In this article, we present the list of the 10 stocks that Stephen Perkins’ Toronado Partners can’t live without.
Uber Technologies, Inc. (NYSE:UBER), Apple Inc. (NASDAQ:AAPL), and Salesforce.com, inc. (NYSE:CRM) are among the 30 Most Popular Stocks Among Hedge Funds: 2021 Q3 Rankings, yet you won’t find these or any other wildly popular stock in the portfolio of Toronado Partners, which looks outside the box for its investment ideas.
Stephen Perkins’ Toronado Partners is a San Francisco-based hedge fund that was founded in 2013 by Mr. Perkins, who previously served as a General Partner at Crosslink Capital and as an analyst for Proteus Capital. Toronado invests primarily in smaller companies within fast-growing segments of the tech sector on the long side of its portfolio while shorting companies that it deems to have unsustainable growth trajectories.
Mr. Perkins’ success at Crosslink Capital, where he consistently delivered profitable investment ideas on both the long and short sides of his portfolio, has carried over to Toronado Partners. Through April 2020, the Toronado Fund, which was founded in June 2013, has delivered an outstanding compound annual return of 15.52%. 2018 and 2019 were both banner years for the fund, as it returned 26% and 29.57% respectively. Toronado Partners has $754 million in assets under management as of March 30, 2021. Toronado’s 13F portfolio contained just 10 long positions as of September 30, with the fund initiating one new position during the third quarter and selling off one former holding, Stamps.com Inc. (NASDAQ:STMP). Close to 80% of the value of the fund’s $284 million 13F portfolios was invested in tech stocks.
In this article, we’ll take a look at the only ten stocks that matter to Stephen Perkins’ Toronado Partners, one or more of which just might be the next Uber Technologies, Inc. (NYSE:UBER), Apple Inc. (NASDAQ:AAPL), or Salesforce.com, inc. (NYSE:CRM).
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We follow hedge funds like Toronado Partners because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns. Scroll down below for the opportunity to sign up for a free report and stock pick from Insider Monkey. Now then, let’s check out The 10 Stocks That Stephen Perkins’ Toronado Partners Can’t Live Without. Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey as part of our market-beating investment strategy.
The 10 Stocks That Stephen Perkins’ Toronado Partners Can’t Live Without
10. LendingTree, Inc (NASDAQ:TREE)
Toronado Partners’ Stake Value: $846,000
Percentage of Toronado Partners’ 13F Portfolio: 0.29%
Number of Hedge Fund Holders: 24
LendingTree, Inc (NASDAQ:TREE) kicks off the list, though it’s barely hanging on to its position in Toronado Partners’ 13F portfolio and could in fact be on the way out entirely after the fund unloaded 95% of its holding during Q3. That left it with just 6,047 TREE shares valued at $846,000. While Toronado Partners may be on the way out as a LendingTree, Inc investor, Bernzott Capital Advisors appears to be sticking it out.
In the fund’s Q3 2021 investor letter, it noted that the company’s growth initiatives have weighed on earnings but added that its consumer loan and credit card lead generation segments have likely bottomed out and should be poised for future growth. One of the 5 Reddit Stocks that Flopped in 2021, LendingTree, Inc shares cratered by 54% last year and are down by over 70% from their peak in July 2019. However, there are some positive signs in the company’s recent results, including an additional 1.1 million users added to its platform in Q3, lifting the total to 20 million, while its Home segment’s mortgage revenue per lead grew by 78% year-over-year.
Bernzott Capital Advisors, an investment management firm, published its “US Small Cap Value Fund” third quarter 2021 investor letter and mentioned LendingTree, Inc. Here‘s what the fund said:
“LendingTree (TREE): The company’s continued investment in growth initiatives such as health and insurance have weighed on earnings momentum. As a result, the stock has been weak, and valuation has compressed below five-year averages. The important consumer loan and credit card lead generation businesses appear to have bottomed following a negative COVID-19 impact and look poised for growth which we expect will help drive a recovery in the stock price.”
9. Twilio Inc. (NYSE:TWLO)
Toronado Partners’ Stake Value: $16,130,000
Percentage of Toronado Partners’ 13F Portfolio: 5.67%
Number of Hedge Fund Holders: 96
Toronado Partners also sold off some Twilio Inc. (NYSE:TWLO) shares during Q3, 6,000 in total, but maintains a sizable stake of 50,557 shares worth $16.13 million as of September 30. Twilio is one of the more popular stocks in Toronado’s 13F portfolio, as hedge fund ownership of TWLO has jumped by over 70% over the previous six quarters.
