In this article, we present the list of billionaire Ray Dalio’s top 5 small-cap stock picks. If you want to read our comprehensive analysis of Bridgewater Associates’ history, investment philosophy, and hedge fund performance, go directly to Billionaire Ray Dalio’s Top 10 Small-Cap Stock Picks.
5. Papa John’s International, Inc. (NASDAQ:PZZA)
Value of Bridgewater Associates’ 13F Position: $9.20 million
Number of Hedge Fund Shareholders: 36
Ray Dalio’s Bridgewater Associates has been a shareholder of Papa John’s International, Inc. (NASDAQ:PZZA) since Q2 of 2021 and hiked its stake by another 11% in Q4 to 68,900 shares. The pizza chain is one of the more popular small-cap stocks among hedge funds, is owned by 36 of them at the end of 2021.
One of the 11 Best Delivery Stocks To Buy Now, Papa John’s International, Inc. (NASDAQ:PZZA) grew same-store sales by 11% in North America during Q4, hitting $528.9 million in revenue. That showing came on the heels of a strong Q3 in which systemwide sales also rose by 11%, two-year comps pushed near 30%, and adjusted EPS more than doubled. Papa John’s expects to grow sales again in Q1 despite a tough comp, as it’s coming up against its popular epic stuffed crust pizza launch of a year earlier.
Artisan Partners’ Artisan Small Cap Fund believes the international expansion will continue to drive attractive and sustainable profits for the company, having this to say about Papa John’s International, Inc. (NASDAQ:PZZA) in its Q3 2021 investor letter:
“Papa John’s is a global operator and franchisor of pizza delivery and carryout restaurants. The company is tracking nicely against our turnaround thesis which hinges upon an improvement in store-level economics leading to accelerating growth in restaurant development activity. Improved store-level economics is being driven in part by market share gains resulting from menu innovation. New menu items—parmesan crusted Papadias, Epic Stuffed Crust, Shaq-a-roni— coupled with enhancements to the digital/loyalty platform and supportive advertising are attracting new customers to the brand, increasing frequency of its existing customers and driving higher unit volumes and returns. As a result, the company is experiencing incremental interest from new and existing franchisees to develop new restaurants. Papa John’s opened a record 123 units in the first half of 2021 and now expects to open 220-260 new stores this year (vs. 140-180 previously)—most of which are outside of the US. Combined with ample white space globally, we believe a higher unit growth trajectory will drive an attractive and sustainable profit cycle.”
4. Chegg, Inc. (NYSE:CHGG)
Value of Bridgewater Associates’ 13F Position: $9.62 million
Number of Hedge Fund Shareholders: 44
Chegg, Inc. (NYSE:CHGG) is another education-related small-cap stock in the 13F portfolio of Bridgewater. The fund held 313,402 shares at the end of 2021, a 13% increase quarter-over-quarter. 44 funds are long Chegg as of December 31, up from 35 a year earlier.
As with many other growth stocks, Chegg, Inc. (NYSE:CHGG) shares have been battered recently, being down by 69% over the last year, and there are some concerns about its long-term growth. Chegg has 6.2 million services subscribers as of the end of 2021, which represents 36% of the entire undergraduate and graduate student market in the U.S.
Chegg, Inc. (NYSE:CHGG) is making efforts to grow internationally, where it has just 1.5 million subscribers, as well as hunting out synergistic growth opportunities like its recent acquisition of language learning company Busuu, which could pair well with college students who are eager to learn new things and broaden their horizons.
3. The Boston Beer Company, Inc. (NYSE:SAM)
Value of Bridgewater Associates’ 13F Position: $10.13 million
Number of Hedge Fund Shareholders: 32
Hedge fund ownership of The Boston Beer Company, Inc. (NYSE:SAM) rebounded by 60% in Q4 after sliding by more than 50% during Q3. Bridgewater has been a shareholder of the company since Q3 2020 and owned 20,060 SAM shares on December 31.
One of the 15 Most Valuable Beer Companies in the World, The Boston Beer Company, Inc. (NYSE:SAM) is another small-cap growth stock that’s been hit hard in the last year, with shares tumbling by 63%. The company was forced to slash its full-year guidance recently due to waning demand for its hard seltzer beverages, the potential for which had the market all excited just a year earlier.
Those oversupply issues are temporary but nonetheless took a big bite out of The Boston Beer Company, Inc. (NYSE:SAM)’s 2021 earnings. While growth in the hard seltzer category has slowed ahead of schedule, Boston Beer has several other innovative drinks in the offing that could provide a boost in the future, most notably cannabis drinks.
2. Helen of Troy Limited (NASDAQ:HELE)
Value of Bridgewater Associates’ 13F Position: $12.33 million
Number of Hedge Fund Shareholders: 16
Ray Dalio’s hedge fund owned 50,032 shares of Helen of Troy Limited (NASDAQ:HELE) at the end of December, a 7% increase quarter-over-quarter. He’s maintained his HELE holding throughout 2021 even as 43% of the stock’s former hedge fund shareholders have jumped ship since Q1.
Helen of Troy Limited (NASDAQ:HELE) grew sales by 37.1% and adjusted earnings by 21.1% during its fiscal Q3 2022 despite tough comps, supply chain issues, and growing inflation. All three of the company’s segments exceeded management’s expectations during the quarter, which was attributed to its strong and diversified portfolio of brands.
Importantly, Helen of Troy Limited (NASDAQ:HELE) has also largely overcome the issues it was having with the EPA in terms of some of its product packaging and labeling, which temporarily hit both its top and bottom lines.
1. Zai Lab Limited (NASDAQ:ZLAB)
Value of Bridgewater Associates’ 13F Position: $12.33 million
Number of Hedge Fund Shareholders: 32
Topping the list of Ray Dalio’s top small-cap stock picks is another Chinese pharmaceutical company, Zai Lab Limited (NASDAQ:ZLAB). Bridgewater Associates was one of the 32 hedge funds long ZLAB on December 31, owning 196,144 shares, a 23% increase from the previous quarter.
Zai Lab Limited (NASDAQ:ZLAB) shares are down 62% over the last year, which has some analysts saying there’s an extreme value disconnect in the stock right now. Several analysts, including Citi’s Yigal Nochomovitz, have price targets that are 2x-5x higher than the stock’s current levels.
The recent weakness has partly been attributed to misinformation being spread across media outlets concerning how Congress’ H. R. 1155 bill regarding a ban on imported goods from China’s Xinjiang region that utilized forced labor, would impact the company. Zai Lab does not believe the bill will impact it in any way.
ClearBridge Investments is another big fan of Zai Lab Limited (NASDAQ:ZLAB), which ranked as the ClearBridge International Growth EAFE Strategy’s only Chinese stock at the end of Q3. The fund explained why in its Q3 2021 investor letter:
“Biotechnology company Zai Lab is now our only holding in China. The government wants to grow the domestic health care space as part of its social mission, so although Zai is not a big position, we still believe it is a growth story with immense optionality. The stock was hurt in the quarter by negative sentiment spreading into more areas of the Chinese market.”
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