Investing

Fund Managers Loading the Boat on 5 Small-Cap Growth Winners

Lee Jackson

Published: April 25, 2018 10:25 am

Last Updated: January 12, 2020 12:30 am

To say that hedge fund and mutual fund managers tend to follow the herd is an incredible understatement and always has been. While publicly they sometimes seem reluctant to discuss their holdings, especially stocks they short, the reality is managers tend to talk among themselves as they run in the same circles. Often those discussions are centered around their portfolios and what is in them.

In a recent Jefferies report, superb equity strategist Steven DeSanctis breaks down the top holdings in not only all three market capitalization groups — large cap, mid-cap and small cap — but also into core, growth and value categories.

Here are the top five holdings of small-cap growth managers.

Proofpoint

This company has long been mentioned as a potential takeover candidate and it is also a top pick across Wall Street. Proofpoint Inc. (NASDAQ: PFPT) provides threat protection, incident response, regulatory compliance, archiving, governance, eDiscovery and secure communication solutions worldwide. Its security-as-a-service solutions comprise an integrated suite of on-demand data protection solutions that enable large and midsized organizations to defend, protect, archive and govern their sensitive data.

The company provides Proofpoint Enterprise Protection, a communications and collaboration security suite designed to protect customers’ mission-critical messaging infrastructure from outside threats, including spam, phishing, unpredictable email volumes, malware and other forms of objectionable or dangerous content before they reach the enterprise.

E-mail protection remains a top priority for many companies, and this is a distinct positive for Proofpoint. The company recently entered into definitive agreement to acquire Cloudmark for $110 million in cash, which strengthens its industry-leading investment in messaging security and threat intelligence.

A whopping 47.1% of manager’s own shares of this top security company, and with good reason. Threats continue to grow, as do the skills of the purveyors of those threats.

The Wall Street consensus price target was last seen at $123.41. The stock traded early Wednesday at $120.55 a share, in a 52-week range of $74.42 to $127.35.

HealthEquity

This stock has been on fire this year, up almost 50% since the first of January. HealthEquity Inc. (NASDAQ: HQY) provides a range of solutions for managing health care accounts, including Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs), for health plans, insurance companies and third-party administrators.

Health Equity offers technology-enabled services platforms that allow consumers to make health care saving and spending decisions. Its platform provides an ecosystem in which consumers can access their tax-advantaged health care savings, compare treatment options and pricing, evaluate and pay health care bills, receive personalized benefit and clinical information, earn wellness incentives and make educated investment choices to help in their tax-advantaged health care savings. Its products and services include health care saving and spending platform, health savings accounts, investment advisory services, reimbursement arrangements and health care incentives.

Portfolio managers love this company, and 45.9% have the stock in their portfolios, according to the report.

The posted consensus price objective is $67.27. The shares traded at $64.50 Wednesday morning. The 52-week trading range is $40.21 to $68.75.

HubSpot

This stock has had a solid run since selling off late last year. HubSpot Inc. (NYSE: HUBS) is a cloud-based provider of inbound marketing tools such as website content management, blogging tools, email campaign, search engine optimization, social media monitoring and management, CRM and others for small businesses and mid-sized companies.

The company’s tools provide a single console for marketing professionals to generate new customer leads, convert leads to customers and customers to repeat customers.

This is a top technology holding among the managers in the survey, and the Jefferies report notes that 39.5% of those surveyed own shares in their portfolios.

The Wall Street consensus price target is set at $105.88. The stock was last seen at $101.55 a share, in a 52-week trading range of $62 to $124.45.

24/7 Wall St.
SunTrust Stays Very Cautious on Semiconductors: Just 5 to Buy Now

Wageworks

This stock has been hit hard this year and is offering investors a very good entry point. Wageworks Inc. (NYSE: WAGE) is engaged in administering consumer-directed benefits (CDBs). The company administers CBDs, including pretax spending accounts, such as HSAs, health and dependent care FSAs and HRAs, as well as commuter benefit services, including transit and parking programs, wellness programs, Consolidated Omnibus Budget Reconciliation Act (COBRA) and other employee benefits.

Employers financially benefit from its programs through reduced payroll taxes. It provides operational support services to its clients and its cross-functional teams, including customer support and claims processing.

Despite the beating the shares have taken since the beginning of the year, 39.2% of portfolio managers at funds hold the stock, and it is a good bet many have added shares as the company got hit.

The $77 consensus price objective compares with a recent share price of $43.85 and a 52-week trading range of $38.40 to $76.55.

Medidata Solutions

This stock has been caught in a trading range since last fall and could be ready to make a move higher. Medidata Solutions Inc. (NASDAQ: MDSO) is a global provider of a platform of cloud-based solutions for life sciences, enabling efficiency and quality throughout clinical development programs, aimed at accelerating processes, enhancing decision-making, minimizing operational risk, saving resources and enabling transformational trial strategies.

The company’s customers are pharmaceutical, biotech and medical device companies; academic institutions; contract research organizations; and other organizations engaged in clinical testing.

With its clear bias for technology and health care, 39% of fund managers also own this company.

The posted consensus price objective is $78.90. The stock was changing hands at $70.95. The 52-week trading range is $59.60 to $89.72.

These five top small-cap growth plays are better suited for aggressive accounts. With earnings still to come, and some of them trading close to 52-week highs, it may make sense for investors interested in owning shares to buy partial positions now and see how the first-quarter results fare.