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Li Lu is considered as the most promising heir of Warren Buffet and Charlie Munger. He has managed to rack in 20% per year returns for the past 30+ years and this makes him one of the all time greats in the investing world. Stay until the end of the video as I will analyze every single one of his stock investments in his portfolio with my easy 5 step fundamental analysis model.
. It is important to note that Li Lu invests not only in the US. But in the regulatory 13F filing reports only his US investments are needed to be disclosed, so we do not have information on which other stocks he is invested in and at what percentages. All in all Li Lu has only 5 stocks in his portfolio.
At spot number 5 comes Apple with a 6.02% portfolio share out of the $1.7 billion total portfolio size. Apple is a major holding not only for Li Lu but also for Berkshire Hathaway, the company of Warren Buffet. Buffet has 40% of his 300 billion dollar portfolio in Apple. Let’s not analyze Apple with my 5 step model.
First I look at debt management. The current ratio is 0.88, it needs to be above 1 to be good, the debt to equity ratio is 2.37, it needs to be below 1 and it is optimal to be below 0.5. So from a debt management perspective I do not like Apple’s positioning. The P/E ratio for Apple is 23.2 which is well above the 2016 levels of around 10.
For a large company like Apple I would optimally pay no more than 16 price to earnings ratio. The return on equity ratio is 150%, which from first glance looks incredible, but if you look under the hood this is all due to very low equity levels due to very high liability levels. Hence the price to book ratio for Apple is 44.75 and it is optimal to be below 3 for a manufacturing business like Apple.
I would not invest in Apple at current valuations. As I place it as a 1 out of 5 on this scale. On spot number 4 comes Berkshire Hathaway the company of Buffett. It has a 13.75% portfolio share. This does not surprise me as a lot of great investors have huge allocations in the company. Watch my portfolio analysis video about Guy Spier, Bill Gates here on the channel to see.
The company is a conglomerate that owns multiple businesses, and it has a huge portfolio of investments. It needs to be treated with a special analysis video and comment down below if you want to see such a video. On spot number 3 comes Google stock. It has a massive 22% portfolio share. Google has an incredible moat, we will see in the coming decade if A.I.
will manage to disrupt the business, but people must not forget Google is a pioneer in the A.I. technology as well. The debt management of Google is incredible. Their short term debt health is impeccable with a current ratio of 2.52, while their debt to equity ratio is at the optimal level of below 0.5 sitting at only 0.11.
The return on equity is 21.86% which is very good and above the desired 12%. The price to book is 5 which for such a business is not that high as Google is a software company and does not need very much physical facilities and assets. The price to earnings for Google is 19.4, which is not too high, optimally I would like it at 17 which historically for Google is very cheap but even at current levels I would not say it is overvalued.
I give Google a 5 out 5 on these criteria and I would really like the company’s fundamentals. On spot number 2 is Bank of America. This is another heavily beloved company for all Buffett and Munger style value investors. Guy Spier, Li Lu, Munger and Buffet all have very big allocations in this bank.
With Li Lu’s one being 25.27% of the total portfolio. Bank of America is the second biggest bank in the US and it is a staple in the financial sector. The current P/E is 11 which is quite good, but we must not forget that the banking sector’s earnings are very volatile and one year could be very different from the following one.
The price to book ratio for BAC stock is 1.15, which is good. This means the equity of the company is close to the price. Hence the risk is lowered. But most of the time when it comes to a bank we want to buy it at below 1. Bank of America has a long history of the P/B trading and staying below 1 for a substantial amount of time, which shows a current risk for the stock.
The efficiency of the company is good with a ROE of 11.2%. The debt to equity ratio is 1.13 which is above 1 and it is not ideal, while the current ratio is 0.92 which again is not good as it is below 1. I personally, unlike these greats, see much bigger opportunities from a risk/reward perspective than Bank of America stock and I would not invest in it.
The top stock of Li Lu is Micron stock with a 33% portfolio share. I really like Micron as well and I am not alone in this camp. Mohnish Pabrai, another renowned value investor has a huge percentage of his portfolio in Micron. It is a leading chip manufacturing company with incredible fundamentals. It has a current P/E ratio of 11.17 as it went up 25% over the course of January.
The P/B ratio is 1.37 for a while it was trading at 1.1 which is very quite low for such a business and the current moat the big chip manufacturers have. Micron has a 12.6% ROE and it covers this basic efficiency criteria. While from a debt management perspective the D/E ratio is 0.2 which is incredible and the current ratio is 3.5 which again is beyond okay.
All in all Micron scores a 5 out of 5. As a final important conclusion Li Lu’s portfolio consists of 39% Financials, 39% Hardware Technology and 22% Software Technology investments. Don't forget to subscribe to the channel and comment down below which other investors or stocks you want me to cover next. Thanks for watching and I’ll see you again very soon.
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