Keeping one step ahead of the COVID-19 pandemic, at least in terms of stocks, paid off for fund manager Gerald Sparrow last year. By 2021, expect online gaming, education, and pets to be where there is magic.
Sparrow manages the SGNFX Sparrow Growth Fund,
a $ 97 million average capital fund that was in the top 4% of its category last year, with a return of 98%, according to Morningstar. The fund, which has averaged 37% in five years and 48% in three years, had $ 31 million under management when MarketWatch spoke with Sparrow in June 2020.
Also read: The purchasing strategy of ‘the fastest growing companies in America’ has paid off for this investor in 2020
At the time, he was defending Snap SNAP,
– father of Snapchat messaging app – online car salesman Carvana CVNA,
and streaming media player Roku ROKU,
These companies, with respective gains of 2020 around 200%, 160% and 147%, were all pandemic plays that drove the growth fund’s returns.
Sparrow’s methodology is to monitor U.S. stocks of all sizes and categories and classify them based on changes in financial statements. “Cash flow, profits, everything that will measure in the top 10% … is most of the area we spend our time on,” Sparrow told MarketWatch in a recent interview.
Your system alerts you of which companies are experiencing “significant growth” relative to other stocks, and then looks at 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 is betting, there are online gambling, which brings it to an additional portfolio: DraftKings DKNG,
whose shares rose 335% in 2020. The fantasy sports contest and online betting group were made public through a merger with a special-purpose acquisition company last April. Shares have gained 27% this year so far.
How much can investors get out of DraftKings? Sparrow noted a recent interview with chief executive Jason Robins, who said DraftKings’ mobile sports operations are now in 12 states, just one, shortly after the U.S. sports betting ban was lifted. lar more than two years ago. The company has led strong growth in 2021 and, if its betting operations reach 50 states, there will still be great growth, he said.
Read: Buy DraftKings and Penn National because digital gaming is in its infancy, Goldman says
Sparrow said it’s not just DraftKings, but other companies like the global hospitality and entertainment group MGM MGM,
who are now involved in online gaming, with portals and phone apps. It was “more cost effective to just send an app to everyone.”
Its next stock selection is Chegg CHGG,
which provides digital and physical textbook rental, along with online tutorials and other services for students. Sparrow is also a subscriber and reads books to stay up to date on math and probability analysis analysis.
“So when I have a textbook and I read it and I can’t get the answers, I put the ISBN number in it and they do it step by step with flashcards and they have tutors. So I think online education is good and important, ”he said, adding that he is frankly“ hooked on the damn thing. ”Chegg’s shares rose 138% in 2020 and rose 17% so far this year.
Read: Chegg’s most recent quarterly results
Another stock Sparrow likes is the online payment service Square SQ,
whose executive director and president, Jack Dorsey, also runs the Twitter TWTR micro-messaging service,
“What’s interesting about Square is that they do have point-of-sale software and hardware to do transactions for retailers and other merchants, but they’re very interested in the cash app,” which means you can send money. cash someone through their phone, He said. “And that’s a very good trend.”
PayPal PYPL,
with its own Venmo cash app, it’s a Square competitor. Sparrow’s fund has kept Square afloat since 2017, but believes the company is starting to grow with new services, such as the possibility of free scholarships added to its Cash app in 2019. Square recently benefited when the app rival Robinhood restricted some operations to after the frenzy over video game retailer GameStop GME,
and users who have left the Cash app and other sites. Shares of shares jumped 247% in 2020 and increased 21% so far this year.
Sparrow’s latest stock selection is Chewy CHWY,
which has benefited in the midst of the pandemic as pet adoptions increased and owners spend more time and money on their pets. The online pet products retailer saw a 45% increase in third-quarter net sales to nearly $ 2 billion. Chewy shares gained 284% in 2020 and rose 7% so far this year.
“Not only do they enter more people’s homes for convenience, but they add more prescription health-related items to their website,” he said.
Sparrow also weighs in on what he sees as some potential blind spots for investors as another pandemic year approaches. “The risk is that we will not control the pandemic with the deployment of the vaccine,” he said, or that stimulus programs will not be approved.
“So if you get the different strains and the vaccine becomes ineffective and we go back to closure, it’s a big risk,” he said, adding that inflation that raises his ugly head again is another risk.
Sparrow, however, is not worried about a stock market SPX,
which continues to climb against all sorts of headwinds, such as the pandemic. “As populations grow and economies grow, it’s natural for companies to be worth more over time,” he said.
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