We are about to slam the door on one of the worst annual starts for the S&P 500 since the 2008-09 financial crisis, when the S&P 500 fell 7% for January.
While most investors at least have a fantastic 2021 to fall back on, hedge funds have had it harder. Some data point to a gain of 8.7% for hedges between January and November 2021, against 26% for S&P last year.
Yet these funds are paid to take the big chances and win at times. Our today’s call comes from Scott Miller, who manages Greenhaven Road Capital, which gave 3% last year and lost 9% in the fourth quarter. The small annual gain was due to the fund’s focus on smaller companies and no S&P 500 SPX
The negative return came from a “bias towards companies with long runways for growth that will not require additional money to reach their potential,” he told customers in a January letter.
Despite the recent heat, these stocks may be worth the effort, he argued. “If a company can maintain 30% growth over a five-year period with a constant multiple, we will almost triple our money. If the multiple expands … even better. But even if the multiple were halved on day one, the investment would still deliver a return of 85% over these five years, ”he said.
With that, he argues for a few new investments, including COVID-19 star Teladoc Health TDOC,
whose decline of 50% in 2021 and a further 23% this year has hit Cathie Woods flagship ARK Innovation ETF ARKK
He said that the virtual health company and the other selected, the Israeli digital intelligence group Cellebrite CLBT,
“has the competitive advantage of being a scaled provider.”
Teladoc is cheap to begin with, and sells for less than 5 times the turnover (from 20 times). It still expects 25% to 30% annual growth over the next three years, and pre-announced revenue and confirmed projections earlier this year, meaning confidence is not waning.
He further said that Teladoc’s growth path is focused on selling more products to existing customers and it has evolved into a comprehensive medical service with a broad geographical footprint, making it an attractive option for healthcare plans or companies.
“If Teladoc can achieve their stated growth ambitions, it will be a result of cross-selling, which has been a success for them historically. For example, more than 40% of telehealth users today have access to multiple products, compared to only 10% in 2017. If every Teladoc patient used each product, revenue would grow more than 25X without adding a single new customer, ” he said.
Regarding Cellebrite, a recent acquisition / spin-off of Japan’s Sun Corp., Miller said the company “checks a lot of boxes”: over 5,000 public safety and 1,700 corporate customers; revenue growth of 25% and net revenue retention of over 140%; solutions with a high return on investment for end customers; 80% gross margin and an estimated 20% penetration of their current base.
“Shares are currently traded for less than 5X 2022 earnings, which is a discount of> 50% to peers in the DI area. I like our chances for continued growth and even more expansion over time, ”he said.
Miller sees two other options as volatility may continue. The first is companies that can grow 20% plus growth in the coming years, with attractive multiples, high margins, little or no debt, secular tailwind, reinvestment ability – top stocks PAR Technology PAR,
Digital Turbine APPS,
and Elastic ESTC.
He also scouts for companies that sell for deep value that have not been available for the last many years.
“Will any of these groups of companies escape short-term fluctuations? Unlikely. Will one of these groups be compounded at high speeds over time? I like our chances,” Miller said.
Investors will get another big batch of earnings this week from Alphabet parent company Google GOOGL,
General Motors GM,
Facebook parent Meta FB
and Merck MRK.
Cloud Group Citrix Systems CTXS
is reportedly close to a $ 13 billion deal to be taken privately by Elliott Management and Vista Equity Partners.
said it would add content advice to certain podcasts and improve transparency after protests were sparked by singer Neil Young over the spread of misinformation about COVID-19 vaccines. In the firing line, podcaster Joe Rogan said he only wants to give “different opinions.”
Spotify was also upgraded at Citigroup along with the Netflix NFLX
and Tesla TSLA
was offended by Credit Suisse.
Atlanta Federal Reserve President Raphael Bostic told the Financial Times that interest rates could rise by half a point in March. The respective Fed Presidents of San Francisco and Kansas City, Mary Daly and Esther George, are to talk about a week that will bring us production updates and January salary data.
are mixed, European equities XX: SXXP
is up, and Nikkei JP: NIK
and Hang Seng HK: HSI
recorded 1% increase amid vacations elsewhere in Asia. DXY Dollars
and bitcoin BTCUSD
falling. Oil prices CL
rising, with natural gas prices NG00
at 5 pct.
“Corrections rarely turn into bear markets unless the economy is heading into a recession,” says a team at Goldman led by US stock strategist David Kostin, who mapped 21 corrections without a recession since 1950. Seizing “good buying opportunities” could provide a 15 % return over the next year, the team says.
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