Mott Capital Says Netflix (NFLX) At Forefront of Paradigm Shift, Talks Disney, Hain, NXPI Deal, More

Michael Kramer’s Mott Capital just released its Q4 letter to investors, which discussed the fund’s trying 2016 and some of its portfolio moves during the fourth quarter of last year. The fund, which uses a “thematic growth strategy” that couples financial analysis with the latest trends to uncover potential investments, dipped by 2.10% net of fees in 2016, while the S&P 500 registered gains of 11.96%. That followed a 2015 that saw the fund post 1.52% gains net of fees, slightly topping the S&P’s 1.38% rise.

Among the stocks discussed by Mott Capital in its latest letter were Netflix, Inc. (NASDAQ:NFLX), Alkermes Plc (NASDAQ:ALKS), Walt Disney Co (NYSE:DIS), NXP Semiconductors NV (NASDAQ:NXPI), and The Hain Celestial Group, Inc. (NASDAQ:HAIN). We’ll take a look at its thoughts on those positions (or former positions) in this article and see how other hedge funds have been trading them.

If you’re interested in further reading on Netflix, check out this list of the 11 Most Successful Netflix Originals. For more from Mott Capital, be sure to check out their collection of articles over at Seeking Alpha.

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Netflix, Inc. (NASDAQ:NFLX)

Let’s start with Netflix, which is a prime example of the type of generational stock that Mott Capital seeks to invest in. The fund believes that the major paradigm shift in the video content market is still in its infancy and that Netflix is perfectly positioned to be at the forefront of this shift. Citing what it calls the “On-Demand Generation”, which watches what it wants, when it wants, Mott Capital drew a parallel to the popularity of YouTube stars and suggested that Netflix could capitalize on this trend, ostensibly by bringing more of those stars over to its platform, which the company has indeed started to do, most notably by nabbing Colleen Ballinger (AKA Miranda Sings) to create her own show on the platform. Mott also likes the fact that the company is making money. Netflix shares were owned by 55 of the hedge funds in our system on September 30.

Alkermes Plc (NASDAQ:ALKS)

Alkermes was Mott Capital’s biggest loser in 2016, sliding by 29.98%, despite Q4 gains of 18.18% thanks to positive results from its FORWARD 5 study of ALKS ‘5461. Mott Capital attributed the 2016 losses to the declining overall sentiment towards the healthcare sector, fueled by fears of government intervention on drug pricing. The fund is still bullish on the company’s opioid addiction treatment Vivitrol however, saying:

“I have very high hopes for Vivitrol, as there are only two other medications on the market to treat Opioid Addiction, Methadone, and Suboxone. Vivitrol offers some key benefits, the most obvious is that it is a monthly injectable. Methadone and Suboxone are medications that need to be taken daily. Vivitrol has a minuscule market share, and I expect for that share only to grow as rehab center become more educated on the benefits of Vivitrol.”

Mott Capital calculates the drug’s current share of the market at just 1%-2%, so there’s a great deal of growth potential. 12.80% of Alkermes’ shares were owned by 22 of the hedge funds tracked by Insider Monkey on September 30.

On the next page we’ll check out three other stocks discussed by Mott Capital in its latest investor letter.

Walt Disney Co (NYSE:DIS)

Coming off a 12.23% gain in Q4, Mott Capital continues to like Disney for some of the same reasons as it does Netflix, believing that the company will eventually launch its own subscription streaming service to tap into the “On-Demand Generation”. The Q4 rebound, which was partially aided by the release of Rogue One in mid-December, which has already grossed over $800 million worldwide, helped Disney shares rise to flat for the year, after they sank to as low as $89 in February and tumbled again during the summer months. Ken Fisher‘s Fisher Asset Management owns 8.74 million shares of Disney as of December 31.

The Hain Celestial Group, Inc. (NASDAQ:HAIN)

Mott Capital closed its position in Hain Celestial Group during the fourth quarter. The fund’s investor letter stated that the position was closed before the audit committee’s results showed that it did not commit fraud, as the fund grew increasingly concerned as the audit dragged on and felt it wasn’t worth the risk of retaining the position.

“The biggest fear that began to arise for me was around restatements of past quarterly results. For me, I just no longer felt it was worth the risk of holding the position anymore. I did not replace HAIN yet in the portfolio. Therefore we are carrying more cash in the portfolio than usual.”

Interestingly, other hedge funds appear to have capitalized on the stock’s steep drop following the news that it was facing an accounting probe in mid-August, as the number of funds in our database long the stock jumped to 32 at the end of September from 23 at the end of June. They’ve been rewarded with gains of over 10% since the end of September.

NXP Semiconductors NV (NASDAQ:NXPI)

Lastly, Mott Capital continues to hold on to NXP Semiconductors on the belief that its impending merger with QUALCOMM, Inc. (NASDAQ:QCOM) will be successful. The fund believes it will be able to get out of the stock much closer to Qualcomm’s $110 offer price; shares are currently trading at just $98.50, offering a spread of over 10%. The fund sees the length of time necessary to complete the merger and the possibility of regulatory intervention (in the minds of others) as factors widening the spread. Unsurprisingly, hedge funds poured into NXPI in Q3 after the late-September merger announcement, with 78 funds owning the stock at the end of September, a jump of 21 from the end of June.

Disclosure: None