Nonetheless, Twilio Inc. shares have also been battered of late, losing 54% of their value in the past year. The communications platform-as-a-service company, whose technology powers the apps of popular platforms like DoorDash, Uber, and Zendesk (another Toronado Partners pick, see below), grew revenue by 65% to $2 billion during the first nine months of 2021. However, its operating expenses ballooned by 73% during that same period, which contributed to a loss of $659 million. Twilio Inc. will have to show that it can rein in expenses to get back in investors’ good graces and make them excited again about its strong revenue growth.
8. Zendesk Inc. (NYSE:ZEN)
Toronado Partners’ Stake Value: $24,354,000
Percentage of Toronado Partners’ 13F Portfolio: 8.56%
Number of Hedge Fund Holders: 53
The aforementioned Zendesk Inc (NYSE:ZEN) is up next, and represents yet another of Toronado Partners’ stock picks that has struggled mightily over the past year, losing 37% of its value. Toronado owns 209,247 ZEN shares worth $24.35 million at the end of Q3.
A large chunk of those losses came after the third quarter had ended when Zendesk Inc announced the acquisition of Survey Monkey parent company Momentive for $4.1 billion on October 28. Zendesk believes that by better understanding how its customers think and feel, which Momentive can help accomplish, the customer support software provider can then better serve them and in turn reap the rewards from that enhanced service.
The market however scratched its head at the deal, which overshadowed what was otherwise a strong Q3 for Zendesk Inc, which announced the acquisition on the same day as its third-quarter results. Zendesk’s revenue grew by 32% year-over-year in Q3, the company’s fourth straight quarter with accelerating revenue growth, though it remains unprofitable in terms of net income.
Carillon Tower Advisers, an investment management firm, published its “Carillon Eagle Mid Cap Growth Fund” third quarter 2021 investor letter and mentioned Zendesk Inc.. Here‘s what the fund said:
“Zendesk provides customer support software solutions. After successfully navigating the early stages of the pandemic in 2020, the firm has seen its stock cool off on the threat of increased competition from low-cost alternatives. We do not believe that the competitive dynamics have been altered. In fact, the company’s annual revenue growth rate has accelerated in 2021 from the second half of 2020. The shares also currently trade at a deep discount to other cloud-based software vendors.”
7. Grid Dynamics Holdings, Inc. (NASDAQ:GDYN)
Toronado Partners’ Stake Value: $25,456,000
Percentage of Toronado Partners’ 13F Portfolio: 8.94%
Number of Hedge Fund Holders: 18
Grid Dynamics Holdings, Inc. (NASDAQ:GDYN) was the lone addition to Toronado Partners’ 13F portfolio in Q3, as the fund initiated a position of 871,201 GDYN shares worth $25.46 million as of the end of September. Grid Dynamic’s shares have gained over 200% over the last 22 months and further gains may be in store.
In its Q3 2021 investor letter, Baron Funds’ Baron FinTech Fund noted that Grid Dynamics Holdings, Inc. is benefiting from the digital transformation taking place across all industries, which is fueling massive demand for its outsourced software development services. The fund added that it continued to own GDYN shares in the belief that the company has “unique capabilities and a long runway for growth.”
Grid Dynamics Holdings, Inc.’s Q3 revenue soared by 120% year-over-year, hitting $57.9 million, while its $0.11 in adjusted EPS topped estimates.
Baron Funds, an asset management firm, published its “Baron FinTech Fund” third quarter 2021 investor letter and mentioned Grid Dynamics Holdings, Inc.. Here‘s what the fund said:
“Grid Dynamics Holdings Inc. provides outsourced software development to business customers. Shares increased after the company reported strong quarterly results with 72% organic revenue growth and raised annual guidance. Grid is benefiting from robust demand as clients across industries invest in digital transformation. The company issued new shares in late June, which temporarily depressed the share price but provided dry powder for M&A. We continue to own the stock because we believe the company has unique capabilities and a long runway for growth.”
