In this piece, we will take a look at 10 growth stocks to buy according to Alex Sacerdote’s Whale Rock Capital.
Whale Rock Capital Management is an American investment management services provider that has its own portfolio of investments and offers other services such as research, consulting, and financial planning. It is owned and managed by Alex Sacerdote, who has been at the helm of affairs since 2006.
Mr. Sacerdote’s investments strategy primarily focuses on the technology sector, and he is known for targeting late-stage startups that are just a few steps away from being listed on the public stock markets. Whale Rock Capital’s portfolio was worth $15 billion by the second quarter of this year, and it consisted of investments made in 77 different companies. These investments are focused primarily on the technology industry.
Some of Whale Rock Capital’s largest investments are in renowned technology brands. The list of these brands includes the Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), retail giant Amazon.com, Inc. (NASDAQ:AMZN), electric vehicle trailblazer Tesla, Inc. (NASDAQ:TSLA), and social media giant Facebook, Inc. (NASDAQ:FB).
Mr. Sacerdote was formerly an analyst at Fidelity, and since he created his own investment firm, he has benefited from identifying and investing in companies such as Alibaba, Imperva and Vipshop. He is known for taking a long-term investment in companies that he believes are at the precipice of mass-market adoption. According to Mr. Sacerdote’s investment philosophy, every technology follows an ‘S-curve’ of adoption, in which key barriers to growth are removed at a certain point in time, which, in his opinion is the perfect moment to scoop up some shares.
Alex Sacerdote of Whale Rock Capital Management
Our Methodology:
Our methodology for finding some of the growth stocks which Mr. Sacerdote has made a part of his portfolio involves sifting through Whale Rock Capital Management’s 13-F filings with the United States Securities and Exchange Commission. These filings reveal what is on the famed investor’s mind and when combined with earnings reports, analyst sentiment, share price growth over the past year, and Insider Monkey’s survey of 873 hedge fund holdings, it builds up a deeper picture of the firms involved.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
10 Growth Stocks to Buy According to Alex Sacerdote’s Whale Rock Capital
10. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Mr. Sacerdote’s Stake Value: $165 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 1.08%
Number of Hedge Fund Holders: 64
The Taiwan Semiconductor Manufacturing Company Limited has slowly but surely managed to propel itself to the forefront of the global contract semiconductor manufacturing race. The company operates its manufacturing operations primarily in Taiwan and it is responsible for supplying microprocessors and other semiconductor products to several big technology firms.
Over the past year, TSMC’s share price has grown by 31% and Mr. Sacerdote’s stake in the company stood at $165 million, representing 1.08% of Whale Rock Capital’s portfolio.
Out of the 873 hedge funds poled by Insider Monkey during the second quarter of this year, 64 had held a stake in Taiwan Semiconductor Manufacturing Company Limited. In an analyst note shared in October, Cowen initiated coverage of the stock, and set its price target to $120 with a Market Perform rating.
Ken Fisher’s Fisher Asset Management was the Taiwan Semiconductor Manufacturing Company Limited’s largest shareholder by the end of the second quarter through owning 26 million shares worth $3 billion.
In its third quarter investor letter, Wedgewood Partners had the following to say about the Taiwan Semiconductor Manufacturing Company Limited:
“Taiwan Semiconductor Manufacturing detracted from performance as the market attempted to price in a downturn in the semiconductor cycle. Although there are some signs that memory markets might be somewhat oversupplied, we have yet to see any tangible signs that logic semiconductors – particularly at the leading-nodes where the Company dominates – are in anything but short supply. In addition, and as a result of this strong demand, the Company should be able to pass through price increases to help fund very attractive returns on the rare leading-edge capacity that serves this demand.”
9. Snowflake Inc. (NYSE:SNOW)
Mr. Sacerdote’s Stake Value: $190 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 1.24%
Number of Hedge Fund Holders: 70
Snowflake Inc. (NYSE:SNOW) is a big data cloud services provider that is based inside the United States. Based in Montana, the company’s cloud platform allows its customers to store and analyze their data to generate insights that are possible only through big data analysis.
