MasterCard Inc. (MA) and Visa Inc. (V)  have been all-star performers in 2018, with the two stocks up by 37 percent and 24 percent, respectively. One never would have guessed either stock was having a good year, based on hedge fund activity in the first quarter. According to the WhaleWisdom Heat Map, both stocks were in the bottom half of the top 100 stocks.

Both payment processors stocks have gone into overdrive since the end of the first-quarter rising by 18 percent each. The companies reported stellar results for the first quarter and both play vital roles in the heart of the e-commerce ecosystem.

The Rankings

(WhaleWisdom)

Visa’s ranking on the heatmap fell by 31 spots to 55, while MasterCard rose by eight places to 47. Out of the 150 hedge funds tracked for the heatmap, only 39 of them held MasterCard in their portfolio, and only 11 of them had it in their top-ten holdings. For Visa 48 funds owned the stock, while 16 of them held the shares in their top-ten.

Broader Cutting

When looking outside of the funds that make up the heat map, institutions were also dumping shares of Visa. During the first quarter, the total number of aggregate 13F shares fell by 3 percent. Hedge funds cut their holdings by just over 6 percent.

MasterCard’s stock was also trimmed in the first-quarter, with aggregate 13F shares among institutions falling by over 2 percent.  Hedge funds were also slashing their holdings,  cutting the number of shares held by over 14 percent.

Sentiment Turns

Not only has the sentiment around both stocks changed materially since the end of the first quarter, but the outlook for the two businesses have improved substantially as well. Together, the improving fundamentals and sentiment have led to an impressive run in both stocks over the past three months.

Analysts Turn Bullish

The bearish sentiment on the companies seems surprising given the performance of the stocks in 2018. However, analyst’s estimates for both companies has increased significantly since the start of the year. MasterCard’s earnings estimates have climbed by over 17 percent, while Visa’s have increased by nearly 10 percent. The revenue outlook has improved as well, with MasterCard estimates rising by almost 7 percent, and Visa’s by 2 percent.

Price targets on both stocks have increased dramatically as well since the start of 2018.  MasterCard’s price target has increased by nearly 29 percent, while Visa’s has increased by almost 17.5 percent.

Based on the performance for each stock during the second quarter, and the start of the third-quarter, both Visa and MasterCard’s ranking among institutions and hedge funds has likely improved substantially since the end of the first-quarter.

TechTarget Inc’s (TTGT) stock has more than tripled over the past year, rising by over 200 percent. However, what seems most surprising about the stocks run is that institutional and hedge fund investors haven’t been the ones driving the price up.

In fact, when looking at the holder’s list, we find that just a handful of investors hold a significant portion of the marketing company’s shares, and the stocks sharp rise may be a function of supply and demand more than the fundamentals of the business. The stock was added to the WhaelWisdom WhaleIndex 100 on May 16, 2018.

Concentrated Holders

At the end of the first quarter, nearly 28.51 million total shares were outstanding for the company, and the top-five investors held almost 60 percent of the shares, while the top-10 holders retained almost 75 percent of the stock. The top 10 holders are made up of index funds, venture funds, and Roger Marino -a board member and founder of EMC Corp.   It leaves other investors scrambling to buy whatever stock is freely available to trade daily.

Institutions Not Active

Aggregate 13F shares among institutions only increased to 15.65 million shares in the quarter up by 1.25 percent. Meanwhile, holdings among hedge funds fell by about 1 percent to 5.621 million shares. Only 31 institutions created new positions in the stock, while 32 added to the existing one. However, here is the problem, only 26 funds reduced their holdings while 9 exited the stock entirely. More demand than supply has helped to push shares higher.

Strong Growth

Of course, there is a substantial reason why investors are flocking into this stock, and it comes on the heels of strong revenue growth, which is driven by the company’s IT Deal Alert product which saw revenue surge by 31 percent in the first quarter.

Strong growth is expected to continue when the company reports second-quarter results in August, with analysts looking for revenue to climb 15.5 percent to $30.81 million, while earnings are seen jumping by 107 percent to $0.19 per share.

