So these are my core 5 positions with CRWD, OKTA, and DDOG being what I call heads I win, tails I also win stocks where heads equals the pandemic getting resolved quickly and tails equals the pandemic dragging on for longer. Together these 5 stocks comprise more than 80% of my portfolio. I have considered putting my entire portfolio into these 5 (selling PAYC, TTD, SMAR, ROKU, and GH) but I haven’t done this. I like the upside of the other 5 stocks for when the overall market rallies so I’ve kept them for now.
—GauchoRico in 2020-03-31 Portfolio Update
After thinking things over, I made these changes. I sold all of my PAYC and TTD. I sold almost all of my ROKU except for a small token amount. I trimmed SMAR to a 3% allocation. I kept GH. I added a lot to ZM, some to CRWD, and a bunch to DDOG. My portfolio now looks like this:
| Ticker | 4/3/20 | 3/31/20 |
|---|---|---|
| AYX | 37.9%* | 38.3% |
| CRWD | 13.5%** | 9.1% |
| OKTA | 15.4% | 14.4% |
| ZM | 13.5% | 7.3% |
| DDOG | 13.4% | 11.8% |
| SMAR | 2.9% | 3.5% |
| GH | 1.2% | 1.2% |
| ROKU | 0.2% | 2.7% |
| PAYC | — | 5.3% |
| TTD | — | 4.3% |
| Cash | 6.0% | 8.1% |
So why did I do this? When thinking about how things will play out over the next 2 years, I considered the best case and almost worst (worst that I considered would be a multiyear depression where many businesses go belly up) case scenarios; I wanted my portfolio to do ok in the worst case scenario and do really well if we get a recovery.
I think that the top 5 companies will survive and probably come out of this stronger. All have amazing growth, good and improving FCF, and strong balance sheets. All have their employees able to work from home without much negative impact. CRWD and ZM should thrive under an extended freezing of human movement. OKTA and DDOG should also do as well or almost as well under the worst case scenario. AYX might not do as well as the other 4, but under a worst case scenario, the other 4 should buttress the portfolio. If things get resolved in the next several months, all the companies should do well, but ZM may see a pullback in the stock price; that’s fine because the others will then carry the portfolio (ZM is a nice hedge). On the other hand, TTD is going to get hurt by several factors: no Olympics, pandemic taking attention from the 2020 election, probable advertising budget cuts. ROKU may also get hurt. PAYC would get harmed if lots of their SMBs go belly up. I considered also selling SMAR but haven’t yet.
AYX
75% growth and accelerating. May see a hit to growth but AYX can easily weather the storm and will come out in a better competitive position. Any of their small competitors will have a very tough time getting new business in this environment. FCF positive and improving quickly. Very strong balance sheet with $975M cash with $698M of very low cost convertible debt (net cash $276M).
CRWD
89% growth and not decelerating (probably will accelerate). FCF positive and growing VERY fast. Very strong balance sheet with $913M cash, no debt. Going well but need to keep an eye on the competition to make sure they they don’t get disrupted.
OKTA
45% growth and growth has been stable. FCF positive with very strong balance sheet with $1403M cash and $938M very low cost convertible debt (net cash $$465M). Clear dominant leader in their space (looks like they have won their market) which is why I’m willing to accept the lower growth.
ZM
78% growth but has been decelerating. Expect a BIG re-acceleration. FCF positive and growing fast but expect a lot of investment in 2020 to support the massive growth; FCF growth may take a big hit but I expect ZM to not go FCF negative. Very strong balance sheet with $844M cash, no debt.
DDOG
85% growth (stable for last 5 quarters). Strong balance sheet ($777M in cash, no debt). Don’t think that their service is as essential as CRWD’s and OKTA’s. Going well but need to keep an eye on the competition to make sure they they don’t get disrupted. Very asset light business model.
So I see AYX and OKTA not getting disrupted. CRWD and DDOG are taking share and are growing like weeds so all good for now; I think they are in markets where disruption is more likely. ZM seems to be taking over and this will attract competition; ZM needs to execute (rapid expansion can be very challenging) and avoid any PR disasters as the world’s eyes are on them.