Is Confluent (CFLT) A Smart Long-Term Buy?

ClearBridge Investments, an investment management firm, published its “Select Strategy” second quarter 2021 investor letter – a copy of which can be downloaded here. The Strategy outperformed in a second-quarter rotation into growth stocks, fueled by a comeback in the higher growth disruptors we have owned for a number of years. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of ClearBridge Investments, the fund mentioned Confluent, Inc. (NASDAQ: CFLT) and discussed its stance on the firm. Confluent, Inc. is a California, United States-based software company with a $15.8 billion market capitalization. CFLT delivered an 11.66% return for the past month, and it closed at $58.76 per share on September 29, 2021.

Here is what ClearBridge Investments has to say about Confluent, Inc. in its Q2 2021 investor letter:

“The new issue market remains an attractive source of new ideas and we participated in four IPOs in the latest period. Confluent sells and distributes a commercialized version of open source software called Kafka created by former executives at LinkedIn. The solution allows enterprise users the ability to capture data in real time as it is streaming. A prime use case is capturing real-time inventory across retail stores and distribution centers to enable omni-channel commerce. We believe it is early days in the company’s commercialization of this technology which can capture data in both on-premise and hybrid cloud environments. Global-e Online, meanwhile, removes many of the frictions around cross-border ecommerce by handling the different tax structures, languages, currencies, local logistics and fulfillment/returns for any size retailer. The company’s initial customers have been mostly mid to
higher end retailers but an investment by Shopify should enable Global-e to significantly increase merchant reach.”


Photo by Hack Capital on Unsplash

Based on our calculations, Confluent, Inc. (NASDAQ: CFLT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. CFLT was in 30 hedge fund portfolios at the end of the first half of 2021. Confluent, Inc. (NASDAQ: CFLT) delivered a 37.48% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.