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Nvidia Corp.
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Market cap: US$3.3 trillion. YTD return: about zero per cent. One-year: 41 per cent. Five year: 1,431 per cent. Twenty-year: 61,214 per cent.
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At one time, not long ago, the largest company in the world by market cap, Nvidia saw its success come from the explosive demand for graphic processing units (GPUs). The company cut its teeth on gaming chips, at one time responsible for more than 70 per cent of its sales base. Its chips were seen as faster, more efficient and simply better than the competition’s. Then Nvidia had its breakthrough: it essentially said, “What other sectors need faster, more-efficient chips?” The answer: just about everything; robotics, autonomous cars, manufacturing, cryptocurrency mining, data analytics, and the big one, artificial intelligence (AI). Suddenly, demand for Nvidia’s products, and demand for its stock, exploded and the rest, as they say, is history.
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Lessons learned: Well, with any company it is usually pretty good if you are better than the competition at something. Investors should look at market share and sales growth to see which company is winning more business than others. This is often a tell-tale sign. Also, look at margins: High growth is not as good if you are not making money.
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Booking Holdings Inc.
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Market cap: US$172.8 billion. YTD return: about 6 per cent. One-year: 40.1 per cent. Five-year: 233 per cent. Twenty-year: 21,585 per cent.
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Booking, formerly The Priceline Group, leveraged global growth with technology and AI to expand bookings and improve efficiency, boosting profitability. It then made solid acquisitions such as OpenTable Inc. and, like Apple, invested heavily in its brands.
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Lessons learned: A simple business, such as travel, can still be highly profitable if technology is used and costs are maintained.
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Texas Pacific Land Corp.
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Market cap: US$31.5 billion. YTD return: about 23 per cent. One-year: 126 per cent. Five- year: 610.8 per cent. Twenty-year: 12,750 per cent.
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We bet few readers have heard of this company. After all, it’s kind of a boring industry compared to the excitement of the other four. Texas Pacific Land owns tracts of land, previously the property of the Texas and Pacific Railway Co. Its income is derived from land sales, leases to oil and gas developers, leases to farmers, royalties and interest. The company owns nearly 900,000 acres of land, or about 3,600 square kilometres. The company’s margins are high and it profited from oil and gas royalties with minimal operational risk (it basically just cashes cheques), low operating costs and soaring drilling activity. It has never had any debt and earnings per share have gone from 26 cents U.S. in 2005 to US$19.72 per share last year. Despite its success, it has only one analyst following the company. It also has about nine million fewer shares than it did in 2005 due to buybacks.
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Lessons learned: Keep your balance sheet clean and your costs low. Keep your share count low, or, even better, declining. There is no need to be fancy and flashy and entertain Wall Street analysts if your earnings growth is strong enough.
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Peter Hodson, CFA, is founder of 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)
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