I’ve said it many times, but I’ll say it again: 2020 was a hell of a year for the Freedom Portfolio. The portfolio as a whole was up 175% with a number of individual positions tripling or more. That’s many years of growth all squeezed into a short period of time. As a result, it felt like time to try to take a step back and see if my investment thesis for these companies still holds. For many of my positions, the upside that I am looking for is a 5-10 bagger over the next 5-10 years. However, with some of those companies already doubling or tripling, is that upside still there, or should I be looking for better opportunities?

To answer this question, I’m planning on going through each of my holdings over the coming weeks/months. For each holding, I intend to figure out what I think is the maximum reasonably upside that could be expected from the company over the next 5 years. Why 5 years? Because I am a long term investor who always enters a position with the intention of holding it for 5+ years (even if that sometimes doesn’t happen) and because trying to project out any further than 5 years seems way too difficult at the current pace of innovation.

For each position, I decided to place it into one of three groups:

• Slow Growers: Companies that can 2x to 3x over the next 5 years – a 15% to 25% compound annual growth rate (CAGR)
• Medium Growers: – Companies that can 4x to 7x over the next 5 years – a 32% to 48% compound annual growth rate (CAGR)
• Fast Growers: – Companies that can 8x to 10x over the next 5 years – a 52% to 58% compound annual growth rate (CAGR)

Part 1 is dedicated to the slow growers, with the plan for parts 2 and 3 to be released in the coming weeks/months. For each company, I will list the current-ish market cap as well as what that market cap would look like 5 years from now after a potential double or triple.

Note: There’s been a fair amount of market volatility lately, so it feels worthwhile to note that these market caps were pulled on March 11th.

Let’s go.

Amazon (AMZN) – Now: $1.5 trillion – Then: $3 to $4.5 trillion

It’s a little hard to wrap my head around how much larger a $1.5 trillion market cap company can get. On one hand, it’s already massive with big expectations of growth already baked in. On the other hand, it still feels like there’s a lot of runway left with cloud computing, ecommerce and advertising and Amazon seems to have a really strong advantage in all three of those business lines. A 15% to 25% CAGR might seem a little conservative for such a relentless innovative and strong business like Amazon, but it would also represent them adding 5 Walmarts (WMT) or 10 Exxons (XOM) worth of market cap, which feels pretty significant.

Verdict: Amazon is so large that it’s hard to imagine there’s a tremendous amount of upside left in it, but at the same time there might not be a company out there which I am more confident will be a market beater going forward. I’ve already trimmed some of my position after Bezos stepped down as CEO. I don’t see any reason to sell any more in the near future.

Tesla (TSLA) – Now: $650 billion – Then: $1.3 to $1.9 trillion

Again, this is hard to wrap my head around. A mere car company with a market cap over $1 trillion? As any Tesla bull will be quick to say, Tesla is more than just a car company and is poised to be a major player in not just all sorts of transportation (EVs, autonomous, taxis, ride-sharing, etc), but energy as well. I think Tesla is well positioned to be a leader in a lot of those areas, but what is that worth? Even if you combine the market caps of the top car manufacturers AND Uber and Lyft AND toss in an Exxon for good measure, you don’t get to $1 trillion right now. Even if Tesla disrupts transportation and multiple other areas like I think they could, it feels like a stretch to say they can grow much beyond a low-to-mid $1 trillion market cap over the next five years.

Verdict: I’ve mentioned a few times that, despite still being bullish on Tesla, even I couldn’t justify the valuation over the past few months. I’ve trimmed a decent amount recently and feel much more confident with the size of my position now and see no reason to change it any more in the near future.

NovoCure (NVCR) – Now: $13 billion – Then: $27 to $40 billion

Seeing the market cap of NovoCure was a bit of a surprise to me. When I first bought shares of NovoCure in 2017 at about $18 a share, it was a much smaller company. I knew it had been a pretty great performer, but it still surprised me to see that it had grown to such a large market cap. I still think there’s a big opportunity in front of NovoCure to use their Tumor Treating Fields to treat a wide variety of cancers and, importantly, the treatment can be used in addition to others so competition should be less of a factor. Still, it’s a little tough to see them growing much beyond the $30-40 billion range unless they find a way to expand TTF beyond cancer treatment, which I don’t quite see happening.