In an investor note issued in October, JMP Securities raised its price target to $320 per share from an earlier $300 per share, expressing optimism about the entire software segment and Snowflake Inc.’s role in it. The company’s shares have grown by 35% over the past year.
During the second quarter, Mr. Sacerdote held 788,034 Snowflake Inc. shares that were worth $190 million and represented 1.24% of his overall portfolio. At the same time, out of the 873 hedge funds polled by Insider Monkey, 70 had held a stake in the company.
Snowflake Inc.’s largest investor by the second quarter was Brad Gerstner’s Altimeter Capital Management who owned 24 million shares worth $6 million.
In its first-quarter investor letter published earlier this year, RiverPark Funds had the following to say about Snowflake Inc.:
“We also established a position in Snowflake during the quarter. Snowflake offers cloud-based data storage and analytics, generally termed “data warehouse-as-a-service.” The data warehousing market—created by the massive, growing amount of user, customer, and account data and the need to search and analyze it—has historically stored its data on physical servers located on-premises. The cloud data platform market—storing data off-premises on cloud servers—is a relatively new $70 billion+ market. Significantly, incremental warehouse data capacity and renewals are expected to be driven by and to the cloud, with more than 75% of databases in the cloud by 2022.
Snowflake requires absolutely no infrastructure management from its users, is fully scalable for each customer, runs on Amazon, Microsoft, or Google cloud platforms, and most critically, Snowflake helps companies analyze their data. The company also has a unique, customer-aligned billing model based on usage. All of which has led to Snowflake being among the leaders of this highly fragmented market, posting 124% revenue growth last year. SNOW’s growth comes from the combination of more customers—which grew 73% last year—and customers buying more services—the company boasts an amazing 150%+ net customer retention. The company’s growing scale has also led to increasing gross margin and operating leverage, up 1,100 basis points and 8,200 basis points, respectively, over the past two years. The company has guided to FCF break-even this year, and with the company’s capital expenditure-light model—Snowflake uses the public cloud for hosting—we expect FCF to grow much faster than revenue growth, which we forecast to grow comfortably more than 50% per year for the next several years. Additionally, we have great confidence in the SNOW management team, which previously had an enormously successful run guiding one of our other core Cloud software holdings ServiceNow.”
8. NVIDIA Corporation (NASDAQ:NVDA)
Mr. Sacerdote’s Stake Value: $239 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 1.56%
Number of Hedge Fund Holders: 86
NVIDIA Corporation (NASDAQ:NVDA) is an American firm that is known for its role in popularizing and selling the graphics processing unit (GPU). This is a processor that computes different instructions from a Central Processing Unit (CPU) and allows its users to run tasks like video games and image visual rendering applications.
At the same time, 86 of the 873 hedge funds polled by Insider Monkey held a stake in NVIDIA Corporation. By the end of its second fiscal quarter, the company beat analyst estimates for revenue and GAAP EPS, by posting $6.5 billion and $0.94 in the metrics, respectively.
The biggest NVIDIA Corporation investor is Andrew Dalrymple and Barry Mccorkell’s Aubrey Capital Management who owns 14,100 shares that are roughly worth $11 billion.
7. Carvana Co. (NYSE:CVNA)
Mr. Sacerdote’s Stake Value: $264 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 1.72%
Number of Hedge Fund Holders: 63
Carvana Co. (NYSE:CVNA) is an electronic commerce (e-commerce platform) that allows its users to purchase and sell vehicles in the United States. The company is headquartered in Arizona and it provides several services such as research, verification and other support for both the buyer and seller on its platform.
Carvana Co. posted $3.34 billion in revenue and $0.27 of GAAP EPS in its second quarter, as it beat analyst estimates on both counts. By the end of June, Mr. Sacerdote’s holdings in the company were worth $264 million, constituting 1.72% of the portfolio and represented by 874,728 shares.
Chase Coleman and Feroz Dewan’s Tiger Global Management LLC was the Carvana Co.’s largest shareholder by the end of the second quarter through owning 6.3 million shares worth $1.9 billion.
In an analyst note shared in September, Needham raised the company’s price target to $421 and maintained its Buy rating. Analyst Chris Pierce shared strong performance by Carvana Co. as compared to its peers in the aftermath of the ongoing pandemic. Out of the 873 hedge funds polled by Insider Monkey during the second quarter, 63 had held a stake in Carvana Co..
