Artko Capital recently released its Q4 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 17.2% for the quarter, outperforming its benchmark, the S&P 500 Index which returned 12.2% in the same quarter. You should check out Artko Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.
In the Q4 2020 Investor Letter, Artko Capital highlighted a few stocks and ChannelAdvisor Corp (NYSE:ECOM) is one of them. ChannelAdvisor Corp (NYSE:ECOM) is an e-commerce company. In the last three months, ChannelAdvisor Corp (NYSE:ECOM) stock gained 41.9.2% and on February 3rd it had a closing price of $21.20. Here is what Artko Capital said:
“Channel Advisor (ECOM) – We wrote to you in the last quarter that we will continue to refine our process, make adjustments, and make slow pivots when necessary. One of the things we have found hard as value investors is to be in stocks of technology companies, especially with a microcap mandate. One of the reasons is, it is hard to find sustainability or competitive moats in public software companies that are the within our target market cap range. Increasingly those companies are private or go public at hard to justify valuations. The other reason is the increasing complexity of technology versus our mantra of investing in simple and easy to understand businesses. This quarter we added a 7% position in ChannelAdvisor at a fortuitous entry price of mid $14. ChannelAdvisor provides software-as-a-service (SaaS) solutions in the United States and internationally. The company is SaaS cloud platform that helps brands and retailers to improve their online performance by expanding sales channels, connecting with consumers around the world, optimizing their operations for peak performance, and providing actionable analytics to improve competitiveness. In short, in a world of ever-increasing sales channels that did not exist just a few years ago, such as Snap or Instagram, ChannelAdvisor’s market leading software helps companies manage and increase their ecommerce sales.
There were a few reasons that attracted us to ECOM. One of them is our affinity for businesses that appear to be slow growing but have a fast growing segment nested within them, that when given enough time, would lead to a substantial increase a company’s growth rate as its weight within the results continues to increase. The company’s segment that is dedicated to brands at 34% of revenues, is growing at almost 30% a year, while the bigger segment dedicated to helping brick and mortar retail grow their ecommerce channels is growing in low single digits, leading to low double digit revenue growth. There are other dynamics at play such as a split between high recurring subscription revenue at 80% of total with the rest being variable revenue share with customers in times of high demand. In general, we believe the market was missing the potential for the continued increase in revenue growth and the associated operating leverage when we initiated a 7% Core Portfolio position at a rare 9% forward Free Cash Flow yield valuation estimate. Adding a clean, net $60mm cash balance sheet and approximately $20mm of insider value at risk, made it seem like a fairly lucrative risk reward proposition.
The other reason why we got interested in ECOM and how we came across the company was through continuing to follow the career of the former Chairman Of The Board of our past holding, Ecology & Environment (EEI). His career as a successful investment banker has led him to be a much desired board member where almost all of his past board stints have resulted in a sale of a company including EEI. As such, we have closely monitored his new board assignments, including ChannelAdvisor. Of course this is not meant to be a definitive statement that the company will be sold but it is certainly a nice clue and just the kind of free optionality on a value unlocking event we look for in our investments. So far it seems ECOM has participated in the aforementioned market madness, rising 40%+ in just a few months to over $20 per share but still pretty far from our $30 price target. As the position is now a full 9+% Core Portfolio position we are unlikely to add more at these price levels but are looking forward to monitoring the results and our thesis.”
In Q3 2020, the number of bullish hedge fund positions on ChannelAdvisor Corp (NYSE:ECOM) stock remained unchanged from the previous quarter (see the chart here). Our calculations showed that ChannelAdvisor Corp (NYSE:ECOM) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 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.