Amish Mehta’s SQN Investors is a long/short value-oriented hedge fund that was founded in 2014 by Mehta, who previously served as the managing director of Vector Capital. The fund maintains a highly concentrated portfolio of around 20 positions and invests heavily in tech and tech-related stocks, with as much as 75% of its portfolio being devoted to the sector.
After a slow start in its first year, during which it registered a slight loss, SQN went on a tear, posting double digit returns each year between 2015 and 2018. SQN’s strategy also proved highly effective during the early stages of the Covid pandemic in 2020, as its focus on cloud computing and software companies earned it returns of 30% in the first-half of the year even as the broader market tanked.
Below we’ll check out the five newest stock picks added to SQN’s portfolio during the second quarter of 2020.
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Zoom Video Communications, Inc. (NASDAQ:ZM)
– Shares Bought During Q2: 312,831 – Value of Holding (as of June 30): $79.32 million
– Q3 Return: 88.04%
The only surprise when it comes to SQN and Zoom Video Communications, Inc. (NASDAQ:ZM) is perhaps that the fund didn’t buy into the stock sooner. Nonetheless, it did so in the second quarter, which was by no means too late to take advantage of the video conferencing platform’s skyrocketing popularity and surging stock price, which gained 88% in Q3 alone. In his latest investor letter, Amish Mehta stressed that remote work is likely to remain ubiquitous even after the pandemic has passed, which underscores his conviction in Zoom.
Hedge funds as a whole have zoomed into the video conferencing software maker’s stock in 2020, with a greater than 50% surge in ownership between the end of 2019 and the middle of 2020 among the hedge funds tracked by Insider Monkey’s database. They’ve been richly rewarded for their efforts, as Zoom has gained a remarkable 600% this year.
Lamar Advertising Company (NASDAQ:LAMR)
– Shares Bought During Q2: 748,489 – Value of Holding (as of June 30): $49.97 million
– Q3 Return: -0.29%
Lamar Advertising Company (NASDAQ:LAMR) is another stock that has attracted a great deal of hedge fund interest in 2020, with a similar jump in ownership as Zoom of over 50% this year. That’s particularly significant given the nearly flat state of hedge fund ownership of the stock for the four years prior to that.
In late May, the billboard leasing company, which is classified as an REIT, announced that it was slashing its dividend in half to $0.50 in light of the challenging economic conditions, which have included some customer cancellations. In August, Lamar Advertising lowered its AFFO projections for the 2020 fiscal year to $4.16-$4.56, down from $6.05-$6.20.
Paycom Software Inc (NYSE:PAYC)
– Shares Bought During Q2: 145,619 – Value of Holding (as of June 30): $45.10 million
– Q3 Return: 0.51%
Paycom Software Inc (NYSE:PAYC) is another stock that reached a new high in hedge fund ownership in the middle of 2020, with 36 of the funds tracked by Insider Monkey’s database long PAYC shares. Ken Griffin’s Citadel Investment and Ken Fisher’s Fisher Asset Management are among the stock’s biggest backers.
It was feared that the cloud-based HR software provider, whose SaaS solution enables companies to manage their employees with a suite of robust tools, would suffer from declining employment numbers, but its results have been solid and the company is expected to be able to maintain strong double-digit revenue growth in the coming years.
Planet Fitness Inc (NYSE:PLNT)
– Shares Bought During Q2: 478,649 – Value of Holding (as of June 30): $28.99 million
– Q3 Return: 1.73%
Planet Fitness Inc (NYSE:PLNT) has unquestionably taken a big blow from Covid, with many gyms across the US being shuttered for months on end. Sales will suffer greatly this year, but thanks to its franchisee model, the company is in good shape to wait out the storm, unlike chains like Gold’s Gym and 24 Hour Fitness, both of which declared bankruptcy this year.
While it’s possible Planet Fitness could lose out on some customers long-term (namely the ones who splurged for home workout equipment during the pandemic to tide them over), sales are nonetheless expected to rebound by as much as 66% next year, assuming a viable and widespread vaccine (fingers crossed).
PROS Holdings, Inc. (NYSE:PRO)
– Shares Bought During Q2: 177,148 – Value of Holding (as of June 30): $7.87 million
– Q3 Return: -17.45%
Unlike SQN’s other new picks, PROS Holdings, Inc. (NYSE:PRO) has seen a marked decrease in hedge fund sentiment this year. Multiple funds sold off the stock in Q1 and Q2, which doesn’t appear to have solely been Covid-related, as that continued a trend started in Q4 last year. They appear to have done so at an opportune time, as shares cratered by over 17% in Q3.
A provider of AI-powered solutions for online businesses, PROS has been battered by the stagnant travel industry, with management announcing that net-new bookings could decline by a staggering 90%. The company anticipates losing between $0.18 to $0.22 per share in Q3. Given all that, PROS recently initiated a $150 million debt offering of convertible senior notes due 2027.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.