However, like the stock, the valuation for the company has soared, and shares are now trading at over 31 times next years earnings.  When considering the company is expected to grow earnings in 2019 at 35 percent, the PEG ratio, which adjusts for earnings growth, is cheap at 0.91, a level below 1 suggest earnings are growing faster than the PE Ratio.

It would seem shares of the stock are soaring for two reasons, a limited supply of shares and steady earnings and revenue growth. However, at some point, the big holders may be tempted to start unloading some of those shares, there just better be enough buyers to absorb them all.

Netflix Inc. (NFLX) stock has jumped by over 100 percent in 2018 while rising by nearly four times since 2015. The move in the stock is likely well deserved considering the whole media landscape is in a tectonic shift trying to play catch up to Netflix’s revolutionary approach to content and its delivery. However, what may be most interesting is that during the first quarter hedge funds and institutions were selling the soaring stock.

The hedge funds actions seem counter-intuitive given the direction of the stock.  However, it could also explain why shares of the stock have continued to rocket higher at the completion of the first-quarter, as many of the hedge funds were trying to crawl their way back into the stock.

Hedge Funds Dumping Shares

Overall almost 39 hedge funds created a new position in Netflix, while 38 added to existing ones. However, surprisingly 56 reduced their holdings, while 18 exited the stock.  In total, the number of aggregate 13F shares held by hedge funds fell by nearly 18 percent during the quarter to roughly 35 million shares.

Reducing Risk

Netflix shares tumbled during the stock market sell-off in mid-February, with Netflix falling by over 12 percent from its highs. The heightened volatility in the stock likely served as a reason for the drop in the number of shares held among funds, as they tried to reduce risk and lock in profits. However, it could also explain why shares soared during the second quarter, as funds likely raced to get back into the stock in the weeks that followed.

Top Funds Were Not Dumping

According to the WhaleWisdom Heat Map, Netflix was one of the hottest stocks among the 150 top hedge funds WhaleWisdom tracks.  Of the 150, 37 of them held Netflix in their portfolio, while nearly half of them had the stock as a top 10 holding.  However, the rest of the industry seemed to be going in a different direction. So, while the top funds were buying and holding on to Netflix, the rest of the industry was going in another direction, serving as a reminder as to why some funds are among the best, while others struggle to beat the averages.

Strong Growth

The stocks strong performance comes from the company’s explosive revenue and earnings growth, as it ramps up the total number of global subscribers. Analysts are looking for the company to report that second-quarter revenue rose by nearly 42 percent, while earnings are forecast to climb by over five times to $0.81 versus last year, when the company reports results on July 16.

Full-year earnings are expected to more than double, while revenue is expected to rise by nearly 38 percent.

With Netflix reshaping the media landscape while posting significant earnings and revenue growth, it’s obvious why the stock was the hottest among the top 150 hedge funds WhaleWisdom follows. It also shows how not all hedge funds are created equal.

The New York Times Inc. (NYT) isn’t a stock that many investors think to get involved in, because let’s face it, in a digital world, who reads the newspapers? Don’t tell that to the hedge fund investors, because they were actively buying the stock and upping their holdings massively during the first quarter. The buying among funds was so impressive, the stock was added to the WhaleWisdom Whale Index 100.

The New York Times stock is up by about 40 percent in 2018, yes, 40 percent. Its stock performance is easily crushing the S&P 500’s return of just 1.7 percent. Not only that but it is easily outperforming some of the high-flying technology stocks like Facebook Inc. (FB), Alphabet Inc. (GOOGL), Microsoft Corp. (MSFT), and even Nvidia Corp. (NVDA).

Strong Subscriber Growth

It turns out the New York Times is a subscriber growth story of all things. The digital-only paid subscriber base for the Times grew by 25 percent in the first-quarter of 2018, to roughly 2.8 million versus last year. The company is looking for more solid growth in the second-quarter as well, with total paid subscriber growth rising by the mid-single digits versus 2017. The strong growth is expected to lift revenue in 2018 by about 2.3 percent, and earnings by over 11.6 percent.

