Billionaire investor Ron Baron sees ‘great opportunity’ – and remains optimistic about Tesla – despite ‘chaos’ in the market

0
3

Despite a grueling year for the US stock market so far, billionaire Ron Baron’s money manager and his many retired investors were undaunted when they gathered for the Baron Investment Conference last Friday. With nearly 5,000 investors and members of the media thronging the Metropolitan Opera House in New York City, it was the first time since 2019 that the company was able to host its annual meeting.

The mood was far from gloomy. The extravaganza featured presentations from a handful of company CEOs and Baron Funds portfolio managers, as well as a musical headline performance from Bruno Mars. In addition, the guests were treated to a surprise performance from Tesla, SpaceX and Twitter
TWTR
CEO Elon Musk, who was interviewed by Baron on stage.

Although Tesla shares are down 50% since the start of the year amid wider market sell-off, Baron has invested a whopping 45% of one of its largest funds in the automaker’s stock, up from 41% in early 2021. .

In total, Baron’s company has 19 funds overseeing nearly $40 billion in assets; some of them have made big bets on Tesla, including the $6 billion Baron Partners Fund (assets) and the $700 million Baron Focused Growth Fund. The two funds are down 31% and 23% respectively so far this year, but given the massive surge in Tesla stock in 2020 and 2021, they can boast solid longer-term gains. The Baron Partners Fund has achieved an average net annualized return of over 25% over the past five years.

“In ten years, Tesla will be the largest and most profitable company in the world,” Baron . said TBEN in an interview before hosting his investment conference.

Not only is his company one of Tesla’s 20 largest shareholders, according to the filings, but Baron Funds also has a greater percentage of its total portfolio allocated to the stock — 11% — than many other major shareholders, who usually top out on the stock. 5% or 6%.

A buy-and-hold investor, Baron is confident that his funds will recover and continue to offer great returns in the future, primarily due to his large bets on high-growth companies. He summarized this year’s performance as not great, but “relative,” adding, “because of our low sales and great long-term record, investors are willing to give us some leeway and patience.”

Baron, who is 79 and founded his company four decades ago, has been through many bear markets. He said he sees “great opportunity” today, following the roughly 21% drop in the S&P 500 index. “A year ago nothing was cheap, now it’s just the opposite,” Baron said. “Stocks are absolutely dirt cheap.”

Many growth stocks have been hit hard by higher interest rates. Baron admitted it’s hard at times when “it’s all red on the screen” and the markets fall, but then his buy-and-hold philosophy becomes more important than ever. His funds, which typically have very low turnover, have continued to buy when it was appropriate, selling only “when fundamentals change or we need to rebalance the portfolio,” he explained. “Companies we invest in must benefit and grow despite the chaos.”

In addition, “markets will stabilize at some point,” Baron added, predicting a recovery by the end of 2024, with shares likely to return to where they were in November 2021, doubling every five to 10 years.

A major reason for its rosy outlook is the company’s strong commitment to Musk’s electric vehicle manufacturer. The billionaire’s money manager first built his company’s position in Tesla between 2014 and 2016, investing a total of $387 million, which has since generated billions of dollars in profits. Despite a 50% drop in Tesla stock in 2022, Baron remained confident that his company’s position will continue to pay off in the future: “If I could, I’d buy more.”

The longtime Tesla bull highlighted the company’s high growth rate, both in terms of production and sales, while also expecting the automaker to further improve its profit margins. Tesla has continued to increase its car production and deliveries, reporting 343,000 deliveries last month in the quarter ended September 30, 2022, up from just over 250,000 a year ago. In addition, quarterly revenue was more than $21 billion, an increase of more than 50% from the same period last year.

He has also actively invested in Musk’s private rocket company, SpaceX, in recent years. The company has invested nearly $500 million in previous funding rounds, including $100 million earlier this year when SpaceX reached a valuation of more than $125 billion in May.

“When SpaceX comes along, I’ll buy more,” Baron said, adding that it has “incredible potential.” He predicts the company could probably surpass a $150 billion valuation in the next funding round.

“Everyone will know more about SpaceX,” Baron told TBEN, adding that it will soon, through its Starlink satellite broadband service, “provide internet for the planet”. He similarly remained optimistic about the company’s Starship project, which focuses on reusable rockets, which Musk has called “the holy grail of space travel” and crucial to pushing the boundaries of space exploration.

Baron also said he sees great opportunity with social media platform Twitter, which was acquired by Musk for $44 billion in a recently completed deal in which Twitter sued Musk to let him complete the purchase — a lawsuit that never went to court. As the new owner of Twitter, Musk announced sweeping layoffs last Friday, telling attendees at the Baron Investment Conference that the social media company “had pretty serious revenue and cost problems before the acquisition.” Still, the Tesla billionaire boasted that Twitter “could end up being one of the most valuable companies in the world.”

Baron isn’t concerned that Musk is taking on too much while also serving as the CEO of three companies, including Twitter, which must make $1 billion in profits over the next 12 months to cover its debt payments.

In addition to his bets on Musk’s companies, the billionaire’s money manager has historically looked to invest in companies that grow their revenues at an average of more than 15% per year. He also looks for those who are actively reinvesting in their businesses, which he identifies as “a bullish sign” for future growth. With his optimism about a possible market recovery and economic recovery, Baron particularly likes leisure stocks, which he believes have great upside potential in the coming years.

One of its most recent bets is medical apparel manufacturer FIGS, which sells scrubs and other apparel to healthcare professionals. Baron, who called the company the “Lululemon of healthcare” in an interview with TBEN earlier this year, likes the direct-to-consumer model and the high margins. With a market cap of just over $1 billion, FIGS shares are down about 75% this year and now trade for less than $7. Baron said he thinks he’ll make up to ten times his original investment in the next decade. can earn if the company’s business model proves to be successful.

Baron’s funds have also been invested in Hyatt Hotels since the company went public in 2009. He remains optimistic about the future increase and points out that room rates have risen significantly. The company operates more than 1,100 hotels and accommodations in 70 countries. Baron added that the company is doing well on solid margins and growing revenues, with Hyatt consistently exceeding quarterly earnings expectations so far this year. Shares are down just over 6% so far this year, much less than the broader market.

Another longtime favorite and one of Baron’s biggest companies is the ski resort company Vail Resorts
MTN
, of which he first bought shares in 2006. The stock is down 33% this year, after rising nearly 20% in both 2020 and 2021. Baron is a big fan of the company’s business model, especially with nearly two-thirds of Vail’s ski passes (61%) being purchased in advance. sold, meaning much of the revenue is locked in before the season starts. This strong demand allows the company to reinvest in the customer experience and new acquisitions. Vail has nearly 40 resorts in 15 states and several countries, with an acquisition in Switzerland earlier this year (the company’s first resort in Europe) and future plans to expand into Japan.