Baron Funds, an investment management company, released its “Baron Opportunity Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. In the third quarter, the fund rose 4.04% (Institutional Shares), outperformed the Russell 3000 Growth Index, which gained 3.42%, and lagged the S&P 500 Index, which advanced 5.89%. In the first nine months ended 2024, the fund posted solid gains, rising 25.31% compared to a 24.00% return for the Russell 3000 Growth Index and beating the S&P 500 Index’s 22.08% gain. Due to a significant rotation away from large-cap Magnificent Seven stocks and toward value/cyclical and small-cap stocks, as well as generally positive economic data that supported the soft-landing narrative and the Federal Reserve’s long-awaited dovish pivot, U.S. stocks ended the quarter higher for the fourth consecutive quarter. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Baron Opportunity Fund highlighted stocks like Duolingo, Inc. (NASDAQ:DUOL), in the third quarter 2024 investor letter. Duolingo, Inc. (NASDAQ:DUOL) is a mobile language learning platform, that offers courses in 40 different languages. The one-month return of Duolingo, Inc. (NASDAQ:DUOL) was -0.22%, and its shares gained 96.29% of their value over the last 52 weeks. On October 24, 2024, Duolingo, Inc. (NASDAQ:DUOL) stock closed at $281.40 per share with a market capitalization of $12.188 billion.
Baron Opportunity Fund stated the following regarding Duolingo, Inc. (NASDAQ:DUOL) in its Q3 2024 investor letter:
“Duolingo, Inc. (NASDAQ:DUOL) is the world’s leading language learning app with over 100 million monthly active users, known for its effective gamification and high engagement. After monitoring the company over the past year and a half, we developed conviction to buy the stock for a few reasons. The company has maintained premium levels of user growth (daily average user growth of over 50%) and revenue growth (40%-plus), executed well against their product roadmap, gained early traction with new functionality, and maintained impressive 40%-plus incremental margins. We view the founder-led management team as best in class, technically capable (CEO and CTO both earned PhDs in machine learning from Carnegie Mellon University), and product focused. We initiated a position in the quarter as the share price fell to what we deemed attractive levels from a long-term valuation perspective, coupled with material catalysts on the horizon, particularly the broader launch of AI functionality (branded “Max”) that enables users to have real-time conversations with AI based characters and a substantial improvement of the company’s Advanced English offering. We believe that these two initiatives take Duolingo from more of a hobby app to a company that can address the broader market of 1.8 billion people learning English today. As these products roll-out in the coming quarters, we believe their adoption should drive the realization of higher pricing, faster revenue growth, lower churn, and continued margin improvement. We also believe there is additional optionality in newer products such as math and music, which are earlier in their product evolution.”
A close up macro image of someone using a mobile device to learn a new language.
Duolingo, Inc. (NASDAQ:DUOL) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 35 hedge fund portfolios held Duolingo, Inc. (NASDAQ:DUOL) at the end of the second quarter which was 43 in the previous quarter. While we acknowledge the potential of Duolingo, Inc. (NASDAQ:DUOL) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Duolingo, Inc. (NASDAQ:DUOL) and shared the list of AI news investors should not miss. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.