Riding the hype cycle

Each week, a professional investor tells us where he’d put his money. This week: Richard Clode, Janus Henderson Global Technology.

Technology is a disruptive, exciting sector, full of innovations with high-growth potential. However, this can easily lead investors to be over-exuberant in assessing the potential of these new technologies, with over-optimistic forecasts resulting in equally over-optimistic valuations. At Janus Henderson, we have a combined 60 years of investment experience behind us, so we have seen many new technologies come to market and ride the ‘‘hype cycle’’. We give our clients access to the most exciting areas of technology, but combine this with valuation discipline and a keen awareness of risk, with the goal of delivering consistently strong risk-adjusted returns over the long term.

Yandex (Nasdaq: YNDX) is the dominant search engine in Russia (it is listed locally as well as in the US). The group is benefitting from a recent local competition ruling against Google to further strengthen its search franchise. It is also the only listed company globally to offer meaningful exposure to ride-hailing giant Uber – Yandex Taxi was the main Russian taxi-hailing platform, but after a bloody price war, it is merging with Uber in Russia, creating a dominant player set for high growth, a return to profitability and a future IPO. Yandex also has a joint venture with Sberbank to create a potential leader in Russia’s nascent e-commerce market. Valuations are not egregious for the opportunities, especially once taxi subsidies fall away.

Alibaba (NYSE: BABA) is the dominant e-commerce platform in China and the largest globally ahead of Amazon. This high-growth, highly profitable franchise is copying Amazon’s success with Amazon Web Services (a cloud storage business), with AliCloud, the leading cloud-services provider in China. Alibaba also provides unique exposure to fintech globally via Ant Financial, which has created an alternative virtual cashless financial system that is disrupting the traditional Chinese banking system. Again, valuations are reasonable given the growth opportunity and the potential future listing of Ant Financial may act as a catalyst. 

US-based Universal Display (Nasdaq: OLEDprovides rare pure-play exposure to organic light-emitting diode (OLED) technology, which is rapidly replacing traditional liquid crystal (LCD) screens. Samsung smartphones and now the new iPhone X are adopting OLED for its superior performance, lower power use plus the ability to create flexible and ultimately foldable displays. Universal Display has many patents, and licenses its intellectual property (IP) to OLED screen manufacturers as well as selling them materials to make OLED screens. Rising OLED penetration across smartphones, tablets, vehicles, TVs and virtual reality applications will drive strong growth at a very high profitability for the company. Meanwhile, analysts’ financial forecasts are far too low, so the valuation is much lower than it appears.

Leave a Reply

Your email address will not be published. Required fields are marked *