Staying one step ahead of the COVID-19 pandemic, at least in terms of stocks, it paid off for fund manager Gerald Sparrow last year. For 2021, he hopes that online gambling, education and pets are where the magic lies.
Sparrow manages the Sparrow Growth Fund SGNFX,
a $ 97 million midcap fund that was in the top 4% of its category last year, returning 98%, according to Morningstar. The fund, which averaged 37% in five years and 48% in three years, had $ 31 million under management when MarketWatch spoke with Sparrow in June 2020.
Read also: A strategy to buy “America’s fastest growing companies” paid off for this investor in 2020
At the time, he was advocating for Snap SNAP,
– parent of Snapchat messaging app – online car seller Carvana CVNA,
and streaming media player Roku ROKU,
These companies, with respective gains in 2020 of about 200%, 160% and 147%, were all pandemic pieces that stimulated the profitability of the growth fund.
The Sparrow methodology involves monitoring US stocks of all sizes and categories and classifying them based on changes in the financial position. “Cash flow, earnings, everything that will measure in the top 10% … is most of the area we spend our time on,” Sparrow told MarketWatch in a recent interview.
His system warns him of companies registering “significant growth” compared to other stocks and then looks to see where the growth is coming from. “So we are really looking for organic growth. What does it create? ”
Among the trends he is pursuing in 2021 and beyond are online gambling, which brings him to a single portfolio – DraftKings DKNG,
whose shares rose 335% in 2020. The Fantastic Sports Contest and the online betting group went public through a merger with a special purpose procurement company last April. So far, shares have gained 27% this year.
How much more can investors get out of DraftKings? Sparrow highlighted a recent interview with CEO Jason Robins, who said DraftKings’ mobile sports operations are now in 12 states in a row, shortly after the long-standing US sports betting ban was better lifted. for two years. The company has led strong growth in 2021, and if its betting operations reach 50 states, this is another growth to come, he said.
Read: Buy DraftKings and Penn National because digital gambling is in the first half, says Goldman
Sparrow said it’s not just DraftKings, but other companies like global hospitality and entertainment group MGM MGM,
which is now involved in online gambling, with portals and phone applications. He is “more profitable just to send an application to everyone,” he said.
His next stock selection is Chegg CHGG,
which offers digital and physical textbook rentals, along with online guidance and other services for students. Sparrow is also a subscriber, reading books to keep up with the math and probability for investment analysis.
“So, when I receive a textbook and read it and can’t get the answers, I put the ISBN number and do it step by step with flashcards and they have tutors. So I think online education is good and important, “he said, adding that he is sincerely” hanging on to the damn thing. “
Read: Chegg’s latest quarterly results
Another stock that Sparrow likes is the online payment service Square SQ,
whose Executive Director and President Jack Dorsey also runs the Twitter TWTR micro-messaging service,
“What’s interesting about Square is that they have point-of-sale hardware and software to do transactions for retailers and other merchants, but they’re mostly in the cash app,” which means you can only send cash to someone. through their phone, he said. “And this is a very good trend.”
PayPal PYPL,
with its own Venmo cash app, it’s a Square competitor. The Sparrow Fund has owned Square since 2017, but believes the company is starting to expand with new services such as a free stock trading capability added to the Cash app in 2019. Square recently benefited when rival trading app Robinhood restricted some transactions arousing anger on the retailer of GameStop GME video games,
and defective users in the Cash App and elsewhere. Square shares grew 247% in 2020 and have grown 21% so far this year.
Sparrow’s latest stock selection is Chewy CHWY,
which benefited from the pandemic, as animal adoptions increased and owners spent more time and money on their animals. The online pet retailer saw a 45% increase in third-quarter net sales to nearly $ 2 billion. Chewy shares gained 284% in 2020 and increased by 7% this year.
“Not only does it enter many people’s homes for convenience, but they add more prescription care articles to their website,” he said.
Sparrow also weighs in on what he sees as potential blind spots for investors as another pandemic year continues. “The risk is that we will not control the pandemic once the vaccine is launched,” he said, or that stimulus programs are not approved.
“So if you get different strains and the vaccine becomes ineffective and we go back to the blockage, that’s a big risk,” he said, adding that inflation that raises its ugly head again is another risk.
Sparrow is not worried, however, about a stock SPX,
which continues to rise against any kind of wind, such as the pandemic. “As populations grow and economies grow, it is natural for companies to deserve more over time,” he said.
Read: Shares with low capitalization earn and are here. Why these analysts say it’s bad news for the S&P 500