Emulating the trading decisions of successful Wall Street investors is an excellent strategy for anyone interested in entering the stock market.
In fact, one such legend you’d do well to follow is Julian Robertson. Robertson was an early pioneer of the modern hedge fund, establishing his Tiger Management firm in 1980.
Fast forward to today, and two of Julian’s top-three holdings – AutoZone and Workday – now account for a princely 20.6% of Tiger’s entire investment portfolio.
With that in mind, let’s take a deeper look at why AZO and WDAY are in such high demand – and why Tiger Management has backed them to the hilt.
It was a terrible year for the equity markets in 2022. The S&P 500 has fallen 7% in the past twelve months, with only a handful of sectors – such as healthcare, energy, and consumer staples – managing to beat that meager return.
But not all companies have fared so poorly. AutoZone, a leading retailer of automotive parts and accessories, has delivered a 32% gain in share price over that time – and appears to show no signs of slowing down.
For example, AZO’s domestic same-store sales rose 5.6% for the second quarter of fiscal 2023, while reported net sales of $3.7 billion grew 9.5% year-on-year. Moreover, the firm expanded its US Commercial efforts by double digits too.
Although AutoZone’s gross profit margin decreased 69 basis points to 52.3%, this is still a good number, with other bottom-line metrics taking the slack.
Net income for the quarter grew 1.0% to $476.5 million; operating profit spiked 6.9%; and, perhaps most importantly, per share diluted earnings increased 10.5% from $22.30 to $24.64.
Such a stellar financial performance ultimately stems from AZO’s robust business model. The company’s focus on do-it-yourself (DIY) customers and professional installers is a prime reason for its achievements.
By providing quality automotive parts and accessories – along with superb customer service and technical expertise – AutoZone has established itself as a reliable brand in the automotive industry. This customer-centric approach has contributed to the company’s continued growth, most notably during periods of economic uncertainty.
Indeed, because the company provides a necessary service to its consumers in all economic climates, AZO is likewise highly recession-proof. Even during a recession, cars must be repaired and maintained in order to keep them roadworthy, meaning that regardless of present conditions, AutoZone will still have people who need its products and services.
Moreover, the firm is positioned to benefit from the positive trends in DIY auto repair too. During a downturn, for instance, many drivers cannot afford to pay for expensive mechanics to work on their cars and therefore turn to their own solutions. Thus, AutoZone’s do-it-yourself customer base will remain strong, providing a steady revenue stream throughout the recession.
Additionally, AutoZone’s repair shop customers can purchase parts from the chain at a discounted rate compared to buying from a third-party supplier, further increasing its top line.
The enterprise resource planning (ERP) industry is overcrowded right now. In fact, with the advent and proliferation of cloud-based technologies, the number of ERP companies has increased exponentially.
This state of affairs has made it difficult for companies to choose which solution best meets their needs and budgets. Indeed, as the space has become more competitive, many vendors offer similar solutions with only slight variations. As a result, potential customers find it challenging to determine which provider offers the relevant features and most cost-effective answer to their problems.
However, one company that’s successfully differentiated itself from its rivals is Workday, Inc.
Workday is a prominent enterprise software company offering applications and services for finance and human resources. The business was founded in 2005 to provide organizations with modern cloud-based solutions designed to help them better manage and optimize their financial and human capital needs.
What is especially impressive about Workday is how the company has established its dominance in a highly-saturated field.
To begin with, Workday’s user-friendly interface is an attractive feature that has contributed to its popularity. In contrast to many other enterprise software solutions that are known for being complicated to navigate, WDAY’s interface is modern and intuitive, empowering users to navigate the software with ease.
On top of that, Workday’s suite of software products is seamless and unified, permitting customers to access all their HR, financial, and payroll data from one platform. This eliminates the need for multiple systems and enables businesses to have a single source of truth for their data. The importance of this cannot be overstated, as it allows organizations to make evidence-driven decisions based on accurate and consistent data.
Crucially, the firm’s commitment to innovation has been a critical differentiator too. For example, Workday has integrated machine learning and artificial intelligence into its software products, providing customers with AI-enhanced insights.
It’s no surprise then that WDAY recently posted some pretty spectacular fourth-quarter and full-year fiscal 2023 results. The company’s total annual revenues grew a massive 21.0%, with subscription sales up an equally good 22% year-on-year. Operating losses also improved in the last period, falling from $101.0 million in Q4 2022 to $89.0 million this time round.
Interestingly, WDAY believes it has a $125 billion market opportunity at its door. It already boasts 10,000 global customers across 175 countries, with a 95%+ customer satisfaction rating from the firm’s 60 million users. Furthermore, it serves over 50% of the companies on the Fortune 500 list, including such luminaries as Visa, AT&T, and Chevron.
With a PE multiple of 37x, Workday trades at a hefty premium compared to its peers in the IT sector. But the business has a gross margin of 72.4%, which should go some way to smoothing its path to consistent profitability.
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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.