Hedge Funds Buying

Strong subscriber growth is likely the reason why the number of aggregate 13F shares held by institutions climbed by 13.3 percent to approximately 134 million shares. However, the growth among Hedge Fund’s was even larger, climbing by nearly 31 percent to approximately 37.8 million shares. In total 48 institutions created new positions in the stock, while 68 added to existing ones. Meanwhile, 80 institutions decreased their holdings, while 34 exited completely.

The largest newcomer into the stock was Jackson Square Partners, LLC buying $182 million worth, while OZ Management, LP added $100 million worth. Most impressively, Slate Path Capital, LP bought $85 million worth, but that it made a 5.5 percent holding within the funds total portfolio, a big chunk.

Strong Growth Forecasts

Impressively, shares of the Times aren’t even expensive, with a one-year forward PE ratio of 23.7, and when adjusting that earnings multiple for growth, it trades with a PEG ratio for 2019 of 1.05. Earnings growth for 2019 is expected to rise by 22.5 percent on revenue growth of 4 percent. The strong growth is expected to continue into 2020, with revenue forecast to increase by nearly 4 percent, and earnings growth expected to accelerate to 24.5 percent.

The New York Times is not only alive and well, but is thriving in the digital era, while quietly piecing together a solid subscriber growth story.

By Mark W. Gaffney
For WhaleWisdom.com

If history is any indication, On Deck Capital (NYSE:ONDK) stock is likely to trade higher in the months to come.

On June 22, Portolan Capital Management LLC filed a 13G disclosing it owned 5.61% of the online lender’s shares.  A 13G must be filed by a passive investor within 10 days of acquiring 5% or more of a public company. Portolan disclosed that it crossed the 5% ownership of ONDK on June 13.

The $20+ million invested in On Deck Capital makes that stock the hedge fund’s #2 position by % of portfolio.

Since 2009, investing equal amounts in Portolan Capital’s top two positions, and rebalancing quarterly, would have generated an average annual return of 57.35%*. This is according to WhaleWisdom.com’s 13F backtester. The S&P 500 averaged a 14.49% total return over the same period.

*Based on holding equal dollar amounts of Portolan Capital’s top 2 portfolio positions by % of portfolio. Positions rebalanced quarterly or with new 13F/G disclosures. Source: WhaleWisdom.com

Portolan Capital is a Boston-based hedge fund with about $1 billion under management. The firm was founded in 2005 by George McCabe, a former manager for Peter Lynch’s foundation.  Obviously when McCabe has high conviction in a stock it pays to notice.

Portolan’s current #1 position is Carbonite Inc. (Nasdaq: CARB) which has risen about 23% since an April 16, 2018 13G filing by the fund.

On Deck Capital specializes in small business online loans which the company funds through partnerships with other banks or with its own capital.

On May 8 ONDK reported Q1 EPS of $0.04, beating estimates. The company raised FY18 revenue guidance to $372M-$382M, up slightly from prior view $370M-$380m. ONDK also raised its year adjusted net income view to $18M-$28M vs. a prior view of $16M-$28M. In response to the earnings report, BTIG analyst Mark Palmer reiterated his neutral rating on the stock and said operating expenses remain a concern.

Since 2009, investing equal amounts in Portolan Capital’s top two positions, and rebalancing quarterly, would have generated an average annual return of 57.35%.

But George McCabe’s Portolan Capital isn’t the only smart money investor accumulating ONDK.

On May 30, seven OnDeck corporate insiders bought a total of $223,000 of stock at an average price of $5.87. ONDK closed at $7.50 on June 22. The largest insider buy was CEO and Chairman Breslow Noah’s purchase of 8,000 shares at $5.85.

ONDK insider purchases filed 2018-5-30 Source: WhaleWisdom.com

An officer with OnDeck Capital since 2007, Breslow has been the company’s Chairman and CEO since June 2012. Prior to the May 30 purchases, he had acquired 26,000 shares at an average price of $4.20 and has never sold any ONDK shares on the open market.

OnDeck’s IPO was on December 19, 2014 at $20, raising $200 million for the company and giving it a market cap of $1.3 billion. It’s been pretty much downhill for ONDK stock ever since. Current market cap stands at about $525 million. However, recent smart money purchases combined with improving price action may indicate that a bottom is in.

OnDeck Capital – ONDK