To stay one step ahead of the COVID-19 pandemic, at least in terms of equities, it paid off for fund manager Gerald Sparrow last year. For 2021, he hopes online gambling, education and pets are the best magic.
Sparrow manages the Sparrow Growth Fund SGNFX,
A $ 97 million midcap fund that was in the top 4% of its category last year, and according to Morningstar 98% return. The fund, with an average annual return of 37% over five years and 48% over three years, had $ 31 million under management when MarketWatch spoke to Sparrow in June 2020.
Also read: A strategy to buy ‘the fastest growing businesses in America’ paid off in 2020 by this investor
At the time, he was advocating for Snap SNAP,
– parent of the messaging app Snapchat – the online car salesman Carvana CVNA,
a streaming media player Roku ROKU,
These companies, with respective 2020 profits of around 200%, 160% and 147%, were all pandemic plays that boosted the growth fund’s returns.
Sparrow’s method involves monitoring US stocks of all sizes and categories and rankings based on changes in the financial statements. “The cash flow, earnings, everything that will measure in the top 10% … is the bulk of the area we spend our time on,” Sparrow said in a recent interview with MarketWatch.
His system warns him about which companies are seeing significant growth compared to other stocks, and he looks at whether the growth is coming from. ‘We are therefore looking for organic growth. What do they create? ”
One of the 2021 trends he is pursuing is online gambling, which brings him to one portfolio addition – DraftKings DKNG,
of which the shares rose by 335% in 2020. The fantasy sports contest and online betting group was launched last April via a merger with a specialty sourcing company. Shares have risen 27% so far this year.
How much more can investors get from DraftKings? Sparrow pointed to a recent interview with CEO Jason Robins, who said that DraftKings’ mobile sports operations are now in just 12 countries, just after a long ban on sports betting in America was overturned more than two years ago. The company is striving for strong growth in 2021, and if its commitment operations reach 50 countries, it is still very much growing, he said.
Read: Buy DraftKings and Penn National because digital gambling is early turn, says Goldman
Sparrow said it’s not just DraftKings but also other companies such as the global hospitality and entertainment group MGM MGM,
which is now gambling online, with portals and apps for phones. It’s more profitable to just send an app to everyone, ‘he said.
Its next shares are Chegg CHGG,
which rents digital and physical textbooks, along with online tuition and other student services. Sparrow is also a subscriber and reads books to stay fresh with the math and the likelihood of investment analysis.
“So if I get a textbook and read it, and can’t get the answers, I put in the ISBN number, and they do step by step with flashcards and they have tutors. So I think online education is good and important, ”he said, adding that he is honestly“ addicted to the dangerous thing. ”Chegg shares rose 138% in 2020 and are 17% higher so far this year.
Read: Chegg’s most recent quarterly results
Another stock that Sparrow likes is the online payment service Square SQ,
whose CEO and chairman Jack Dorsey also heads Twitter TWTR, the micro-brass service,
‘What’s interesting about Square is that they have hardware and software on the point of sale to do transactions for retail and other merchants, but that it’s a lot of money for the cash app,’ which means you only cash in on someone via can send their phone. , he said. “And that’s a very good trend.”
PayPal PYPL,
with its own cash app, Venmo, is a Square competitor. Sparrow’s fund has held Square since 2017, but believes the company is starting to leave, with new services, such as a free stock trading capability added to the Cash App in 2019. Square recently took advantage when the competitive trading app Robinhood gained some traction in the aftermath of the frenzy over game retailer GameStop GME,
and users transferred to Cash App and elsewhere. Shares of Square rose 247% in 2020 and 21% so far this year.
Sparrow’s last shares are Chewy CHWY,
which benefited amid the pandemic as the adoption of pets increased and owners spent more time and money on their animals. The online retailer of pet products saw a 45% increase in third-quarter net sales to nearly $ 2 billion. Soft stocks rose 284% in 2020 and 7% so far this year.
“They not only go to people’s homes for convenience, but also add more prescribed health care-related items to their website,” he said.
Sparrow also weighs the potential blind spots for investors he sees as a new pandemic year gets longer. “The risk is that we do not get the pandemic under control with the introduction of the vaccine,” he said, or that stimulation programs are not approved.
“So if you get the different strains, and the vaccine becomes ineffective, and we roll back into exclusion, it’s a big risk,” he said.
However, Sparrow is not worried about a stock market SPX,
which continues to climb against all kinds of headwinds, such as the pandemic. “As populations grow and economies grow, it is natural that companies become more valuable over time,” he said.
Read: Small-cap stocks are winning, and here it is to stay. Why these analysts say it’s bad news for the S&P 500