In this article, we will be taking a look at the top 10 stock picks of Jose Fernandez’s Stepstone Group.
Jose Fernandez previously worked as the managing director of Pacific Corporate Group before co-founding Stepstone Group, where he focuses on Latin America and US based companies. Currently, Stepstone has more than 280 professionals analyzing markets and identifying investment opportunities, while working closely with clients to build optimal asset allocation. Stepstone has more than $570 billion in total capital allocation and $134 billion in assets under management. With a current portfolio of more than $1.34 billion, it is obvious that Jose Fernandez’s Stepstone Group is doing quite well.
We’ve all seen how uncertain the economy has been in 2022, with the stock market being decimated, as inflation reaches record levels. Many stocks which are seen as solid picks, especially in the tech industry, have crashed. These stocks include Tesla, Inc. (NASDAQ:TSLA), Meta Platforms, Inc. (NASDAQ:META), and Amazon.com, Inc. (NASDAQ:AMZN).
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This is why Stepstone has liquidated its shareholding in multiple stocks which include Coinbase Global, Inc. (NASDAQ:COIN), one of the biggest cryptocurrency exchanges in the world right now. Of course, whatever pain the stock markets are feeling is amplified when you look at the crypto market, which has crashed from the dizzying heights of late 2021. Bitcoin, which peaked at close to $70,000, is currently trading at around $21,000 while many other top traded coins have lost up to 90% of their value.
This is why you won’t see many tech picks such as Tesla, Inc. (NASDAQ:TSLA), Meta Platforms, Inc. (NASDAQ:META) and Amazon.com, Inc. (NASDAQ:AMZN), but instead Stepstone focuses more on low value stocks which have the potential to grow significantly.
Our Methodology
We used Stepstone Group’s Q1 portfolio and picked the top 10 stocks for this analysis.
Top Stock Picks of Jose Fernandez’s Stepstone Group
10. Vacasa, Inc. (NASDAQ:VCSA)
Stepstone’s Stake Value: $24.357 million
Number of Hedge Fund Holders: 20
Vacasa, Inc. (NASDAQ:VCSA) is a vacation rental management company that manages over 35,000 locations in multiple countries including the United States, Canada, Costa Rica, and Belize. Vacasa, Inc. (NASDAQ:VCSA) stock has fallen by more than 30% in June even as lockdown restrictions expired and trading increased.
JMP Securities analyst Nicholas Jones on June 9 initiated coverage of Vacasa, Inc. (NASDAQ:VCSA) with an Outperform rating but lowered the price target to $6.50 from $12.00 as part of a broader research note on Internet & Digital Media.
9. Doma Holdings Inc. (NYSE:DOMA)
Stepstone’s Stake Value: $32.288 million
Number of Hedge Fund Holders: 22
Doma Holdings Inc. (NYSE:DOMA) has seen its share price sink in 2022, with a YTD loss of almost 79%. Doma Holdings Inc. (NYSE:DOMA) is a real estate technology company aiming to revolutionize the way real estate transactions are conducted in a faster, efficient, and more reliable method.
Stepstone’s shareholding has not changed, which shows that the hedge fund stands by its position and expects the stock to rise in the future. Compass Point analyst Jason Weaver on May 25 initiated coverage of Doma Holdings Inc. (NYSE:DOMA) with a Neutral rating and a $2 price target.
8. MoneyLion Inc. (NYSE:ML)
Stepstone’s Stake Value: $61.269 million
Number of Hedge Fund Holders: 23
Founded in 2013, MoneyLion Inc. (NYSE:ML) offers a mobile banking app and aims to be a one-stop shop for all financial requirements. MoneyLion Inc. (NYSE:ML)’s Q1 results more than doubled from the previous year, and the management expects this momentum to continue, resulting in expectations of reaching breakeven adjusted earnings before interest, tax, depreciation, and amortization by the end of the year.