As result, Carvana Co. joins the likes of Facebook, Inc., Amazon.com, Inc., and Tesla, Inc. in the list of Mr. Sacerdote’s top stocks.
In a second-quarter investor letter, Steel City Capital LP had the following to say about Carvana Co.:
“I think one of the big risks to the company’s outlook isn’t necessarily on the volume front – I believe management when they say they can’t keep pace with demand – but instead on the GPU front. Before 2H’20, only once in the prior 14 quarters did total GPU exceed $3,000. 3Q’20 reached an all-time high due to strong vehicle pricing and strong finance gross profit, while 4Q’20 got its boost from finance gross profit and the abovementioned reserve release. Finance GPU is a function of both absolute interest rates and ABS spreads, and the trajectory of absolute rates since the beginning of 2021 calls into question the company’s ability to maintain finance GPU at $1,400, let alone grow it.”
6. HubSpot, Inc. (NYSE:HUBS)
Mr. Sacerdote’s Stake Value: $357 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 2.33%
Number of Hedge Fund Holders: 54
HubSpot, Inc. (NYSE:HUBS) is headquartered in Cambridge, Massachusetts and it is a customer relationship management software provider. Its products allow its customers to approach several areas such as marketing, search engine optimization, productivity, analytics, and reporting, among others.
HubSpot, Inc. shares have grown an outstanding 165% over the past year, and Mr. Sacerdote’s holdings in the company come in the form of 613,225 shares that are worth $357 million and represent 2.33% of his portfolio. At the end of the second quarter of this year, 54 out of the 873 hedge funds polled by Insider Monkey held a stake in the company whose price target was raised to $850 by Stifel in October with the analyst citing strong relationships between HubSpot, Inc. and its customers.
At the end of the second quarter, HubSpot, Inc. beat analyst estimates for both revenue and GAAP EPS, by posting $310 million and $-0.53 in the areas.
Mr. Sacerdote’s list of top stocks therefore also includes HubSpot, Inc., with the company joining Facebook, Inc., Amazon.com, Inc., and Tesla, Inc..
In its second-quarter 2021 investor letter, Wasatch Global Investors had the following to say about HubSpot, Inc.:
“Our purchases during the quarter were balanced with a similar number of sales, including HubSpot, Inc. (HUBS). The company provides a cloud-based, integrated marketing and sales platform that helps in lead generation and maintaining a presence on social media. Although we’re still extremely impressed with HubSpot, we sold the stock because its market cap, over $25 billion, became rather large for the Fund. Within other Wasatch funds with a larger-cap focus, we still enthusiastically own the company.”
HubSpot, Inc.’s the largest shareholder by the second quarter was Christopher Lyle’s SCGE Management who held 1.4 million shares worth $820 million.
5. MongoDB, Inc. (NASDAQ:MDB)
Mr. Sacerdote’s Stake Value: $457 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 2.98%
Number of Hedge Fund Holders: 44
MongoDB, Inc. (NASDAQ:MDB) is an American database provider headquartered in New York and it features several products in its portfolio. These cover several segments of the database market such as single and multiple cloud based databases, alongside which it also provides other services such as consulting and training.
MongoDB, Inc. posted $198 million in revenue and -$0.24 in non-GAAP EPS at the end of its second fiscal quarter this year, beating analyst estimates on both counts. During the same time period, Mr. Sacerdote’s hedge fund held 1.2 million shares of the company which represented 2.98% of his portfolio and were worth $457 million. In an analyst note released in September, Barclays raised its price target for MongoDB, Inc. to $590, sharing that a new base valuation year will improve the company’s outlook.
Additionally, by the second quarter, 44 of the 873 hedge funds polled by Insider Monkey held a stake in MongoDB, Inc.. Over the past year, the company’s share price has grown by a staggering 110%.
The company’s largest shareholder after Whale Rock is Eashwar Krishnan’s Tybourne Capital Management who owns 624,639 shares worth $225 million.
