In this article, we discuss the top 5 stocks to buy according to John Orrico’s Water Island Capital. If you want to read our detailed analysis of Orrico’s history and hedge fund performance, go directly to the Top 10 Stocks to Buy According to John Orrico’s Water Island Capital.
5. Nuance Communications, Inc. (NASDAQ:NUAN)
Water Island Capital Stake Value: $108,313,000
Percentage of Water Island Capital’s 13F Portfolio: 6.23%
Number of Hedge Fund Holders: 61
Nuance Communications, Inc. (NASDAQ:NUAN) is a Burlington, Massachusetts-based multinational computer software technology firm that sells voice recognition and AI-based software. Segantii Capital, with approximately 7.62 million shares worth $482.81 million, is the largest shareholder of Nuance Communications, Inc. (NASDAQ:NUAN) among the funds tracked by Insider Monkey.
Water Island Capital started building its position in Nuance Communications, Inc. (NASDAQ:NUAN) in the second quarter of 2021 and increased its stake in the company by 36% to 1.97 million shares in the third quarter, accounting for 6.23% of the value of its 13F portfolio.
At the end of the third quarter of 2021, 61 hedge funds tracked by Insider Monkey held stakes totaling $4.87 billion in Nuance Communications, Inc. (NASDAQ:NUAN), down from 72 in the preceding quarter, which were valued at $5.58 billion.
In its third-quarter 2021 investor letter, Rhizome Partners mentioned Nuance Communications, Inc. (NASDAQ:NUAN). Here is what the fund said:
“We also exited our small position in Nuance upon Microsoft’s acquisition. Nuance is a leader in voice recognition software, with dominant market share, and its speech-to-text product is the gold standard in radiology. In addition, by eliminating the need for note taking and allowing doctors to focus on patient care, Nuance could transform the way doctors treat patients. We built a 1% position in Nuance after attending its comprehensive investor day. Our view is that if Nuance can successfully grow its voice-recognition software in doctor’s offices, it could be worth multiples of our cost basis. Microsoft’s acquisition eliminated the multi-bagger upside but also partially validates the belief that Nuance is a high-quality technology company. We exited Nuance with a 62% gain in less than a year. This example is representative of the slight adjustments we made to our portfolio construction. We will allocate to small bets on technology and high-growth companies that could increase our exposure to “right tail” upside. Rest assured that our focus is still roughly 50% real estate, 30% high-quality companies trading at cheap multiples of free cash flow, and the rest in investments with the potential for growth and higher upside.”
4. Five9, Inc. (NASDAQ:FIVN)
Water Island Capital Stake Value: $109,709,000
Percentage of Water Island Capital’s 13F Portfolio: 6.31%
Number of Hedge Fund Holders: 76
Five9, Inc. (NASDAQ:FIVN) is a company that sells cloud contact center software. On February 1, William Blair analyst Matt Stotler initiated coverage of Five9, Inc. (NASDAQ:FIVN), rating the stock as “Outperform”. According to the analyst, Five9 has a remarkable capability to support and grow client connections.
John Orrico’s Water Island Capital initiated a new stake in Five9, Inc. (NASDAQ:FIVN) in the third quarter of 2021, buying 686,798 shares of the company worth $109.71 million. Panayotis Takis Sparaggis’ Alkeon Capital Management is the biggest stakeholder of Five9, Inc. (NASDAQ:FIVN) among the funds tracked by Insider Monkey, with 3.01 million shares worth $480.68 million.
Hedge funds are loading up on Five9, Inc. (NASDAQ:FIVN), as Insider Monkey’s data shows that 76 hedge funds held a stake in the company as of the end of the third quarter of 2021, up from 45 funds in the preceding quarter.
ClearBridge Investments, an investment management firm, had this to say about Five9 in its first-quarter 2021 investor letter:
“Five9 is a cloud-based contact center as a service software provider that is replacing aging on-premise legacy solutions that dominate the installed base. Companies are being forced to modernize and cloud penetration is still low; Five9 is positioned to benefit and should see further growth driven by its cross-selling add-on modules and an AI product that generates high revenue.”