However, there is still a long way to go for MoneyLion Inc. (NYSE:ML) considering that the share price is down by more than 85% after the company went public back in September 2021.
7. UiPath Inc. (NYSE:PATH)
Stepstone’s Stake Value: $77.053 million
Number of Hedge Fund Holders: 33
Making up 5.74% of the total portfolio and one of the top 10 picks of Jose Fernandez’s Stepstone Group is UiPath Inc. (NYSE:PATH), a software company specializing in robotic process automation software.
It’s not just tech companies such as Tesla, Inc. (NASDAQ:TSLA), Meta Platforms, Inc. (NASDAQ:META) and Amazon.com, Inc. (NASDAQ:AMZN) which have taken a beating over 2022 – cloud companies have struggled as well. However, a few weeks ago, cloud companies did rally, led by UiPath Inc. (NYSE:PATH). Truist analyst Terry Tillman on June 27 kept a Buy rating on UiPath with a $45 price target after the company reported a restructuring, reaffirmed annual revenue guidance, and announced a 5% reduction to its global workforce.
6. Xometry, Inc. (NASDAQ:XMTR)
Stepstone’s Stake Value: $78.966 million
Number of Hedge Fund Holders: 19
Xometry, Inc. (NASDAQ:XMTR) is an industrial parts company and its customers include many major market players such as NASA, BMW, Bosch, and Dell Technologies Inc. (NYSE:DELL). Even though Xometry, Inc.’s (NASDAQ:XMTR) revenue growth has been nothing short of impressive, due to an uncertain 2022, unprofitable companies have seen their share price decline, which means they may be ripe for buying.
Goldman Sachs analyst Eric Sheridan on June 9 maintained a Buy rating on Xometry, Inc. (NASDAQ:XMTR) but lowered the price target on the shares to $44 from $51. The analyst cut forward operating estimates to account for a higher possibility of a weaker macro environment.
5. Bright Health Group, Inc. (NYSE:BHG)
Stepstone’s Stake Value: $80.453 million
Number of Hedge Fund Holders: 11
Bright Health Group, Inc. (NYSE:BHG) is an American health insurance company. Founded in 2016, Bright Health Group, Inc. (NYSE:BHG) currently serves more than 1.1 million customers across the United States. In Q1 2022, 11 hedge funds reported long positions in the company, with combined stakes exceeding $92 million.
Nomadic Value Partners, which is an investment management firm, mentioned Bright Health Group, Inc. (NYSE:BHG) in its Q3 2021 investor letter. Here is what it said:
“In the first week of August, we made a farm team investment in Bright Health Group (BHG), a health insurer with a similar payer/provider integration strategy as United Health. On September 30th we upsized our position to a 5% weighting. Our averaged cost basis of $8.16 per share creates the company at a valuation slightly over 1x 2021’s expected sales. This valuation may be appropriate for a low growth, old world health insurer, but it is too low in my view after adjusting for the company’s position in the market, various lines of business, and its expected sales growth over the next few years.
To understand why BHG trades at a low valuation today, let’s look at the history and current state of the core market it competes in.
In 2014, as a major program of the Affordable Care Act (ACA), healthcare.gov and numerous state-led sites were launched to create a marketplace for individuals and family insurance plans (IFPs). The idea was to offer affordable insurance to the working age population that didn’t have access to employer-sponsored or Medicaid coverage. Unfortunately, healthcare.gov was doomed from the start. Partisan politics and website glitches were large drivers for both generating unaffordable plans and disincentivizing brokers from directing consumers to the exchanges. By 2018, there had been a mass exodus. Total patients decreased from 12.7 million to 11.8 million, and total Qualified Health Plan (QHPs) offerings decreased from 252 to 132. Many counties across the country were left with less than 3 insurers, and over 30% of counties were left with only 1 insurer offering plans. Average monthly premiums also doubled over this period.