4. Facebook, Inc. (NASDAQ:FB)
Mr. Sacerdote’s Stake Value: $507 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 3.3%
Number of Hedge Fund Holders: 266
Facebook, Inc. is perhaps the world’s most famous social media firm, which is headquartered in the American state of California. Initially starting out as a simple platform that lets its users connect with each other and share their life updates, Facebook, Inc. now owns several services and operates its own marketplace in addition to its other venues.
Mr. Sacerdote’s Whale Rock Capital Management held 1.4 million Facebook, Inc. shares that were $507 million and represented 3.3% of his total portfolio value by the end of the second quarter. During the same time period, 266 of the 873 hedge funds polled by Insider Monkey held stakes in the company.
Facebook, Inc.’s largest shareholder is Alexander Becker’s Codex Capital who owns 27,950 shares worth $9.6 billion.
In its third quarter investor letter, Wedgewood Partners had the following to say about Facebook, Inc.:
“Facebook detracted from performance despite posting a staggering +56% growth in advertising revenues. Much of the stock’s underperformance was driven by nonoperating concerns that we view as mostly political in nature. The Company’s digital properties command a massive audience of over 2.7 billion daily users, so any government or state actor would be able to wield tremendous power by controlling that audience and it should not be a surprise when those actors attempt to do that. However, Facebook has invested aggressively in its content curation capabilities that address many of the concerns raised by media and political critics. We continue to carry Facebook at our maximum weighting as the stock is trading in line with a market multiple despite unrivaled competitive positioning and rapid growth, representing one of the best risk-rewards available in the market.”
3. Roku, Inc. (NASDAQ:ROKU)
Mr. Sacerdote’s Stake Value: $580 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 3.78%
Number of Hedge Fund Holders: 61
Roku, Inc. (NASDAQ:ROKU) is an American television streaming company that provides connections and sells smart televisions under its brand name. The company operates in several countries such as the United States, Canada and the United Kingdom, and it reaches its customers directly and through retailers and distributors.
Roku, Inc.’s share price has grown by an eye popping 47% over the last year, and Mr. Sacerdote added the company to his portfolio in the second quarter of this year. He owns 1.2 million shares that are worth $580 million and make up for 3.78% of his hedge fund’s portfolio. Additionally, during the second quarter 61 out of 873 hedge funds polled by Insider Monkey also had a stake in Roku, Inc..
The company posted revenue of $645 million and GAAP EPS of $0.52 by the end of its second quarter this year, as it beat analyst estimates on both counts. Indicating positive sentiment, Cleveland Research initiated coverage of Roku, Inc. shares in September with a Buy rating and set a $389 price target for the company.
In a second quarter 2021 investor letter, LRT Capital Management had the following to say about Roku, Inc.:
“Historically, investors viewed Roku as a provider of commoditized hardware. However, we see the business as a provider of a platform for streaming services with ongoing recurring revenues as the company reduces its reliance on hardware sales for profits. In fact, over the past 5 years, the share of revenue coming from hardware sales has shrunk to just 45%, while its contribution to gross profit declined to 19%.1 We believe that the company’s strong competitive advantage is rooted in its high switching cost and scale-based cost advantages. In addition, we believe Roku is only in the beginning stages of its growth both domestically in the United States and internationally where the cord-cutting phenomenon is at least five years behind the U.S. Lastly, Roku’s capital allocation strategy has been exemplary and focused primarily on acquisitions that improve the customer experience and value of its platform. The moat, growth opportunities, and the company’s track record of capital allocation makes us believe that Roku can deliver strong investment returns to shareholders in the upcoming years…”
Catherine D. Wood’s Ark Investment Management was Roku, Inc. largest shareholder by the end of the second quarter through owning 4.7 million shares worth $2.1 billion.
2. Tesla, Inc. (NASDAQ:TSLA)
Mr. Sacerdote’s Stake Value: $593 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 3.87%
Number of Hedge Fund Holders: 60
Tesla, Inc. is thought of pioneering the mass production of electric vehicles inside and outside the United States. Led by Mr. Elon Musk, who has become one of the world’s richest men due to his company ownership, Tesla, Inc. primarily focuses on electric vehicles but it also provides other products such as batteries and home systems.
