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More QV portfolio stocks to buy now plus six newcomers

June 1, 2020

As the chart above illustrates you can’t keep technology stocks down. Despite a pandemic sweeping the world with catastrophic effects on employment levels the sector is close to reaching a new all-time high. It turns out that for technology shares not only is working from home no problem, many companies adapted in days and like it so much they may continue with extensive home working even in a post Covid-19 environment that it may even be boosting demand for their services.

My feeling is that the sector is on fire. Every business in the world is adopting more online strategies, which is creating an explosion of demand for a limited supply of technology expertise. Sales and even profits (for companies which make such old school things), were growing strongly before working at home became widespread. Growth for many companies may now accelerate and there is plenty of room to grow.

One amazing statistic illustrates what could happen. In China e-commerce accounts for 54pc of consumer spending. The equivalent figure in the west is 11.4pc. They are way ahead of us. This is partly because the physical infrastructure did not exist. I have never heard of a Chinese Walmart. Even so I am not surprised to hear that Amazon expects to retain 70pc of the 175,000 new hires it made to deal with the demand created for online shopping by the pandemic, on a permanent basis.

Below is a list of shares from the QV table to buy now. It is by no means exhaustive – just some ideas. There are loads of other stocks in the list that I like. The average gain on all the stocks in the table is over 35pc so we are killing it as regards performance and I am very hopeful that we are just getting started.

Abcam/ ABC On-line antibody sales Buy @ 1505p Next figures: 9 September

Alteryx/ AYX Data science and analytics Buy @ $143.94 Next figures: 29 July

Avalara/ AVLR Sales tax automation Buy @ $107.06 Next figures: 6 August

Cadence Design Systems/ CDNS Electronic design automation Buy @ $91.29 Next figures: 22 July

Fiverr International/ FIVR Online marketplace for freelance services Buy @ $65 Next figures: 6 August (new entry)

Frontier Developments/ FDEV Video games developer Buy @ 2066p Next figures: 4 September

Halma/ HLMA Life saving technology Buy @ 2300p Next figures: 20 July

Hermes International/ RMS Luxury accessories Buy @ €743.5 Next figures: 30 July

Hilton Food Group/ HFG Global food packaging Buy @ 1250p Next figures: 10 September (new entry)

Intuitive Surgical/ ISRG Robotic surgery Buy @ $580 Next figures: 21 July

Keywords Studios/ KWS Global services for video games Buy @ 1800p Next figures: 18 September

Lululemon Athletica/ LULU Yoga and sportswear retailer Buy @ $300 Next figures: 11 June

MarketAxess/ MKTX Electronic trading platform for bonds Buy @ $508 Next figures: 22 July

MercadoLibre/ MELI E-commerce in Latin America Buy @ $851 Next figures: 31 July

Okta/ OKTA Online identity and access management Buy @ $195.50 Next figures: 5 September

Paypal/ PYPL Worldwide online payments Buy @ $155 Next figures: 22 July

Pinduo/ PDD E-commerce in China Buy @ $66.87 Next figures: 27 August

Ringcentral/ RNG Cloud-based communications Buy @ $274 Next figures: 29 July

S&P Global Inc./ SPGI Financial information and analytics Buy @ $325 Next figures: 23 July

Sea Limited/ SE SE Asia’s largest Internet business Buy @ $79.80 Next figures: 25 August (new entry)

Smartsheet/ SMAR Work management software Buy @ $57.50 Next figures: 4 June

Spirax-Sarco Engineering/ SPX Steam management systems Buy @ 9850p Next figures: 12 August

Splunk/ SPLK Machine-generated big data analytics Buy @ $185.50 Next figures: 20 August

Synopsys/ SNPS Electronic design automation Buy @ $180.50 Next figures: 19 August (new entry)

Tyler Technologies/ TYL Public sector software Buy @ $375 Next figures: 22 July

Veeva Systems/ VEEV Software for pharma and life sciences Buy @ $218.50 Next figures: 27 August

Verisk Analytics/ VRSK Data analytics & risk assessment Buy @ $172.5 Next figures: 4 August (new entry)

