White Falcon Capital Management, an investment fund manager, released its second quarter 2024 investor letter. A copy of the letter can be downloaded here. It was a difficult quarter for the fund. In the second quarter, the fund returned -5.9% compared to a 5.3% return for the S&P 500 (CAD), 3.7% for the MSCI All Country (CAD), and -0.5% for the S&P TSX TR. In addition, please check the fund’s top five holdings to know its best picks in 2024.
White Falcon Capital Management highlighted stocks like EPAM Systems, Inc. (NYSE:EPAM), in the second quarter 2024 investor letter. EPAM Systems, Inc. (NYSE:EPAM) is a digital platform engineering and software development services provider. The one-month return of EPAM Systems, Inc. (NYSE:EPAM) was 5.58%, and its shares lost 23.12% of their value over the last 52 weeks. On September 5, 2024, EPAM Systems, Inc. (NYSE:EPAM) stock closed at $204.00 per share with a market capitalization of $11.615 billion.
White Falcon Capital Management stated the following regarding EPAM Systems, Inc. (NYSE:EPAM) in its Q2 2024 investor letter:
“This was a difficult quarter. The negative performance of Endava, EPAM Systems, Inc. (NYSE:EPAM) and Converge could not be offset by strength in Amazon.com, Nu Holdings and precious metal royalty companies. The portfolio was affected by middling earnings and guidance downgrades from our IT services and software positions as corporates prioritize Artificial Intelligence (AI) related IT spending. The market itself had an excellent first half but we must point out that a lot of these gains were led by a few select stocks with the equal weighted S&P 500 up about 5.1% in the first half of the year. Towards the conclusion of this letter, we elaborate on why we perceive the current environment to be similar to the 1970s rather than the late 1990s.
Our portfolio is heavily tilted towards technology companies. Technology, whether in the form of railroads, electricity, radio, motor vehicles, or the internet, has consistently had the potential to disrupt existing industries and create entirely new ones. We have learned through experience that investing becomes marginally easier, and far more profitable, when done in secularly growing and good quality businesses – as long as one pays attention to valuations.
Due to this, we have positioned ourselves in businesses such as EPAM and Endava which are IT services companies that help other corporations implement new technologies. These are good quality businesses with robust economics and are led by their founder CEOs. Currently, AI is the new technology trend and investor emphasis has been on investing in hardware to support AI capabilities. As the necessary hardware becomes more widespread, the focus will likely shift towards creating and optimizing AI applications. EPAM and Endava will benefit from this cycle as they have built a reputation for executing specialized and complicated IT projects. However, AI is still a new technology, and clients need time to identify the best use cases. This has led to a cautious “wait and see” approach from clients, which is currently suppressing demand for IT services. The timing of demand revival in the sector is uncertain and, as we have discussed before, the market hates uncertainty.
We believe the market has overreacted and EPAM and Endava are now trading at historically low multiples of depressed earnings. Eventually, corporations will need the help of EPAM and Endava in order to design, build, test, and implement AI applications. We have added to both stocks and lowered our cost basis, which we anticipate will enhance the overall internal rate of return (IRR) of the portfolio.”
A close-up of a coder at a computer, coding away to bring the latest software service to life.
EPAM Systems, Inc. (NYSE:EPAM) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held EPAM Systems, Inc. (NYSE:EPAM) at the end of the second quarter which was 43 in the previous quarter. EPAM Systems, Inc. (NYSE:EPAM) generated revenue of $1.147 billion in the second quarter, down 2% year-over-year. While we acknowledge the potential of EPAM Systems, Inc. (NYSE:EPAM) 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 EPAM Systems, Inc. (NYSE:EPAM) and shared the list of mid-cap tech companies in the US. In addition, please check out our hedge fund investor letters Q2 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.
