Staying one step ahead of the COVID-19 pandemic, at least in stocks, fund manager Gerald Sparrow paid off last year. By 2021, he hopes that online gambling, education and pets are the magical place.
Sparrow manages the Sparrow Growth Fund SGNFX,
a $ 97 million mid-cap fund that was in the top 4% of its category last year, returning 98%, according to Morningstar. The fund, which has delivered 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 ‘America’s fastest growing companies’ paid off for this investor in 2020
At the time, he advocated Snap SNAP,
– parent of messaging app Snapchat – online car salesman Carvana CVNA,
and streaming media player Roku ROKU,
Those companies, with 2020 gains of around 200%, 160% and 147% respectively, were all pandemics driving up the returns of the growth fund.
Sparrow’s methodology involves monitoring US stocks of all sizes and categories and ranking them based on changes in the financial statements. “The cash flow, revenues, everything that measures 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 seeing “significant growth” compared to other stocks, and then looks where the growth is coming from. “So we are really looking for organic growth. What do they make? “
One of the trends he is banking on for 2021 and beyond is online gambling, which brings him to one portfolio addition: DraftKings DKNG,
whose shares are up 335% in 2020. The fantasy sports competition and online gambling group went public through a merger with an acquisition company last April. Shares are up 27% so far this year.
How much more can investors get from DraftKings? Sparrow pointed to a recent interview with Chief Executive Jason Robins, who said DraftKings’ mobile sports operations are now in 12 states of just one, shortly after a long-standing US sports betting ban was lifted more than two years ago. The company has delivered strong growth in 2021, and if its gambling business reaches 50 states, there is still a lot of growth to come, he said.
Read: Buy DraftKings and Penn National because digital gambling is just getting started, Goldman says
Sparrow said it’s not just DraftKings, but other companies such as global hospitality and entertainment group MGM MGM,
that are now engaged in online gambling, with portals and apps for phones. It is “more profitable to just send an app to everyone,” he said.
His next stock pick is Chegg CHGG,
which offers rental of digital and physical textbooks, along with online tutoring and other services for students. Sparrow is also a subscriber and reads books to keep up with math and investment analysis probability.
“So if I get a textbook and I read it and don’t get the answers, then I enter the ISBN number and they do that step by step with flashcards and they have teachers. So I think online education is good and important, ”he said, adding that he’s downright“ addicted to the damn thing. ”Chegg’s stock is up 138% in 2020 and is up 17% 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 the micromessaging service Twitter TWTR,
“What’s interesting about Square is that they do have point-of-sale hardware and software for making transactions for retailers and other merchants, but they’re very interested in the cash app,” which means you just send cash to someone can send via their phone. , he said. “And that’s a very good trend.”
PayPal PYPL,
with its own cash app Venmo, is a competitor to Square. Sparrow’s fund has been holding Square since 2017, but believes the company is starting to branch out, with new services such as a free stock trading opportunity added to its Cash App in 2019. Square recently took advantage when rival trading app Robinhood took some trading in the wake of the frenzy over video game store GameStop GME,
and users have defected to Cash App and elsewhere. Shares of Square is up 247% in 2020 and is up 21% so far this year.
Sparrow’s latest stock pick is Chewy CHWY,
which benefited during the pandemic as pet adoption has skyrocketed and owners are spending more time and money on their animals. The online pet products retailer saw net sales increase 45% in the third quarter to nearly $ 2 billion. Chewy shares gained 284% in 2020 and are up 7% so far this year.
“Not only are they coming to more people’s homes for convenience, but they’re also adding more prescription medical items to their website,” he said.
Sparrow is also weighing in on what he sees as some potential investor blind spots as another pandemic year progresses. “The risk is that we will not control the pandemic with the introduction of the vaccine,” he said, or that incentive programs will not be approved.
“So if you get the different strains, and the vaccine becomes ineffective, and we go back to exclusion, that’s a big risk,” he said, adding that rearing up inflation is another risk.
Sparrow is not worried about a stock market SPX though,
that continues to rise against all kinds of headwinds, such as the pandemic. “As the population grows and the economy grows, it is normal for businesses to increase in value over time,” he said.
Read: Small-cap stocks are winning and will continue to be. Why these analysts say it’s bad news for the S&P 500