Amid the current tough economic environment, investors are hesitant to invest in risky assets, causing certain sectors of the market to fall. Positive trends started to take off from the ground, post-coronavirus pandemic but in vain. The Russia-Ukraine conflict, inflationary pressures, labor issues, and supply crunch are some of the macroeconomic factors, which once again dropped investors into murky waters.
Extensive volatility in capital markets rose investor anxiety, which led S&P 500 (SPX) to drop around 14.75% year-to-date.
In such a gloomy scenario, it is difficult for investors to find stocks for long-term investments. Though every investor tries to conduct his own due diligence before adding stock to his portfolio, there are organizations known as hedge funds, one place to look for indications of upside. Investors can bank on these firms for insights to pick stocks.
Tiger Global Management is an investment firm, which focuses on both public and private corporations in the global Internet, software, consumer, and financial technology industries to generate investment returns over the long term. Founded in 2001 by Chase Coleman, Tiger Global manages discretionary assets worth about $124,655,466,641 and has a market value of $26.64 billion as of March 31, 2022. Coleman has a net worth of about $10.3 billion.
Interestingly, during the period between 2007 and 2017, New York-based Tiger Global was the most successful firm amongst venture capital firms acquiring the highest amount of capital, per a Preqin Venture Report. Additionally, in 2020, the firm provided returns of $10.4 billion, ranking itself among the annual list of the top 20 hedge fund managers.
However, 2022 so far has been a tough year for the hedge fund giant, with its long-only fund recording declines of 25% in April and a year-to-date loss of 52%, according to Bloomberg. This has reduced $17 billion in assets under management, with the fund experiencing a reduction of two-thirds of the cumulative gains made for investments since 2001, thanks to macroeconomic concerns.
However, prior to this slump, Tiger Global had successfully delivered consistent outperformance compared with the S&P 500 with the exception of two years since its inception. Therefore, investors might be hopeful about the fund as the firm has revised its portfolio in the first quarter of 2022, liquidating many of its tech stocks, which have seen a massive sell-off recently.
According to TipRanks, Coleman’s portfolio has gained 111.6% since June 2013 and averaged 11.01% over the past three years.
The question stands, however, how can this information be helpful for the everyday investor? Hedge funds are required to file a 13F filing with the Securities and Exchange Commission (SEC) every quarter. This discloses most long positions to the public, which inculcates transparency into the financial system and boosts investor confidence in the capital market system.
Taking all this into consideration, we take a look at two stocks, which were found to be worthy by Tiger Global for investments in the last quarter.
CrowdStrike Holdings, Inc. (CRWD)
CrowdStrike is a cybersecurity organization based in the United States that provides cloud-based systems to safeguard sensitive endpoints and prevent breaches, among other services.
With a market capitalization of $34.17 billion, CRWD stock is trading near 52-week lows and plunged 25.74% year-to-date on a massive recent sell-off in tech stocks as investors dived towards safe-haven assets from high-priced stocks on macroeconomic issues. Disappointingly, shares shrugged off 34.54% over the last month.
Nevertheless, with the growing popularity of cybersecurity providers as in the current era of digitization, network infrastructures have become highly exposed to cyberattacks, CrowdStrike expects to grow its annual recurring revenue (ARR) to more than $5 billion by Fiscal 2026.
Additionally, with the expansion of its total addressable market (TAM) with new services and increasing its market share, the company expects the TAM for its current portfolio to augment from $58 billion in 2022 to $71 billion in 2024 and unveiled new services to boost its TAM to $126 billion in 2025.
It seems that the sell-off has provided a much more attractive entry point to investors interested in the stock, with hedge funds buying in.
This past quarter, Tiger Global Management picked up 1.27 million shares of CRWD, amounting to a market value of $162.8 million. For Tiger Global, this was a 16% change in its holding position and indicates his confidence in the stock.
In line with Tiger Global’s bullish stance, recently, Alex Henderson, an analyst at Needham, maintained a Buy rating and a price target of $340 on the stock based on the company’s long-term growth prospects. Henderson’s price target implies 130.87% upside potential over the next 12 months.
Recommending investors to buy and hold these shares, the analyst said, “We recognize the potential for downdrafts in CRWD from time to time as the company moves with market swings given its high beta. We are long-term buyers of CRWD for multi-year out-performance. While a period of consolidation is possible, we think CRWD is a unique investment vehicle with exceptional long-term value potential.”
Turning to Wall Street, consensus among analysts is a Strong Buy based on 19 Buys versus one Hold. The average CrowdStrike price target of $276 implies 87.41% upside potential from current levels.
Sea Limited (SE)
Sea Limited is a Singapore-based internet and mobile platform company that offers digital content, e-commerce, gaming services, and payment platforms.
With a market capitalization of $44.9 billion and recording losses of more than 64% year-to-date, SE stock is trending towards its 52-week low price. The broad technology sell-off and troubles at Sea’s gaming unit (Garena) shook investor confidence. Nevertheless, based on operating leverage and efficiency gains at Sea’s e-commerce unit, Shoppee, and fintech unit, SeaMoney, the company fits into buying the dips strategy for long-term investors.
Also, at the recent earnings release, Forrest Li, Sea’s Chairman and Group Chief Executive Officer, said, “With the significant scale, strong leadership, and clear synergies achieved by both businesses in Southeast Asia and Taiwan, our consumer internet ecosystem in the region is naturally approaching a stage of long-term profitable growth.”
“While Garena experienced headwinds in its growth post-COVID, we saw some preliminary positive effects from our efforts to improve user engagement in Free Fire. In particular, the monthly user trends for Free Fire began to show some early signs of stabilizing toward the end of the first quarter,” Li added.
In Q1 2022, Tiger Global Management reflecting confidence in the stock bought 2.13 million shares of SE, increasing its holdings by 18%. This amounted to a market value of $172.06 million.
Recently, Stifel Nicolaus analyst Scott Devitt reiterated a Buy rating on SE but lowered the price target to $115 (43.37% upside potential) from $160 on lower-than-expected first-quarter results and continued macro uncertainty.
Nevertheless, Devitt commented, “Sea operates an established, profitable asset with its Garena segment that should help fund investments in its developing businesses (Shopee, payments) as they scale and gain market share. With leverage to strong emerging growth markets and leading market positions, we like the Sea platform, however, view risk/reward in shares as fairly balanced.”
In line with Devitt’s bullish stance, the stock has a Strong Buy consensus rating based on 15 Buys and two Holds. The average Sea price target of $185.71 implies 131.53% upside potential.
Bottom Line
Even historically-stable stocks do not appear safe at the moment in the recent volatile markets. Taking insights from hedge funds could prove to be a smart move for investors to make prudent investment decisions for potential long-term returns. CrowdStrike and Sea each show long-term prospects, despite their recent price action.
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