Zendesk/ ZEN Customer service software Buy @ $85.75 Next figures: 4 August

Zoom Video Corporation/ ZM Video conferencing Buy @ $179.48 Next figures: 5 June

Zscaler/ ZS Cloud security Buy @ $98 Next figures: 2 September

Newcomers

Fiverr International, which provides a platform for freelancers and customers to make contact with each otherGMV, is on fire.
“For buyers, Fiverr is a place to build and expand their online presence even if they don’t have the skills or tools to do so themselves. It is a place to find the team and collaborate even when hiring an employee becomes impossible. And it is a place for businesses to get more things done with more efficient budgets and resources. For sellers, Fiverr is an increasingly important source of income as we enable them to find remote work opportunities, engage with their clients and deliver digital services all without leaving their homes.
In our COVID-19 update to shareholders in early April, we mentioned how our business experienced a brief period of volatility in mid-March and quickly rebounded and resumed strong growth within a couple of weeks. Since then, we have continued to gain significant momentum every week across all cohorts, all verticals and all geographies. Weekly GMV [gross merchandise volume] on our core marketplace has accelerated on a year-over-year basis for every week in April for a total of six consecutive weeks since mid-March. We hit all-time daily revenue records four times in April, despite the fact that April typically is not a seasonally strong month with Easter holidays.
All of our existing cohorts have rebounded strongly from March volatility, not only back to their historical pattern of contributing a consistent stream of revenue, but also beyond those levels with increasing revenues. We believe this resiliency underscores the loyalty of our existing buyer base.
We are also experiencing a strong uplift on new buyer acquisition, driven by an unprecedented jump in organic awareness and attractive opportunities in performance marketing. All verticals have rebounded with similar trends to the overall market pace. And we have seen particular strength in categories related to moving businesses from off-line to online as well as digital content-related categories such as gaming, social media, online lessons and e-books.
Last but not least, we are seeing the strength of our business, not only in the U.S. but across the world, especially in several European countries where our timely investment in local expansion were in place right around the time when global stay at home orders intensified. Both new sellers’ and new buyers’ registration have been particularly strong in Spain and France in recent weeks.
I’m incredibly grateful and proud of the resilience, adaptability and dedication of our team across the world. Circumstances evolved rapidly. And not only did our team rise to the occasion in terms of executing numerous initiatives to help our buyers and sellers navigate through COVID-19, but they also succeeded in executing our existing road map, often ahead of schedule. Complex and groundbreaking products such as promoted gigs and machine translation to localise our user-generated content were successfully rolled out.
Beautiful marketing campaigns were created and executed even when everything in the original plan had to be scrapped due to the global travel bans. A record number of community events with a record number of global participants were hosted virtually during the quarter at the time when social distancing has cut down our human interaction everywhere.”

Hilton Food Group might seem an unlikely choice for a high-growth portfolio but there is no arguing with the performance. They are contract packers for large retailers and supermarkets around the world. They pack all the meat for Tesco.
“Over the past fifteen years we have invested continuously across all areas of our business, including the sourcing of raw materials, the design of packaging materials, increased efficiency in processing and storage solutions and updating our IT infrastructure. Group capital expenditure over the period 2003-2019 has totalled £435m.”
In 2019 they opened their largest factory yet in Brisbane and are moving into other areas like vegetables and sous vide (slow) cooking. Their business model is based on delivering incredible efficiency and rolling out that strategy across the globe – in effect they outsource logistics for supermarkets.

Sea Limited is the largest and fastest growing Internet business in South East Asia, an area with a population of nearly 600m people. The group has three divisions focused on video games, e-commerce and online payments in an area where most people have neither bank accounts nor credit cards. The opportunities are amazing and the company is growing extremely rapidly. The company recently reported strong quarterly results.
“Our communities are increasingly relying on our platforms during the pandemic. Our users are turning to Garena to enjoy interactive entertainment and socialise with their friends during the social isolation of the lockdown. Shopee is becoming a more integral part of the commercial ecosystem in each of our markets, with consumers now relying on our platform for their staples, daily essentials, and other consumption needs. At the same time, more sellers are migrating to, or relying more on, Shopee to sustain and grow their business. As our economies become more online and contactless, the digital payment and financial services that SeaMoney provides are becoming an ever more important part of the infrastructure in our region.
The coronavirus crisis is driving a step change in the growth of the digital economy globally, particularly in the markets and segments where Sea operates. It has materially accelerated a shift to online lifestyles that is broad, deep, and, in our view, irreversible. Building on our market leadership in some of the key and largest segments of the digital economy, we believe we are gaining – and will continue to gain – a disproportionate share of that growth. Our growth is also well supported by a strong balance sheet and cash flow from operations, and we will continue to invest in a highly prudent way to maximise efficiency.”
The balance sheet is even stronger now because the company has just raised $1bn in a convertible issue. It is already valued at some $25bn.

Synopsys has just reported a bumper quarter. “We substantially exceeded all of our key guidance metrics. Revenue was $861m with non-GAAP earnings of $1.22. Orders were substantially greater than our internal plan, driven primarily by digital design software and we continue to make good progress on our margin expansion goals. As a result of our first half strength and the resilience of our business, we are reaffirming our revenue and non-GAAP margin guidance for the year, while raising our non-GAAP earnings and cash flow targets.”
Prospects look equally outstanding. “Driven by the sudden need for bandwidth and compute-for-home, be it for work, schooling, or entertainment, advanced chip design is not slowing down. We’ve seen this continuous design activity in previous downturns. Regardless of where a company or industry is in its business cycle, continuous investment in new technologies, be they AI and machine learning, 5G, IoT, automotive or cloud end markets, is the best way to be ready when the economy turns up again.
Synopsys is at the core of this enablement. Combining that with our time-based business model, higher level of recurring revenue and a non-cancelable backlog of $4.8bn, Synopsys is well-positioned to withstand the uncertainties of today’s macro environment.”

