Intel, IBM, and AT&T: The Concentrated Strategy Fueling Massive Growth
Investing in speculative growth stocks often requires diversification to mitigate the high risks associated with individual stocks. However, there is an alternative strategy endorsed by the late Charlie Munger and followed by many investors who believe in concentrating their portfolios for maximum returns.
The top three stocks in one investor’s portfolio, Intel, IBM, and AT&T, make up 32% of its total value, with the remaining 68% distributed among 21 other stocks. While some may find this level of concentration uncomfortable, the investor believes it strikes the right balance.
To start, let’s focus on Intel. The company underwent a much-needed culture change with the appointment of CEO Pat Gelsinger. Intel had become complacent, falling behind in manufacturing technology as rival AMD made gains in the PC and server chip markets. Gelsinger unveiled a plan to revitalize Intel’s manufacturing operations and build a foundry business. Intel’s manufacturing expertise, once underutilized, now has a sense of urgency driving it forward. By the end of 2024, Intel expects to regain its manufacturing edge with the next-generation Intel 18A process. With a 90% surge in its stock price in 2023, the investor believes Intel’s future potential far outweighs its current value.
Next up is IBM. While the company has struggled to adapt to a changing technology industry, it possesses a distinct advantage – longstanding relationships with clients spanning decades. As IBM focuses on hybrid cloud computing and artificial intelligence (AI), it leverages its consulting arm, hybrid cloud, and AI platforms, and strategic partnerships with leading cloud computing providers to offer solutions that enable clients to modernize operations, boost efficiency, and cut costs. After streamlining its business, making key acquisitions, and with a conservative valuation of just 14 times free-cash-flow guidance for 2023, IBM is poised for consistent revenue and free cash flow growth.
Lastly, we have AT&T, a telecom giant that made some missteps in the past, accumulating significant debt through media acquisitions that ultimately failed. Having divested those media assets, AT&T refocused its efforts on wireless and fiber internet, where it has consistently gained subscribers. Despite this positive trend, the stock is undervalued, trading at just 7 times free-cash-flow guidance for 2023. While AT&T may have slower long-term growth prospects compared to Intel and IBM, its rock-bottom valuation makes it an attractive investment. The investor believes that as AT&T regains its footing after its media debacle, the market will recognize its worth and revalue the stock accordingly.
While this concentrated strategy may not be suitable for all investors, it highlights the potential benefits of identifying low-risk opportunities where only a few factors need to go right. By focusing on companies like Intel, IBM, and AT&T, the investor expects to reap the rewards of their promising growth prospects. It’s a calculated approach that favors quality over quantity and embraces the philosophy of not over-diversifying in search of maximum returns.
