Today, we focus on the Harvard Management Company (“HMC”) and discuss three Harvard endowment stocks. HMC manages Harvard University’s substantial endowment fund, valued at well over $50 billion for fiscal year 2023. As a result, many on Wall Street pay attention to the investment decisions made by the fund.
HMC’s latest SEC filings reveal a concentrated portfolio of twelve securities. The company’s leading holdings include Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), Meta Platforms (NASDAQ:META), Invesco QQQ Trust (NASDAQ:QQQ), Light & Wonder (NASDAQ:LNW), and Nvidia (NASDAQ:NVDA). Notably, the top three stocks account for a significant 78% of its invested assets. With that information, here are three Harvard endowment stocks that deserve your attention in June.
Top Harvard Endowment Stocks: Alphabet (GOOGL, GOOG)
First up on our list of Harvard endowment stocks is Alphabet, the parent company of Google, YouTube, and Google Cloud. During the first quarter of 2024, Harvard Management Company increased its ownership of Alphabet, specifically the Class A shares (GOOGL) by 27.6% through two purchases, a decision likely supported by Alphabet’s strong financial performance.
The tech giant exceeded analyst expectations in the first quarter, reporting a 15% surge in revenues to $80.5 billion. This growth was propelled in part by a 13% rise in Google’s ad revenue, totaling $61.7 billion. In addition, a 28% surge in cloud computing revenue, which hit $9.6 billion thanks to advancements in AI technology, was helpful. Alphabet announced its first-ever quarterly dividend of 20 cents per share and a $70 billion buyback program. Both moves were well-received by stakeholders.
Strategic ventures, like a partnership with augmented reality startup Magic Leap and over 1,000 new cloud product offerings, underscore Alphabet’s innovation commitment. Meanwhile, Alphabet is heavily investing in generative AI, particularly through its Google Cloud and Search segments. The company has introduced generative AI features into Google Search, which allows it to serve more complex queries and improve user experience. Google has rolled out “AI overviews” in Search in the U.S. and U.K., focusing on complex queries where generative AI can add value.
So far this year, GOOGL stock has gained nearly 24%, and currently trades at around 23 times forward earnings and 7 times trailing sales. Analysts foresee further upside, setting a 12-month price target of $195, a 13% potential increase from current levels. In addition to growth prospects, the stock also comes with a modest 0.47% dividend yield.
Light & Wonder (LNW)
We continue our discussion on Harvard endowment stocks with games developer Light & Wonder (NASDAQ:LNW). The company designs, manufactures, and distributes physical gaming machines like slot machines and electronic table games for casinos and lotteries. LNW also owns a digital gaming segment, SciPlay, which publishes mobile and web games.
On 8 May, Light & Wonder reported solid first quarter 2024 earnings. Consolidated revenue increased by 13% YOY to $756 million. Diluted earnings per share (“EPS”) came in at 88 cents compared with 23 cents for the year-ago quarter. Management also expressed confidence in its ability to deliver sustainable growth and achieve its target of $1.4 billion in revenue by 2025. Investors noted that the key growth drivers include the launch of new games, expansion into adjacent markets, and continued momentum in its digital businesses.
While Light & Wonder presents a compelling investment opportunity with its consistent revenue growth, diverse revenue streams, and strong financial health, potential investors should also consider the industry volatility and dependence on consumer spending. Understandably, balancing these pros and cons can help long-term investors make an informed decision about including Light & Wonder in their investment portfolio.
Year-to-date (YTD), LNW stock is up more than 16% while the shares are trading at 24.83 times forward earnings and 2.88 times sales. Meanwhile, the 12-month median price forecast for LNW stands at $113.0 suggesting an upside potential of over 18% from current levels.
Rocket Lab USA (RKLB)
The final company among our Harvard endowment stocks is Rocket Lab USA (NASDAQ:RKLB). This pioneering space company specializes in launch services and space systems solutions for commercial, aerospace, and government clients. With a robust product lineup including the electron and photon platforms, and ambitious plans for the neutron rocket, RKLB stock offers investors exposure to the rapidly growing aerospace and defense (A&D) industry.
Rocket Lab reported total revenues of $92.77 million for the first quarter of 2024, representing a significant growth of 68.99% compared to the same quarter in the previous year. We should note that despite the strong revenue growth, Rocket Lab USA is currently operating at a loss.
The A&D industry is characterized by high barriers to entry, significant capital requirements, and long development cycles. Wall Street highlights that the industry is experiencing a renaissance, driven by advancements in technology, increased demand for satellite launches, and growing interest in space exploration. Meanwhile, Rocket Lab has secured a robust backlog of over $1 billion, providing significant visibility into future growth. The company has also formed strategic partnerships and secured government contracts, which not only provide stable revenue but also enhance its credibility and competitive position in the industry. Recently, the company announced that it has selected subcontractors to support the development of a satellite constellation for the Space Development Agency (“SDA”).
Since January, RKLB stock has advanced almost 22%. Yet, we should note that the shares are changing hands at a relatively high valuation of 7.51times sales. Finally, the 12-month median price forecast is $8.0, suggesting an upside potential of 83% based on current prices.
On the date of publication, Tezcan Gecgil held both long and short positions in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
