Staying one step ahead of the COVID-19 pandemic, at least in terms of stocks, paid off for fund manager Gerald Sparrow last year. For 2021, he expects online gambling, education and pets to be where the magic of action lies.
Sparrow manages the Sparrow Growth Fund SGNFX,
a $ 97 million midcap fund that was among the top 4% in its category last year, with a 98% return, according to Morningstar. The fund, which had average annual returns of 37% in five years and 48% in three years, had $ 31 million under management when MarketWatch spoke to Sparrow in June 2020.
Read too: A strategy to buy ‘the fastest growing companies in America’ paid off for this investor in 2020
At the time, he advocated Snap SNAP,
– father of the Snapchat messaging app – online car seller Carvana CVNA,
and streaming media player Roku ROKU,
These companies, with respective gains in 2020 of around 200%, 160% and 147%, were all pandemic pieces that boosted the returns of the growth fund.
Sparrow’s methodology involves monitoring US stocks of all sizes and categories and classifying them based on changes in the financial statements. “Cash flow, earnings, everything that will measure in the top 10% … is most of the area where we spend our time,” Sparrow told MarketWatch in a recent interview.
His system alerts him to which companies are experiencing “significant growth” in relation to other stocks, and he then looks to see where the growth is coming from. “So we are really looking for organic growth. What are they creating? “
Among the trends of 2021 and beyond that he is betting is online gambling, which takes him to a portfolio addition – DraftKings DKNG,
whose shares rose 335% in 2020. The fantasy sports competition and online gambling group went public through a merger with a special purpose acquisition company last April. The shares have risen 27% this year so far.
How much more can investors get from DraftKings? Sparrow cited a recent interview with Chief Executive Jason Robins, who said that DraftKings’ mobile sports operations are now in 12 states of just one, shortly after a long-standing ban on sports betting in the United States was lifted long ago. more than two years. The company has been aiming for strong growth in 2021, and if its bets reach 50 states, there is still much growth to come, he said.
Reading: Buy DraftKings and Penn National because digital gambling is starting, says Goldman
Sparrow said it’s not just DraftKings, but other companies like the global hospitality and entertainment group MGM MGM,
who are now engaging in online gambling, with portals and phone apps. It is “more profitable to simply send an application to everyone,” he said.
Your next stock pick is Chegg CHGG,
which offers rental of digital and physical books, in addition to online private lessons and other services for students. Sparrow is also a subscriber, reading books to keep up to date on mathematics and probability for investment analysis.
“So when I take a book and read it and I can’t get the answers, I put the ISBN number and they do the step by step with the flashcards and they have tutors. So I think online education is good and important, ”he said, adding that he is frankly“ addicted to the damn thing ”. Chegg’s shares rose 138% in 2020 and have risen 17% so far this year.
Reading: Chegg’s most recent quarterly results
Another action that Sparrow likes is the online payment service Square SQ,
whose CEO and President Jack Dorsey also runs the TWTR micro Twitter messaging service,
“What’s interesting about Square is that they have hardware and software at the point of sale to do transactions for retailers and other merchants, but they really like the cash app,” which means you can just send money to someone at phone, he said. “And this is a very good trend.”
PayPal PYPL,
with its own money app Venmo, it is a competitor of Square. Sparrow’s fund has maintained Square since 2017, but believes the company is starting to branch out, with new services, such as the free stock trading capability added to its Cash app in 2019. Square benefited recently when the cash app rival trading Robinhood has restricted some deals in the wake of the frenzy over video game retailer GameStop GME,
and users deserted to the Cash App and elsewhere. Square’s shares jumped 247% in 2020 and are up 21% so far this year.
Sparrow’s last stock pick is Chewy CHWY,
who benefited in the midst of the pandemic, as pet adoptions increased and owners spent more time and money on their animals. The online pet products retailer saw net sales jump 45 percent in the third quarter to almost $ 2 billion. Chewy shares are up 284% in 2020 and up 7% so far this year.
“They are not only entering more people’s homes on the convenience side, but also adding more prescription items to their website,” he said.
Sparrow also assesses what he considers to be some potential blind spots for investors as another year of the pandemic continues. “The risk is that we will not have the pandemic under control with the launch of the vaccine,” he said, or that the stimulus programs will not be approved.
“So if you take the different strains, and the vaccine becomes ineffective, and we go back to blocking, that’s a big risk,” he said, adding that inflation raising his ugly head again is another risk.
Sparrow is not concerned, however, with a stock market SPX,
which continues to rise against all kinds of headwinds, like the pandemic. “As populations grow and economies grow, it is natural for companies to be worth more over time,” he said.
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