Below we present the list of 5 value arbitrage stocks Sabrepoint Capital is buying. For our methodology and a more comprehensive list please see 10 Value Arbitrage Stocks Sabrepoint Capital is Buying.
5. Upwork Inc. (NASDAQ:UPWK)
The second half of our list of Sabrepoint Capital’s latest value arbitrage buys is freelance work platform Upwork Inc. (NASDAQ:UPWK). George Baxter’s fund bought another 60,000 UPWK shares during the third quarter, giving it a position of 420,000 total shares valued at $20.17 million on September 30. Hedge fund ownership of Upwork hit a new high of 35 at the end of Q3, more than triple the number of shareholders compared to the middle of 2019.
With hundreds of thousands of active clients, Upwork Inc. (NASDAQ:UPWK) has benefited tremendously from the global push towards remote work that has been accelerated by the pandemic. Hedge funds appear to be bullish on Upwork’s potential to capture a larger slice of the large enterprise pie, which currently accounts for just 20% of the gross volume of work serviced on the platform. Upwork grew revenue by 32% year-over-year during Q3, hitting $128 million in sales.
4. SEMrush Holdings, Inc. (NYSE:SEMR)
Sabrepoint Capital bought 88,954 shares of SEMrush Holdings, Inc. (NYSE:SEMR) during the September quarter, adding onto the large position in the company it opened a quarter earlier. The fund had an 8.24% ownership stake in SEMR as of September 30, owning 889,698 shares. 19 hedge funds were long SEMR at the end of Q1 following the software provider’s IPO, but that figure crashed to just 7 a quarter later and stood at 10 at the end of September.
SEMrush Holdings, Inc. (NYSE:SEMR) grew revenue by 35.6% year-over-year in 2020, hitting $124.9 million, while growing its customers by just under 25% to 67,000. Perhaps most impressive is the company’s ability to have grown to its current heights through raising just $37 million, highlighting the efficiency of both the company’s offerings (with gross margin coming in at 76% during 2020) and its management team.
ClearBridge Investments, an investment management firm, published its “Small Cap Growth Strategy” first quarter 2021 investor letter and mentioned SEMrush Holdings, Inc. (NYSE:SEMR). Here‘s what the fund said:
“We established seven new positions during the quarter, (including SEMrush) largely financed through trims in existing holdings whose market values have risen. Four of the additions play roles in the accelerating digital transformation of the sales, marketing and customer development processes. SEMrush, in the IT sector, is a software provider that help clients optimize their marketing spend across digital search and social media platforms.”
3. Walker & Dunlop Inc. (NYSE:WD)
Sabrepoint Capital made a small 5,000-share addition to its Walker & Dunlop Inc. (NYSE:WD) holding during Q3, giving it an even 200,000 WD shares on September 30. The fund was one of 16 long WD at that time, down from 25 at the end of 2019.
Walker & Dunlop Inc. (NYSE:WD), which provides financial services to the real estate industry, is one of the largest lenders to the commercial real estate market in the U.S, having grown its total lending volume to $24.7 billion as of 2020, representing a 25% annual increase over the previous decade. Walker & Dunlop hit EPS of $2.21 during the third quarter, growing net income by 35% year-over-year, and could grow earnings by greater than 50% annually over the next decade as CRE maturities are set to triple during that time.
2. Clearwater Paper Corporation (NYSE:CLW)
One of Sabrepoint Capital’s biggest buys of Q3 was in Clearwater Paper Corp (NYSE:CLW), as it bought another 263,900 shares to give it 735,000 total, a position valued at $28.14 million on September 30 and giving the fund 7.47% exposure to the stock in its 13F portfolio. Hedge fund ownership of CLW has rebounded slightly after bottoming out during the first quarter of 2020, though more hedge funds did sell off their CLW positions in Q2 than in any quarter since 2014.
One of the Top 22 Packaging Companies in USA, Clearwater Paper Corp (NYSE:CLW) shares took a hit following the December acquisition of Verso by BillerudKorsnas AB, which intends to convert several Verso machines to packaging board, adding a new level of risk to Clearwater’s story, as the company is one of the largest boxboard producers. It pulled in $450.5 million in revenue and 0.55 in EPS during Q3, both of which comfortably topped estimates.
1. Eventbrite, Inc. (NYSE:EB)
Topping our list of Sabrepoint Capital’s top value arbitrage buys is the fund’s top stock pick Eventbrite, Inc. (NYSE:EB), which it bought another 150,000 shares of during Q3. George Baxter’s firm now owns 1.4 million EB shares valued at $28.34 million at the end of September. While Sabrepoint continues to be bullish, other hedge funds grew cautious, as just two funds initiated new positions in EB during the September quarter, the lowest total since late-2018.
Sabrepoint Capital is clearly bullish on the live events market rebounding from its pandemic swoon, having bought into both Eventbrite, Inc. (NYSE:EB) and Live Nation during Q3 of 2020. By far the largest small-to-mid market event coordinator in the United States, hedge funds believe Eventbrite will benefit from an Australian-type rebound in the live events market and that the experience economy will continue to grow at close to double-digit rates in the years to come. Hedge funds are also hopeful that the cost cuts implemented by Eventbrite during the pandemic will persist going forward, making the company a much more profitable one.
Artisan Partners, a high value-added investment management firm, published its ‘Artisan Small Cap Fund’ second quarter 2021 investor letter and mentioned Eventbrite, Inc. (NYSE:EB). Here‘s what the fund said:
“Eventbrite is the largest software and ticketing platform helping event creators plan, promote and produce live events in small-and-mid markets. The company generates revenue by charging a per-ticket fee on paid tickets and has a strong foothold in the small-and-mid markets—nearly 20X the size of the next largest competitor. We believe Eventbrite is well-positioned to benefit from a sharp increase in demand for live events amid the broader re-opening of the US economy—a dynamic it has already witnessed in Australia with live events bouncing back to approximately 90% of 2019 levels. We expect this to be amplified by significant cost cuts made during the pandemic (>30% of 2019 revenue) remaining in place. Longer term, we believe Eventbrite should benefit from the secular trend toward consumer experiences, an industry growing over 8% per year prior to the pandemic.”
You can also take a peek at 10 Tech Stocks to Buy According to Select Equity Group and Top 10 Stock Picks of Thomas Bancroft’s Makaira Partners.