Tyler Technologies is the largest software company in the United States that is solely based on providing integrated software and technology services to the public sector — states, cities, counties, and school districts.
“We had a very solid first quarter with a great deal of momentum going into the second half of March when we began to see the effects of the COVID-19 pandemic. The market was active, and we executed at a high level. This was our 34th consecutive quarter of double-digit revenue growth as GAAP revenues grew 11.9pc and non-GAAP revenues grew 11.3pc.”
As well as growing strongly the group is shifting rapidly to a cloud based SaaS (subscription as a service) model. “We continue to experience an increasing preference among clients for our cloud offerings as subscription arrangements represented 73pc of new contract value signed this quarter. This puts pressure on short-term revenue growth but generates higher revenues and margins over the long term. Non-GAAP subscription revenues grew 20.5pc. Subscription revenue growth has now exceeded 20pc for 11 consecutive quarters and 52 of the last 57 quarters. Total recurring revenues from maintenance and subscriptions grew 17.1pc on a GAAP basis, and comprised approximately 71pc of total revenues. It was another extremely strong quarter for bookings, which were up 39.8pc, our second consecutive quarter of greater-than-30pc bookings growth.”

Verisk Analytics is an American data analytics and risk assessment firm based in New Jersey with customers in insurance, natural resources, financial services, government, and risk management sectors. The company uses proprietary data sets and industry expertise to provide predictive analytics and decision support consultations in areas including fraud prevention, actuarial science insurance coverage, fire protection, catastrophe and weather risk, and data management.
When the pandemic began, the group which also has offices in China and Singapore “moved our roughly 9,000 colleagues into a full remote mode with no interruption of operations or service to our customers. We remain in that mode today.”
The company is really showing its worth in the crisis. “So where do we stand? First, our teams remain highly active and productive. Sales calls are up versus prior years. E-mail traffic is greater than it was prior to remote work. The use of collaborative digital platforms has increased substantially. And from a pulse survey of just a week ago, employee engagement is actually up at this moment relative to our customary high levels. And our customers continue to engage with our analytics and insights as visits to our portals across our three segments have increased as well.
Second, we’ve been active in bringing new value to our customers in the COVID-19 moment. In the insurance space, we have provided an innovative platform to claims departments, allowing them to settle claims in direct collaboration with insureds without requiring physical presence.”
Lastly, the group says “we have confidence that we can deliver growth again through COVID-19. And while there may be some short-term headwinds to growth, we believe our performance will reflect our long-term goal of growing EBITDA faster than revenue.”

As you can see I remain in aggressive mode as far as recommendations are concerned. We have an extraordinary combination of global economies recovering from widespread economic lockdown, massive spare capacity in the form of record levels of unemployment and innovation proceeding at an accelerating rate in areas like technology and health care, which are both becoming increasingly dominant features of the global economy and yet still have huge scope for further growth.

President Trump seems to be losing the plot completely, perhaps as a result of imbibing dangerous levels of neat disinfectant. Does it matter if the US president is one plank short of a full stack; maybe not. Sadly, I don’t see Joe Biden being a vast improvement even if he does win the November election. Thank goodness the US is a serious free enterprise economy, where entrepreneurs rule. All the government and the central bank need to do is throw vast sums of money at all parties and they will do what is necessary.

Amazingly, using the chart indicators that I follow, the Nasdaq Technology index, illustrated above, is still just shy of giving a new buy signal (a golden cross on the moving averages). Fortunately it was clear early on that the stay home economy was not a negative for technology shares so I have been positive on the fabulous crop of 3G+magic stocks in the QV for Shares portfolio since mid-March.

A new element is a serious shortage of appealing shares to buy. The pandemic has exposed many quoted companies as struggling to find a lasting role in a fast-changing world. Interest rates are at rock bottom levels. There are huge sums of money looking for a home. No wonder shares in successful 21st century businesses are racing higher.

There are always problems (think US/ China relations, the fossilised economies of state-strangled Europe or the latest evidence of a staggeringly out-of-touch police force in the US) and markets are volatile but if my belief is right that we are still early days in the greatest revolution (the technology revolution) since hunter gatherers became farmers and if the pace of that revolution is accelerating at an accelerating rate, there could be extraordinary fireworks to come.

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