Kerrisdale Capital Betting On A Turnaround With 5 New Tech Positions

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In a recent letter to its investors, Sahm Adrangi‘s Kerrisdale Capital disclosed its performance during the second quarter and first-half of 2016. Since its inception on July 1, 2009, Kerrisdale Capital has delivered net returns of 1,152.3%, compared to the 164.5% return generated by the S&P 500. However, the fund’s performance has taken a beating of late. While the S&P 500 managed to end the first-half with gains of 3.8%, Kerrisdale Capital lost 12.1% during that time.

According to the fund’s latest 13F filing, its U.S. equity portfolio was worth almost $370 million at the end of June, 36.86% less than it was worth at the end of March. The filing also revealed that Kerrisdale Capital was betting big on technology stocks for a turnaround, as stocks from the sector accounted for 43% of its portfolio’s value at the end of June. Since the fund is highly bullish on the tech sector, we’ll take a look at five stocks from that space in which Kerrisdale initiated a stake during the last few months.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

everything possible/

everything possible/

Check Point Software Technologies Ltd. (NASDAQ:CHKP)

Let’s start with Check Point Software Technologies Ltd. (NASDAQ:CHKP), which Kerrisdale added to its equity portfolio at some point during the third quarter. Since the fund hasn’t submitted any regulatory filing regarding the stake, the size and value of the holding is unknown. In its quarterly letter, the fund cited several reasons for initiating a stake in the company, including its dominant position in the cyber security industry, its historical growth, and strong financials. According to Kerrisdale Capital, even if Check Point Software Technologies Ltd. (NASDAQ:CHKP) continues to grow at 5% per annum over the next decade with very little margin expansion, the company is worth “at least $120/share.” Check Point’s stock has largely been range-bound for the last two years and is currently trading down by 7.67% year-to-date at just $75.35. On August 17, analysts at Oppenheimer reiterated their ‘Outperform’ rating and $94 price target on the stock, which represents potential upside of 23.75%. David Cohen and Harold Levy’s Iridian Asset Management reduced its holding in the company by 12% to 4.65 million shares during the April-to-June period.

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Autohome Inc (ADR) (NYSE:ATHM)

– Shares Owned by Kerrisdale Capital (as of June 30): 128,538

– Value of Holding (as of June 30): $2.58 Million

Autohome Inc (ADR) (NYSE:ATHM) made its debut in Kerrisdale Capital’s equity portfolio at the 28th position in terms of value. Shares of the Chinese automobile-focused internet company have lost almost half of their value since July 2015 and are currently trading down by 28.31% year-to-date. Earlier this year, Australia’s largest telecommunications company, Telstra, sold its 47.4% stake in Autohome Inc (ADR) (NYSE:ATHM) to Chinese auto insurance giant Ping An. Although Autohome’s management tried to take the company private by outbidding the Ping An group, Telstra chose to go with Ping An’s offer for unknown reasons. On August 16, Autohome reported its second quarter results, declaring EPS of $0.51 on revenue of $207.4 million, topping analysts’ expectations of EPS of $0.40 on revenue of $206.55 million. Most analysts who track Autohome are currently bullish on it, citing the strong cash flow the company generates and its debt-free balance sheet. On August 17, analysts at Credit Agricole SA upgraded the stock to ‘Buy’ from ‘Underperform’.

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We’ll check out three more tech stocks that were added to Kerrisdale’s portfolio during the second quarter on the next page.

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