Bares Capital’s Top 5 Stock Picks

In this article, we will take a look at Bares Capital’s top 5 stock picks. To see more such companies, go directly to Bares Capital’s Top 12 Stock Picks.

5. Interactive Brokers Group, Inc. (NASDAQ:IBKR)

Number of Hedge Fund Holders: 45
Bares Capital Management’s Equity Stake: $211.02 Million
2023 share price performance: 15%

Interactive Brokers Group, Inc. (NASDAQ:IBKR) is one of Bares Capital Management’s top stock picks in financial services, operating as an automated electronic broker worldwide. Interactive Brokers Group, Inc. (NASDAQ:IBKR) engages in the execution, clearance, and settlement of trades in stocks, options, futures, bonds, foreign exchange, etc.

Interactive Brokers Group, Inc. (NASDAQ:IBKR) was one of the stocks that benefited from solid investor sentiment in 2023, resulting in significant trading activities on stocks, bonds, and mutual funds, among other instruments. The stock was up by 15% last year.

Analyst James Yaro believes the stock is a ‘Strong Buy’ as it is well positioned to benefit from interest rate cuts in 2024.

“However, we see substantial upside to these market-implied earnings,” the analyst wrote. “The company should be able to keep EPS flat, even in a deep downside earnings scenario with 10 rate cuts from 2023-25E (2 more than the market forward curve), as the company offsets rate cuts with strong balance sheet growth and mix shift, and commissions growth,” he added. “Put another way, we see current valuation as offering an attractive entry point, with risk skewed to the upside,” Yaro stated.

As of the end of the fourth quarter of 2023, 45 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in Interactive Brokers Group, Inc. (NASDAQ:IBKR). The most significant hedge fund stakeholder of Interactive Brokers Group, Inc. (NASDAQ:IBKR) was William B. Gray’s Orbis Investment Management, which owns a $644.04 million stake in Interactive Brokers Group, Inc. (NASDAQ:IBKR).

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4. Pegasystems Inc. (NASDAQ:PEGA)

Number of Hedge Fund Holders: 26
Bares Capital Management’s Equity Stake: $286.43 Million
2023 share price performance: 31%

Pegasystems Inc. (NASDAQ:PEGA) affirms Bares Capital Management’s investments in technology as it develops, markets, licenses, and supports enterprise software. Its software applications include a real-time AI-powered decision engine to enhance customer acquisition and experiences across paid media channels.

Amid the impressive run in the tech sector, Pegasystems Inc. (NASDAQ:PEGA) stock gained 31% in 2023, outperforming the overall market. The company is poised for another impressive 2024, going by the expected earnings of $2.75 a share against the $2.43 expected,

CEO Alan Trefler expressed enthusiasm for Pegasystems Inc. (NASDAQ:PEGA)’s trajectory, stating, “We delivered transformative innovation to change the way the world builds software while deepening and expanding our client relationships.”

Pegasystems Inc. (NASDAQ:PEGA) was seen in the portfolios of 26 hedge funds in the fourth quarter, with Bares Capital Management as the biggest holder, with stakes worth $286.43 million.

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3. Etsy Inc (NASDAQ:ETSY)

Number of Hedge Fund Holders: 36
Bares Capital Management’s Equity Stake: $330.71 Million
2023 share price performance: -31%

Etsy Inc (NASDAQ:ETSY) is a consumer cyclical investment play and one of Bares Capital Management’s top stock picks owing to its exposure in the internet retail business. The company operates one of the biggest online marketplaces that connect buyers and sellers. Etsy Inc (NASDAQ:ETSY) focuses on connecting artisans and entrepreneurs with various consumers.

Etsy Inc (NASDAQ:ETSY) was a big disappointment, dropping by 31% last year at the height of the strong bull run. In response to the poor run, Citi analysts downgraded Etsy Inc (NASDAQ:ETSY) to a ‘Hold’ due to concerns over the company’s growth outlook.

