: 11.34%

Weighted ROCE: 67.66%

PE on Price*: 31.29

FCF Yield on Price*: 3.62%

10 Year Revenue Growth: 15.40%

10 Year FCF Growth: 22.49%

*This is skewed by my Amazon holding.

Performance Benchmarking

To offer full transparency, I benchmarked my portfolio’s performance against major indices:

Moats and Monopolies Portfolio Performance

The dotted line represents my Moats and Monopolies portfolio, while the yellow line represents the S&P 500, the green line represents the MSCI World, and the grey line represents the Nasdaq 100. I will continue to update this benchmarking graph each quarter moving forward.

Thank you for reading and feel free to follow along. I appreciate any constructive feedback, kind suggestions, and investment ideas you wish to share!

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