The company earned revenue of $13.76 billion and non-GAAP EPS of $1.86 in its third quarter of this year, beating analyst estimates on both counts. Mr. Sacerdote held 873,195 Tesla, Inc. shares worth $593 million at the end of the second quarter of this year. At the same time, 60 out of the 873 hedge funds surveyed by Insider Monkey held a stake in the company.
Tesla, Inc.’s largest shareholder by the second quarter was Catherine D. Wood’s Ark Investment Management who held 5.4 million shares worth $3.7 billion.
In a third quarter investor letter, Worm Capital LLC had the following to say about Tesla, Inc.:
“Our core portfolio as of this writing—TSLA, SPOT, SHOP, ABNB, and AMZN—are all premier examples of companies that use the concept of aggregation of marginal gains to continuously improve their value proposition for customers. After all, what is innovation if not just a continuous search for fractional advantages in business?
The way we see it, Tesla is perhaps the generational example of the marginal gain aggregation theory. It’s also been our largest position for several years now. There are many ways to characterize and value this business (see previous letters for longform write-ups), but perhaps the best way to think about the company is that it is a highly vertically-integrated software and hardware firm that’s devoted entirely to aggregating marginal gains across its organization. The goal? Lower costs, improve thruputs, and dramatically enhance the value proposition—at scale—for consumers…”
Tesla, Inc.’s have grown by a remarkable 116% over the past year and in an October analyst note, RBC Capital raised the company’s price target to $800, citing healthy margins and potential gross margin improvement due to software products.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Mr. Sacerdote’s Stake Value: $836 million
Percentage of Mr. Sacerdote’s 13F Portfolio: 5.46%
Number of Hedge Fund Holders: 271
Amazon.com, Inc. is one of the world’s largest companies whose primary line of business is online retailing. Over the years, it has expanded its product portfolio to target other areas such as cloud computing and home entertainment. Amazon.com, Inc. is based out of the United States and it is also known for its founder Mr. Jeffery P. Bezos, who is also one of the world’s richest men.
Amazon.com, Inc. shares have grown by 6% over the past year, and Mr. Sacerdote’s holdings in the company come in the form of 243,244 shares that are worth $836 million and represent 5.46% of his portfolio. At the end of the second quarter of this year, 271 out of the 873 hedge funds polled by Insider Monkey held a stake in the company whose price target was lowered to $4,200 by Credit Suisse in October due to an expected increase in expenses.
Amazon.com, Inc. largest shareholder is Alexander Becker’s Codex Capital who owns 2,850 shares worth $9.8 billion.
In its third-quarter investor letter, Madison Funds had the following to say about Amazon.com, Inc.:
“We did add a modest new position weight to the portfolio in the quarter in Amazon.com, Inc. stock (AMZN). We acknowledge that many aspects of Amazon’s merit as an investment are well appreciated. However, our work leads us to conclude that shares are attractive. Leadership positions in both e-commerce and cloud computing provide the company with significant durable competitive advantages in industries that we think can produce above average growth over the next decade. Over the past year, AMZN shares have trailed the market as investors debate near-term growth prospects following the pandemic-induced e-commerce demand. Additionally, margins have been depressed due to Amazon’s unprecedented increases in spending to build out fulfillment and in-house logistics capabilities – Amazon will build out more square footage this year and last than it did cumulatively over the previous 10 years, more than doubling its in-house delivery capacity. We like the investments Amazon is making and believe they will further advantage the company relative to other retailers, making it nearly impossible for competitors to match the same level of delivery speed and convenience. With its large and frequently engaged customer base, Amazon has multiple mechanisms to make money, including selling advertising and enhanced subscription services. Within the cloud business, we forecast Amazon Web Services (AWS) leveraging its strengths in Infrastructure-as-a-service (IaaS) to move into higher value segments of cloud computing (such as platform-as-a-service: PaaS), allowing the company to continue outgrowing the overall IT sector with strong profitability. While Amazon shares have performed extremely well over the long-term, we think near-term concerns about whether Amazon will earn a return on its accelerated investments provide an opportunity now for investors willing to look through the investment period. Our view is that the investments likely earn strong returns and extend Amazon’s competitive advantages and above average growth.”
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This article is originally published at Insider Monkey.