“We believe there is limited visibility into 2024 GMS growth. Etsy has become one of the more debated names in our coverage universe,” the analysts wrote in a note. “We see at least some headwinds to a return to stronger GMS/revenue growth, particularly near-term.”

Nevertheless, 36 hedge funds out of the 933 tracked by the Insider Monkey Database held stakes in Etsy Inc (NASDAQ:ETSY) as of the end of the fourth quarter. Bares Capital Management remained the most significant stockholder with stakes worth $330.71 million.

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2. Block Inc (NYSE:SQ)

Number of Hedge Fund Holders: 75
Bares Capital Management’s Equity Stake: $347.09 Million
2023 share price performance: 20%

Block Inc (NYSE:SQ) sums up Bares Capital Management’s exposure in the technology sector as it specializes in building ecosystems focused on commerce and financial products and services. Its Square segment offers commerce products for restaurants, appointments, retail, and point of sale. On the other hand, the Cash App segment provides financial tools, including peer-to-peer payments.

Block Inc (NYSE:SQ) was on a roll in 2023 as its stock gained 20%, affirming its status as one of Bare Capital’s top stock picks.

Wolfe Research analysts are optimistic about Block Inc (NYSE:SQ)’s growth metrics, especially in the Cash App’s segment.

“We see upside to #’s particularly in 2H (primarily from Cash App) due to higher inflow/active and adoption of Direct Deposit, uptake of new product and features, and faster integration and scaling of Commerce,” analysts led by Darrin Peller noted.

There were 75 hedge funds long Block Inc (NYSE:SQ) in the fourth quarter of last year. Catherine D. Wood’s ARK Investment Management remains the most prominent holder, with stakes worth $919.50 million.

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1. Workday Inc (NASDAQ:WDAY)

Number of Hedge Fund Holders: 81
Bares Capital Management’s Equity Stake: $372.26 Million
2023 share price performance: 65%

Workday Inc (NASDAQ:WDAY) is Bares Capital Management’s top stock holding and operates as a cloud computing company. It offers enterprise cloud applications that help customers plan, execute, analyze, and extend to other applications and environments. Workday Inc (NASDAQ:WDAY) also provides financial management applications to maintain accounting information.

Workday Inc (NASDAQ:WDAY) was one of the best-performing stocks in Bares Capital Management’s portfolio as the stock saw a 65% gain last year.

“Workday remains a best-in-class HCM solution with a growing financial management business (FINS) which, in our view, is currently priced into the stock. As the business continues to make investments in its GTM motion and innovative product offerings, we don’t expect margins to expand materially in the intermediate term,” da Davidson wrote in a research note to investors.

As of the end of the fourth quarter of 2023, 81 out of the 933 hedge funds tracked by Insider Monkey held stakes in the company. Andreas Halvorsen’s Viking Global remains the most prominent holder, with stakes worth $1.13 billion.

Here is what Polen Global Growth Strategy said about Workday, Inc. (NASDAQ:WDAY) in its fourth quarter 2023 investor letter:

“Workday, Inc.’s (NASDAQ:WDAY) stock price was weak coming into the quarter. At the company’s investor day in late September, management provided medium-term annual revenue guidance of 17-19%. Many investors were likely expecting annual revenue guidance of 20%+, so the 17- 19% guidance may have been viewed as a tad disappointing. Following the investor day, Workday’s stock price rose significantly during Q4, buoyed by the company’s fiscal Q3 2024 earnings report, which was better than anticipated and included management raising revenue guidance for their fiscal 2024. We view the long-term guidance provided at the investor day as likely to be conservative, with ample room for Workday to continue taking share in the $100bn+ global HCM (human capital management) market. We remain confident in Workday’s ability to generate 20%+ annualized earnings growth over the next three to five years.”

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Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily newsletter to get  the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also check out our articles on Wall Street Picked These 13 AI Stocks for 2024 and Dorsal Capital Partners Sees a 13% Boost in 2023: Its Top 15 Stock Picks.