Driehaus Capital Management was founded by Richard Driehaus in 1982 and has since become a widely followed investment manager. Every quarter, the fund files a 13F with the SEC and in this document discloses many of its long equity positions; we like to use 13Fs from notable investors to serve as initial sources of tickers that we can do basic analysis of and decide whether or not they’re worth looking at further. Read on for our quick take on five of the largest positions that Driehaus disclosed and compare them to previous filings.
Apple Inc. (NASDAQ:AAPL) was actually Driehaus’s largest position by market value at the end of the third quarter, with the fund reporting ownership of about 80,000 shares (down slightly from what it had owned three months earlier). Apple’s recent correction- which has been attributed to everything from low product sales to investors locking in their capital gains in the high-flying stock at current tax rates- has left it trading at only 12 times trailing earnings even though it is a dominant, growing global company. Billionaire David Shaw’s D. E. Shaw had over $1 billion invested in Apple stock at the end of June (find more of billionaire David Shaw’s favorite stocks). We think that the pullback has created a buying opportunity here.
The fund also liked Baidu.com, Inc. (NASDAQ:BIDU), with about 280,000 shares in its portfolio according to the 13F. The company reported very good numbers in the third quarter, with revenue and earnings both up in the 50% range from a year earlier. Of course Baidu, as a Chinese company, faces skepticism from investors as far as the accuracy of these numbers and its ability to continue to prosper in the event of slower Chinese growth. At 23 times trailing earnings, if the company’s growth truly is sustainable then it could provide growth at a reasonable price.
Driehaus liked Brazil as well as China, with Petroleo Brasileiro Petrobras SA (NYSE:PBR.A) being another of its top picks. The fund owned 1.1 million shares of the integrated oil and gas company which is notable for its position in drilling in offshore Brazil. We’d rather own an oil and gas company which has more diversification, but in the past Brazil has been an appealing growth market and the stock currently trades at only 9 times consensus earnings for 2013 (though this represents strong earnings growth over the next year, with the trailing P/E being 14). Sandy Nairn’s Edinburgh Partners had a large position at the end of the second quarter.
Mellanox Technologies, Ltd. (NASDAQ:MLNX), a $3.6 billion market cap semiconductor provider focused on data transmission functions, was another of Driehaus’s top picks. It is a growth play: while its trailing P/E is 37, its revenues in the third quarter were more than double what it had taken in a year earlier and this caused a monster increase in earnings. The sell-side’s projections imply a forward P/E of 20 and a five-year PEG ratio of 0.3, suggesting that analysts are even more bullish on the company than the market. Investors should note that 13% of the shares outstanding were held short as of the most recent data, but Mellanox might be worth investigating further.
Another of the fund’s top picks was DSW Inc. (NYSE:DSW), a retailer which sells footwear and accessories in the U.S. Its most recent quarter showed a steep fall in earnings compared to the same period in the previous year despite slightly higher sales. It’s another common short target, with 12% of the float held short. At a market capitalization of $2.7 billion it trades at 20 times trailing earnings; therefore, it will need to rebound as a company, and show that it has sustainable growth from that point, in order to prove a good value. We think that we’d avoid it.