3. Kansas City Southern (NYSE:KSU)
Water Island Capital Stake Value: $123,354,000
Percentage of Water Island Capital’s 13F Portfolio: 7.1%
Number of Hedge Fund Holders: 59
In December 2021, Canadian Pacific Railway Limited (NYSE:CP) acquired Kansas City Southern (NYSE:KSU) for $31 billion. On January 27, Canadian Pacific Railway Limited (NYSE: CP)’s fourth-quarter EPS came in at C$0.95, below the estimates by C$0.02.
On December 20, Evercore ISI analyst Jonathan Chappell initiated coverage of Canadian Pacific Railway Limited (NYSE:CP), upgrading the stock to “Outperform” from “In-Line”, and giving it a price target of $85 after the company’s proposed merger with Kansas City Southern (NYSE:KSU).
At the end of the third quarter of 2021, 59 hedge funds tracked by the database of Insider Monkey held stakes worth $4.32 billion in Kansas City Southern (NYSE:KSU), down from 61 in the preceding quarter totaling $3.30 billion.
In its first-quarter 2022 investor letter, Miller/Howard Investments discussed Kansas City Southern (NYSE:KSU), detailing its stance on the firm. Here is what the fund said:
“Canadian Pacific Railway (CP) agreed to acquire Kansas City Southern (KSU) in the largest rail deal in over a decade. The merger will create the first rail network connecting Canada, the US, and Mexico, and it should benefit from the passage of the USMCA Trade Agreement. We initiated a position in KSU in Q4 as we expected it to benefit from growing North American trade and viewed it as a consolidation candidate.”
2. IHS Markit Ltd. (NYSE:INFO)
Water Island Capital Stake Value: $133,995,000
Percentage of Water Island Capital’s 13F Portfolio: 7.71%
Number of Hedge Fund Holders: 64
IHS Markit Ltd. (NYSE:INFO) serves customers in the business, financial, and government sectors by providing information, analytics, and solutions. On January 21, IHS Markit Ltd. (NYSE:INFO) posted earnings for the third quarter of $0.85 per share, beating market estimates by $0.01. In addition, revenue for the quarter was $1.18 billion, up by 6.3% from the previous year’s third-quarter revenue.
On January 24, BMO Capital analyst Jeffrey Silber trimmed his price target on IHS Markit Ltd. (NYSE:INFO) to $118 from $142 and reiterated a “Market Perform” rating on the shares. Silber stated that his reduced target price reflected the projected acquisition value of S&P Global (NYSE:SPGI).
The number of hedge funds tracked by Insider Monkey having stakes in IHS Markit Ltd. (NYSE:INFO) grew to 64 in Q3, from 61 in the preceding quarter. These stakes hold a consolidated value of $6.72 billion, up from $5.95 billion.
In its Q1 2021 investor letter, Artisan Partners mentioned IHS Markit Ltd. (NYSE:INFO). Here is what the fund said:
“We ended our campaign in IHS Markit. IHS Markit is a global provider of information services to the financial services, automotive and energy sectors. Since beginning our investment campaign in 2009, we have been attracted to the company’s position relative to the meaningful secular tailwind driving demand for data and analytics to help guide business decisions. The company announced in Q4 it is merging with S&P Global, one of the largest credit ratings agencies globally and a provider of benchmarks, data and analytics to the global capital and commodities markets. We believe the combination provides a good level of cost and revenue synergies which will help drive profit growth, and S&P Global has a solid track record of acquiring and integrating new businesses. However, we exited our position as the combined entity will be well beyond our mid-cap market cap mandate.”
1. Willis Lease Finance Corporation (NASDAQ:WLFC)
Water Island Capital Stake Value: $138,033,000
Percentage of Water Island Capital’s 13F Portfolio: 7.94%
Number of Hedge Fund Holders: 2
Willis Lease Finance Corporation (NASDAQ:WLFC) is a company that specializes in commercial aircraft and aircraft engines. Water Island Capital added Willis Lease Finance Corporation (NASDAQ:WLFC) to its portfolio in the third quarter of 2021 by purchasing 593,794 shares.
Out of the hedge funds being tracked by Insider Monkey, Water Island Capital is a leading shareholder of Willis Lease Finance Corporation (NASDAQ:WLFC). It was one of the only two hedge funds monitored by Insider Monkey that were bullish on Willis Lease Finance Corporation (NASDAQ:WLFC) as of the end of the third quarter of 2021. The stakes of those two funds are valued at $150.98 million.
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