Market Commentary: 53.4% of Money Manager’s Portfolio In Just 7 Stocks

Recently, I stumbled across a little-known New York investment manager, called Wall Street Access Asset Management. What intrigued me about their portfolio is that it holds about 25 positions, however 53.4% of the portfolio is concentrated in just the top 7 holdings.

The more I looked into the portfolio, the more it stood out as a well-built portfolio that diversifies risk across companies with wide moats and a bunch of smaller holdings that are fundamentally undervalued.

So, how did the managers divvy up the millions under management?

Key Points

• A diversified portfolio is smart but if you bet on companies with very wide moats, increasing concentration to them can generate alpha.
• Wall Street Access Asset Management has a portfolio of 25 stocks but just 7 of them represent over 53% of their portfolio.
• One heavily undervalued holdings has a woeful technical trend; we explore how to play that scenario.

Top 7 Holdings

The top holdings were as follows:

• iShares Core S&P 500 ETF (IVV): 15.9%
• Berkshire Hathaway: 12.1%
• Apple (AAPL): 9.0%
• Microsoft (MSFT): 7.5%
• Alphabet: 3.5%
• Amazon: 2.8%
• Vanguard Value ETF (VTV): 2.8%

5 Most Undervalued Holdings

This section of the article is going to be short but to run the calculations was a lot more time consuming! We ran the numbers on the portfolio to calculate which stocks were most undervalued using a discounted cash flow analysis and arrived at the top 5 as follows:

• GSK plc (GSK): 56.0% undervalued
• Pfizer (PFE): 51.4% undervalued
• Paramount Global (PARA): 50.3% undervalued
• Alibaba Group (BABA): 49.6% undervalued
• Goldman Sachs Group (GS): 39.6% undervalued

We then repeated the calculation, a much simpler one, using just the price-to-earnings ratio of each company.

Here are the top 5 most undervalued when comparing price to earnings:

• Stellantis (STLA): 3.5x P/E ratio
• Exxon (XOM): 6.8x P/E ratio
• Verizon (VZ): 6.8x P/E ratio
• Pfizer (PFE): 7.1x P/E ratio
• Builders FirstSource (BLDR): 7.5x P/E ratio

You can see Pfizer makes the list both on discounted cash flows and earnings. Still, we would like to see it turnaround technically before starting a position.

You can see from the chart below, the long-term trend remains strongly bearish.

Ideally, Pfizer would start to form a longer-term base but the current price action suggests perhaps the market knows some bad news lies on the horizon and is discounting it presently.

Wrap Up

The top 53% of the portfolio is the kind of concentrated bet that makes a lot of sense. It’s easy for amateur investors to buy outlier, high-flying stocks and bet the farm on them, hoping for outsized returns.

Sometimes it can pay off in spades, and sometimes it blows up an investment portfolio. That’s not the kind of strategy that professional investors can afford to risk.

Better to be the tortoise than the hare: trust that the big-name stocks with massive cash flows will continue to prosper slowly and steadily over the long haul, and ride the wave higher.