6. GDS Holdings Limited (NASDAQ:GDS)
Toronado Partners’ Stake Value: $28,629,000
Percentage of Toronado Partners’ 13F Portfolio: 10.06%
Number of Hedge Fund Holders: 24
Closing out the first five stocks that Stephen Perkins’ Toronado Partners can’t live without is GDS Holdings Limited (NASDAQ:GDS), which the fund has owned since the final quarter of 2018. As of September 30, 2021, it owned 505,725 GDS shares with a market value of $28.63 million at that time. Hedge funds have been fleeing GDS Holdings Limited in 2021, as the China Crackdown is Crushing These 10 Stocks, with GDS being among them. Hedge fund ownership of the data center operator fell by just over 50% between the third quarter of 2020 and Q3 of 2021.
The Chinese government crackdown on dual-listed companies prompted Baron Funds’ Baron Asset Fund to unload its GDS position in Q3 given the uncertainty around future actions by the Chinese government.
The fund spoke glowingly about the company in its Q1 2020 investor letter, calling GDS Holdings Limited a compelling opportunity and comparing it to another long-term data center holding of
the firm, Equinix Inc (NASDAQ:EQIX).
To check out the top five stock picks of Stephen Perkins’ Toronado Partners, which the fund believes could have the potential to be the next big thing in their industry like Uber Technologies, Inc., Apple Inc., or Salesforce.com, inc. (NYSE:CRM), click the link below.
Baron Funds, an asset management firm, published its “Baron Asset Fund” third quarter 2021 investor letter and mentioned GDS Holdings Limited. Here‘s what the fund said:
“GDS Holdings Limited is a leading data center operator focused on Tier 1 Chinese cities. Its shares fell in concert with a widespread sell-off in Chinese technology-related companies. This occurred in response to tightening regulations against businesses that may not be perceived as aligned with the Chinese government’s goals. Given the uncertainty about future governmental actions, we exited our position.”
5. BlackLine, Inc. (NASDAQ:BL)
Toronado Partners’ Stake Value: $32,820,000
Percentage of Toronado Partners’ 13F Portfolio: 11.53%
Number of Hedge Fund Holders: 18
Toronado Partners appears to be a big fan of several software-as-a-service stocks, including BlackLine, Inc. (NASDAQ:BL), of which it owned 277,998 shares of on September 30. Hedge fund ownership of Blackline has dipped by over 25% over the past two quarters, though several funds think highly of the company.
One of them is Ensemble Capital, which discussed BlackLine, Inc. in its Q4 2021 investor letter, declaring that the company is worth materially more than its current market rate. It believes Blackline has a long runway of growth ahead of it and a very competitive moat, which has allowed it to post strong customer and revenue retention rates over the past few years.
BlackLine, Inc. shares are down by 40% over the last year after gaining 140% during the previous one-year period, as the pandemic has negatively impacted the company’s aforementioned revenue retention rate, which fell to 106% in the first half of this year compared to 110% in 2019.
Ensemble Capital, an investment management firm, published its fourth-quarter 2021 investor letter and mentioned BlackLine, Inc.. Here‘s what the fund said:
“Blackline’s stock was down, along with other high-growth Software as a Service stocks, during the quarter. While we believe that many of these types of businesses became very over valued earlier this
year and their declines this quarter were justified, we think Blackline is worth materially more than the current market price. We will be discussing this company at length later in this letter. The stock finished the quarter down 12%.”
4. Impinj, Inc. (NASDAQ:PI)
Toronado Partners’ Stake Value: $35,435,000
Percentage of Toronado Partners’ 13F Portfolio: 12.45%
Number of Hedge Fund Holders: 22
Toronado owns 620,245 shares of Impinj, Inc. (NASDAQ:PI) as of the end of September, a position valued at $35.44 million at that time. The fund has owned a position in the company since the final quarter of 2018, during which time the stock has gained over 400%.
A maker of radio-frequency identification chips for tracking and authenticating items, Impinj, Inc. is on track to grow revenue by over 30% this year after a disappointing 2020 which was heavily impacted by the pandemic. While this year’s sales growth was against the weaker comps of 2020, it’s nonetheless an impressive rate for a company that trades at just 11x sales.
The current supply chain crisis and the pandemic’s effect on in-store sales are likely to help drive further demand for Impinj, Inc.’s chips, shipments of which are already lagging behind demand but which should see improvement in the coming quarters with wafer supplies set to accelerate.
