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Kerrisdale Capital Betting On A Turnaround With 5 New Tech Positions

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.

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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’.

Sahm Adrangi
Sahm Adrangi
Kerrisdale Capital

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

Tech Data Corp (NASDAQ:TECD)

– Shares Owned by Kerrisdale Capital (as of June 30): 39,044

– Value of Holding (as of June 30): $2.80 Million

Moving on, Tech Data Corp (NASDAQ:TECD) was Kerrisdale Capital’s 27th-largest equity holding in terms of value at the end of June. Though the stock of the technology products wholesaler has been extremely volatile over the last year, it has been making new highs routinely during that time and is currently trading up by 21.07% in 2016. Several analysts feel that Tech Data Corp (NASDAQ:TECD) is one of the better-managed technology distribution companies and that its stock is worth owning. However, they are also of the view that the stock has appreciated significantly over the past few months and that investors should wait for a pullback for a better entry price. The company recently hired Bob Kruger, former CEO of Apakau, Inc., as the Vice President of its rapidly growing StreamOne platform. Tech Data Corp is expected to report its second quarter earnings later this week and the current consensus is for it to report EPS of $1.43 on revenue of $6.64 billion. For the same quarter of the previous year, the company had reported nearly identical figures of $1.43 EPS on revenue of $6.58 billion. Peter Algert and Kevin Coldiron’s Algert Coldiron Investors also initiated a stake in Tech Data Corp during the second quarter, purchasing 17,503 shares of the company.

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SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)

– Shares Owned by Kerrisdale Capital (as of June 30): 333,506

– Value of Holding (as of June 30): $9.36 Million

SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)’s stock has appreciated by 12% since the end of the second quarter, following Kerrisdale Capital initiating a stake in the company during that quarter. However, despite these gains, it is still trading down by an unlucky 7.77% in 2016. In May, the software products and software-enabled services provider announced a two-for-one stock split, to be paid in the form of a stock dividend, which was completed on June 27. For its second quarter, SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) recently reported EPS of $0.39 on revenue of $384.4 million, beating estimates of $0.38 in EPS and revenue of $376.85 million. On August 18, the company declared a quarterly dividend of $0.0625 per share, which translates into an annual dividend yield of 0.79%. Jeff Lignelli‘s Incline Global Management boosted its stake in SS&C Technologies significantly during the second quarter, by 150% to almost 1.12 million shares.


– Shares Owned by Kerrisdale Capital (as of June 30): 173,774

– Value of Holding (as of June 30): $15.77 Million

In terms of value, ANSYS, Inc. (NASDAQ:ANSS) was the most valuable tech holding added to Kerrisdale Capital’s portfolio during the second quarter. Shares of the engineering simulation software company are currently trading up by 4.24% year-to-date, owing largely to the spike they experienced after ANSYS, Inc. (NASDAQ:ANSS) reported its second quarter results. While analysts had expected the company to report EPS of $0.88 on revenue of $244.84 million for the quarter, ANSYS pulled in EPS of $0.93 on revenue of $246.10 million. Although the company is facing several headwinds currently, including currency volatility, weakness in overseas markets, and potential spending cuts by customers in cyclical industries, most analysts feel that these are temporary issues and that ANSYS will be able to overcome them. On August 5, analysts at Barclays reiterated their ‘Equal Weight’ rating on the stock while boosting their price target on it to $94 from $86, which represents potential downside of 3.77%. Rob Romero‘s Connective Capital Management also initiated a stake in ANSYS during the second quarter, purchasing  13,030 shares of the company.

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Disclosure: None

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