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Why Cooper Investors is Bullish on Sony (SNE) and HDFC Bank (HDB) Stocks?

Alex Smith
·3 mins read

Cooper Investors, an independently-owned investment firm, recently published its first-quarter Global Equities Fund (Hedged) commentary – a copy of which can be downloaded here. During the first quarter of 2020, the Cooper Investors Global Equities Fund (Hedged) returned -18.98%, while the benchmark MSCI ACWI was down 19.97%.

In the said letter, Cooper Investors highlighted a few stocks and Sony Corp (NYSE:SNE) is one of them. Sony Corp engages in designing, manufacturing, and selling electronics and entertainment products. Year-to-date, SNE stock lost 7.5% and on April 30th it had a closing price of $64.25. Its market cap is of $79.3 billion. Here is what Cooper Investors said: "In Japan we initiated a position in Sony Corp, a long time Watchlist stock and Asset Play. When we first met with Sony in 2015 they were in the early stages of a turnaround following over a decade of poor performance. Initially we were unsure if this was just another “Japan Inc.” story - a company loaded with latency that would never be realised. But over the past 18 months we started observing more signals highlighting the authenticity of the turnaround and resurgent levels of Focused Management Behaviour. These included the intentionality in the language of their shareholder communication, the improving strategic positioning of their underlying businesses and the articulation of their long term opportunity by the CFO in our recent conversation. Today Sony is an Asset Play with a portfolio of leading Content, Platform and Technology assets. These businesses are exposed to strong secular tailwinds including the growth of Video Game consumption and music streaming. The company is very well-capitalised with a net cash balance sheet placing Sony in a position to invest organically and inorganically during the uncertain period ahead." In Q4 2019, the number of bullish hedge fund positions on SNE stock decreased by about 4% from the previous quarter (see the chart here).

Cooper Investors comments on HDFC Bank

In the said letter, Cooper Investors also highlighted HDFC Bank Ltd (NYSE:HDB) stock. HDFC Bank is a banking and financial services company. Here is what Cooper Investors said:

"HDFC Bank is an Indian private bank established in 1994 that has become one of the premier financial institutions in Asia due to its unique culture and approach to business that honours both risk and entrepreneurship. This has produced a long track record of success including during periods of significant system-wide credit losses. This success has resulted in the stock becoming well-known among EM investors, typically trading at high multiples of book value that capitalise high perpetual growth expectations with minimal risk. Neither are appropriate assumptions for emerging market banks and so we were waiting patiently while the stock traded at levels where the risk adjusted value latency was not compelling.

The recent market panic addressed this valuation issue with emerging markets investors heading for the door at historic rates. This caused a significant drop in both the Indian Rupee (INR) and HDFC Bank shares, with the INR/USD declining by 6% and HDFC shares declining by over 40% in 2 months. This allowed us to invest at valuation levels around 2x book value, near their GFC lows. Notwithstanding the challenging environment India and HDFC are facing we remain long term optimists on both and expect HDFC to come through the other side in a position of strength, able to capitalise when growth resumes."

In Q4 2019, the number of bullish hedge fund positions on HDB stock decreased by about 5% from the previous quarter (see the chart here).

Do you think it is appropriate to buy HDFC Bank stock?

Disclosure: None. This article is originally published at Insider Monkey.