3. MagnaChip Semiconductor Corporation (NYSE:MX)
Toronado Partners’ Stake Value: $36,354,000
Percentage of Toronado Partners’ 13F Portfolio: 12.78%
Number of Hedge Fund Holders: 35
Toronado is also a fan of another chip maker, MagnaChip Semiconductor Corporation (NYSE:MX), which it owned 2.05 million shares of on September 30, a 24% increase quarter-over-quarter. It’s far from the only fund that’s been buying MagnaChip, as hedge fund ownership of the stock among the funds tracked by Insider Monkey sits at an all-time high.
MagnaChip Semiconductor Corporation posted a sizable improvement to its gross margins in Q3, which grew by more than 50% to 36.7%. Supply constraints are expected to impact the South Korean chipmaker for the foreseeable future, however, which is likely to limit sales and earnings growth. Of further interest to investors is the fact that MagnaChip Semiconductor Corporation has plans to launch another attempt to sell itself after its planned merger pact with two investment vehicles of Wise Road Capital fell through last year.
Wasatch Global Investors, an investment management firm, published its “Wasatch Micro Cap Value Fund” first quarter 2021 investor letter and mentioned MagnaChip Semiconductor Corporation. Here‘s what the fund said:
“Magnachip Semiconductor Corp. (MX) also contributed to Fund performance. The company designs, develops and manufactures mixed-signal and digital multimedia semiconductors. We think Magnachip is a classic “growth at a reasonable price” (GARP) company. The stock was a laggard in 2020, but our belief was that Wall Street underappreciated the company’s earnings and that the P/E ratio would exceed expectations going forward. In the first quarter, we think Magnachip benefited from the realization that the company is a steady—if not spectacular—grower as there was a rotation in preference away from higher-priced growth stocks and toward lower-priced growth stocks. The stock also benefited from news that the company has agreed to be acquired.”
2. Mitek Systems, Inc. (NASDAQ:MITK)
Toronado Partners’ Stake Value: $37,784,000
Percentage of Toronado Partners’ 13F Portfolio: 13.28%
Number of Hedge Fund Holders: 18
Mitek Systems, Inc. (NASDAQ:MITK) is another software provider that has found a home in the 13F portfolio of Toronado Partners. 2.04 million MITK shares were owned by the fund on September 30, down by 11% quarter-over-quarter, as Mitek fell from being the fund’s former top stock pick to its second-largest holding.
Mitek Systems, Inc.’s digital identity verification revenue jumped by 30% year-over-year in its fiscal first quarter of 2022 for the period ended December 31 as a growing number of online platforms develop the need to verify their customers’ and users’ identities. Overall revenue climbed by 25% to $32.5 million, while non-GAAP net income soared by 65% to $10.2 million.
Mitek Systems, Inc. believes it has a huge untapped market for its biometric authentication methods, noting in its fiscal Q1 earnings call that a study it conducted in collaboration with PYMNTS found that over half of U.S consumers believe biometrics to be easier to use and more secure than traditional passwords or PINs, though just 10% of consumers currently use the technology.
1. Tenable Holdings, Inc. (NASDAQ:TENB)
Toronado Partners’ Stake Value: $46,651,000
Percentage of Toronado Partners’ 13F Portfolio: 16.39%
Number of Hedge Fund Holders: 29
Tenable Holdings, Inc. (NASDAQ:TENB) ranks as the top stock pick that Stephen Perkins’ Toronado Partners can’t live without, as the fund raised its stake in the cybersecurity company by 6% during Q3 to just over 1.01 million shares, a position valued at $46.65 million as of September 30.
One of the 5 Best Security Stocks to Buy Now, Tenable Holdings, Inc.’s Nessus platform is used by over 30,000 organizations worldwide, ranking it as the most popular vulnerability management tool. The platform also protects against more of the common exposures and vulnerabilities (67,000) that have been documented by the U.S government’s database than any other tool. With such potent and customizable vulnerability protection tools, it’s unsurprising that Tenable has grown its base of six-figure customers more than 8-fold over the past five years, to just under 1,000.
Tenable Holdings, Inc. is also one of the few cybersecurity stocks that is profitable, with the company expecting to earn between $0.15 and $0.19 per share in 2022 alongside projected revenue growth of 22%. Tenable expects that rate to be the standard for the next few years, projecting a 20% revenue CAGR from 2021 to 2025, with 2025 revenue hitting $1.1 billion.
You can also take a peek at 10 Best Healthcare Dividend Stocks and Top 15 Dividend Stocks With Upside Potential.
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This article is originally published at Insider Monkey.