Despite the marketplace’s de-emphasis and decline, it was still very large at around $50 billion in premiums in 2018. This was a major opportunity for a health plan with the tools and skills to profitably offer plans to underserved patients. Bob Sheehy, ex UNH CEO, founded BHG in 2016 with this in mind. BHG also attracted a respectable early-stage venture investor, Bessemer Venture Partners, who provided the capital and patience to build a health insurer from scratch. The distilled thesis laid out in Bessemer’s 2017 Series A investment memo was, “the investment thesis here is simple – huge market, great team, and a strong initial health plan product with many expansion opportunities.”
4. Rocket Lab USA, Inc. (NASDAQ:RKLB)
Stepstone’s Stake Value: $80.453 million
Number of Hedge Fund Holders: 19
Rocket Lab USA, Inc. (NASDAQ:RKLB) is a major aerospace manufacturer, in addition to providing launch services. Rocket Lab USA, Inc. (NASDAQ:RKLB) currently provides lightweight orbital rockets, which then launch satellites into space.
Rocket Lab USA, Inc. (NASDAQ:RKLB) has currently been in the news for being responsible for the first lunar mission from New Zealand, which took place on June 28. While Rocket Lab USA, Inc. (NASDAQ:RKLB) is a small company and is currently operating at a loss, it still nurtures major ambitions to provide competition to Elon Musk’s SpaceX.
3. WalkMe Ltd. (NASDAQ:WKME)
Stepstone’s Stake Value: $156.4 million
Number of Hedge Fund Holders: 7
WalkMe Ltd. (NASDAQ:WKME) is a software company that is considered to be one of the leading Digital Adoption Platforms companies out there. Symbolic of the overall stock market performance through 2022, WalkMe Ltd. (NASDAQ:WKME) has seen its share price fall by nearly half in just the first 6 months of this year. On June 7, Citi analyst Tyler Radke reaffirmed a Buy rating on the stock but lowered the price target on WalkMe to $18 from $22.
2. UserTesting, Inc. (NYSE:USER)
Stepstone’s Stake Value: $265.8 million
Number of Hedge Fund Holders: 9
UserTesting, Inc. (NYSE:USER) is considered to be one of the leading human insights companies in the world. Using artificial intelligence to research the customer market, UserTesting, Inc. (NYSE:USER) is trying to use its innovation to drive further growth. Oppenheimer analyst Brian Schwartz on June 17 maintained an Outperform rating on the stock but lowered the price target on UserTesting to $12 from $14.
1. Dun & Bradstreet Holdings, Inc. (NYSE:DNB)
Stepstone’s Stake Value: $386.2 million
Number of Hedge Fund Holders: 24
Dun & Bradstreet Holdings, Inc. (NYSE:DNB) is engaged in the business of providing insights, analytics, and commercial data to other companies. While its share price has fallen by around 24%, it is the top pick of Jose Fernandez’s Stepstone Group, despite the hedge fund reducing its position by 7%. Barclays analyst Manav Patnaik lowered the price target on Dun & Bradstreet to $17 from $18 and kept an Equal Weight rating on the shares on July 1.
Dun & Bradstreet Holdings, Inc. (NYSE:DNB) was mentioned by Weitz Investments in its Q4 2021 investor letter. Here is what it said:
“In the second half of the year, resurgent inflation and higher interest rate fears reined in investor appetite for higher-growth assets trading at premium multiples… We also note that our investment thesis has always contemplated a higher-interest-rate environment. While this rotation may reasonably bring some market “highflyers” back to Earth, we continue to watch for opportunities to add to these terrific businesses should further pressure yield attractive prices. Finally, this year’s new investment in Dun & Bradstreet has been off to a slow start. Less than one year into our ownership, we remain encouraged by the progress management has made in returning the business to organic growth, and we believe our patience will ultimately be rewarded.”
See also 10 Fastest Growing Franchises in the US and Top 10 artificial intelligence stocks to buy.
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Disclosure. None. Top 10 Stock Picks of Jose Fernandez’s Stepstone Group is originally published on Insider Monkey.
