Veeco Instruments Inc. (NASDAQ:VECO), meanwhile, is the hedge fund manager’s third favorite small-cap stock, sitting at the No. 8 spot in his portfolio. Veeco experienced precipitous appreciation in 2009, 2010 and the first half of 2011 before concerns over the company’s reliance on the solar energy segment cut shares in half. The stock has since recovered slightly, but is still down 23.9% over the past two year-timeframe. Ignoring short-term headwinds, Veeco is a good buy for any investor looking for exposure to renewables, and the company’s earnings trade at a near 50% discount to the semiconductor industry’s average.
Last but certainly not least, Yelp Inc (NYSE:YELP) is Karr’s final small-cap stock pick, and was actually purchased in the fourth quarter of 2012, according to Joho Capital’s 13G filing with the SEC. Karr joins prominent hedge fund managers Steven Cohen and Ken Griffin in the company (see all of Ken Griffin’s stock picks). Shares of the leisure search and review site have bounced by double-digit percentage points this year, but on the whole, Yelp hasn’t been a very solid investment since its IPO last March, losing almost 14% in total.
A major issue for Yelp going forward is increased competition from larger social networking sites Facebook (FB) and Google Inc (NASDAQ:GOOG). Facebook’s January 15th announcement of Graph Search sent Yelp’s stock price down more than 6% on the day, as investors expect the feature to give users their friends’ business reviews, hurting Yelp in the process. Google’s acquisitions of Zagat and Frommer’s over the past couple years gives the company an edge in the professional review space, for users unwilling to trust the average consumer.
From a valuation standpoint, Yelp is expensive despite the fact that the sell-side expects it to finish 2013 with positive EPS of 2 cents a share—the company is expected to record a FY2012 loss of 31 cents per share. While this year’s growth forecast is impressive, shares still trade at earnings (1058x), sales (11x) and book (9x) multiples far above industry averages. Google, in comparison, sports P/E (23x), P/S (5x) and P/B (3.5x) multiples that are much more reasonable.
Of the 11 Wall Street analysts who cover Yelp, just 2 hold buy ratings on the stock, but the group’s average price target does represent a 16-17% upside from current levels. There will always be debate over Yelp’s review filtering process, in addition to its ongoing battle with Google and Facebook, but momentum-seeking investors have plenty of justification if they do choose to mimic Robert Karr and Wall Street’s bullishness.
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Disclosure: I have no positions in any of the stocks mentioned above