Verdict: Novocure has some pretty clear catalysts that are also on a pretty clear timeline. I love the technology, but I could see a scenario in the coming years where I start to redeploy capital to other companies unless they discover new potential uses for TTFs.

Disney (DIS) – Now: $357 billion – Then: $714 billion to $1 trillion

I continue to be amazed by how Disney stock has not only held up during a pandemic which has obliterated virtually all of their main revenue drivers, but has actually hit new highs. Obviously a lot of that has to do with how incredibly fast their streaming services have grown both domestically and internationally. I have no doubt that Disney will be the strong number two to arise globally in the coming years. Still, it seems like a lot of optimism is already baked in to the share price. What happens if park re-openings take longer than expected, the movie pipeline takes some time to get replenished, and Disney+ growth slows down?

Verdict: I love Disney, but there’s no doubt it has lower upside than a lot of my other companies. As a result, I actually recently trimmed my position some (see below) to add to some companies that hopefully have more upside.

Netflix (NFLX) – Now: $232 billion – Then: $463 to $695 billion

A double or triple over 5 years is really strong growth, but it almost feels like an insult to predict it for Netflix seeing as it has gone up nearly 6 fold over the previous 5 years. It does feel like it’s finally time for their growth to slow down some, though. Netflix long ago saturated the US market and it feels like it has snagged most of the low hanging international fruit as well. There’s still some growth to be had, but much of it will be coming from cheaper plans in countries like India. Additionally, their competition has finally gotten serious about transitioning to online streaming which will undoubtedly limit their ability to raise prices as much as they have been. The rumors of them cracking down on password sharing is one more sign that they’re looking for other levers to pull to get some growth. Still, Netflix remains the global leader in a streaming trend that is still yet to fully play out and that doesn’t seem likely to change. This still feels like an easy market beater going forward.

Verdict: I won’t lie: nostalgia plays a huge role in why I continue to hold Netflix. It was one of my first purchases and has been one of my biggest winners. I almost feel a sense of loyalty to the company. That’s not the only reason I hold it, but I would be lying if I said it didn’t play a role. I could see myself selling some more in the future, but it’s hard for me to imagine ever selling all of my shares.

Square (SQ) – Now: $110 billion – Then: $220 to $330 billion

Like NovoCure, the market cap of Square surprised me a bit. When I first purchased shares in 2018 at $58 a share, the market cap was around $20 billion. My hope then was that Square could grow beyond just being the little dongle for swiping cards for small and mid-sized businesses and could become a major player in digital payments with the Cash App and move into many banking services as well. The former seems to have arrived and the latter looks to be getting closer. Even though Square has grown a ton, I still feel like there’s decent upside left. PayPal, Visa, and Mastercard have market caps between $300 and $500 billion and if bitcoin continues to show strength, there’s no reason why Square can’t double or triple from here.

Verdict: This is one I will be keeping a close eye on. It feels like Square has a lot of potentially huge catalysts (Cash App moving into banking services, bitcoin, NFTs through Tidal) and I do think Dorsey is brilliant, but he’s also eccentric and undeniably distracted. If some of those moonshots look like they’re not panning out or taking longer than expected, I might consider trimming my position some.

Transactions

Sold some Disney (DIS): As mentioned earlier, there’s been a ton of volatility recently and a lot of my positions have seen some pretty massive haircuts. I always remain fully invested and don’t keep cash around, so if I want to “buy on the dip” I need to sell something else first. Because Disney has held up fairly well during this volatility, I decided to trim some so that I had cash to deploy elsewhere.

Bought more Fiverr (FVRR) and FuboTV (FUBO): I’ve made no secret how much I have been loving Fiverr lately and so when it dropped nearly 40% recently I took the opportunity to add more shares. FuboTV was a smaller position that saw a move that was almost as big so I decided to add a bit to FUBO as well.

Your Thoughts

What do you think? Am I too pessimistic on the above companies? Or is a potential double or triple still too optimistic? Please let me know in the comments if you agree or disagree and, more importantly, why. Thanks!