3 surprising stocks that fund managers bought Hand Over Fist in the first quarter


YesYou may not have realized it, but one of the most important days of the quarter has come and gone last week. On May 17, institutional investors and hedge funds with more than $ 100 million in assets under management were required to deposit Formula 13F with the Securities and Exchange Commission. In doing so, they effectively lifted the hood on their buying and selling activities during the first quarter.

Even though the 13Fs have their flaws – the snapshots they provide are at least 45 days old – they can provide valuable insight, such as trends that grab the attention of some of the brightest and most successful fund managers. efficient. One trend that certainly stood out in the first quarter was that portfolio managers weren’t too excited about growth stocks. Finding stocks with sequential double-digit shareholder growth by 13F depositors has been incredibly difficult, compared to previous quarters.

And yet the following three extremely surprising stocks were bought hand in hand by portfolio managers in the first quarter.

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Although fund managers clearly avoid flying high growth stocks in the first quarter and being more aware of the value, they absolutely crammed into a cloud data warehousing company Snowflake (NYSE: SNOW), which is by far the most expensive of all the big name cloud stocks based on sales price. Overall ownership of 13F rose 132% to 176.4 million shares, with 29 funds now holding Snowflake in their top 10, up from 15 in the sequential fourth quarter.

Why Snowflake? The most obvious answer is the company’s superior growth prospects. In the fourth quarter of the fiscal year ended Jan. 31, 2021, the company recorded sales growth of 116% to $ 178.3 million, along with a net retention rate of 168%. The latter figure implies that existing customers increased their spending by 68% compared to the quarter last year.

Fund managers are probably also in love with Snowflake clear competitive advantages. Its cloud platform, which overlaps with the most popular cloud storage services, enables transparent sharing of information between its customers, even on competing platforms (e.g. S3, Azure and Google Cloud).

Snowflake is also avoiding subscriptions in favor of a pay-as-you-go model. Company customers pay based on the amount of data stored and Snowflake compute credits used. This method is transparent and designed to help businesses better control their spending.

But what’s odd about such an aggressive purchase in Snowflake is that it’s always really expensive. Even with Wall Street calling for 85% sales growth in fiscal 2022, Snowflake is valued at 62 times sales. For a business that is still far from profitable for years to come, it’s a bit of a whim on the part of the fund managers.

A vet holding a fiery dog ​​in his arms.

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Another surprise is that the veterinary health company Zomedica (NYSEMKT: ZOM), which is a penny stock which became extremely popular among the Reddit crowd and stock investors even in January and February, was bought hand-in-hand by institutional investors in the first quarter. According to 13F aggregator WhaleWisdom.com, ownership among 13F depositors increased 1,092% (not a typo), to nearly 101 million shares as of the fourth sequential quarter.

I can offer two reasons why fund managers bought into the Zomedica hype. First, the company marketed its diagnostic platform for dogs and cats, Truforma, during the first quarter. Even though the company only recognized $ 14,124 in revenue from the sale of Truforma, Zomedica is officially no longer a pure clinical-stage drug development and diagnostics company.

The other possible reason fund managers are bullish on Zomedica is the company’s connection to pets. Data from the American Pet Products Association estimates that nearly $ 110 billion will be spent on pets in the United States in 2021, including $ 32.3 billion on veterinary care and product sales. This is for more than a quarter of a century since then, spending on pets in the United States has declined year over year.

However, Zomedica is far from profitable and, like Snowflake, is valued at a nosebleed price / sales ratio. Even looking more than two years to 2023, Zomedica is trading at a multiple of nearly 40 times projected Wall Street sales.

The other problem here is that Zomedica has been a serial stock diluter. Although it is based on $ 278 million in cash – most of which was raised by selling shares of its stock – it increased its number of outstanding shares to 974 million. With so many shares outstanding and a share price of less than $ 1, Zomedica looks like a candidate for a potential reverse split.

A cannabis bud and a small vial of cannabidiol oil next to a Canadian flag.

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Producers of sundials

Perhaps the biggest shock of all is that fund managers have collected many stocks of marijuana broth Producers of sundials (NASDAQ: SNDL). Depositors in the 13F aggregate ended the first quarter with 69 million shares, quadruple the roughly 17.3 million shares held at the end of December 2020. However, to put it in context, these 69 million shares do not even represent 4% of the company. number of exceptional shares.

One of the reasons institutional investors were likely excited about the sundial is the rapid growth in cannabis sales in North America. New Frontier Data has estimated that weed sales in the United States could reach $ 41.5 billion by 2025. Meanwhile, cannabis analytics company BDSA hopes pot sales in Canada will double for reach over $ 6 billion by 2026. The prospects for legalization in the United States are also better than they have ever been.

The other catalyst here could be the gigantic sundial cash stack of C $ 1.08 billion (US $ 895 million). The sundial’s cash position might allow it to become a bit special purpose acquisition company (SPAC) in the cannabis area.

What is really surprising about this movement is that the sundial has been nothing less than a train wreck as an investment. To accumulate its mountain of liquidity, the company has diluted its shareholders into oblivion. Since the end of September, more than 1.35 billion shares have been issued, and more are likely on the way. There is also no concrete strategy on how management will use this money.

Plus, the company’s potting and retail operations have been nothing short of horrible. Gross cannabis revenues fell 30% in the first quarter to C $ 11.7 million, as cannabis sales in Canada were on the rise.

Despite this institutional influx, the sundial remains one of the worst investors can buy marijuana stocks.

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Sean williams has no position in any of the listed securities. The Motley Fool owns stock and recommends Snowflake Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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