In this article, we discuss the top 8 stock picks of Michael Sidhom’s Immersion Capital. If you want our detailed analysis of Michael Sidhom’s history, investment philosophy, and hedge fund performance, go directly to the Top 3 Stock Picks of Michael Sidhom’s Immersion Capital.
Michael Sidhom has been the managing partner at Immersion Capital, a London-based asset management and investment firm, since October 2014. He manages an impressive portfolio of managed 13F securities, valued at $1.03 billion. His portfolio is immensely concentrated on the information technology and communications sectors.
The largest holding in Sidhom’s 13F portfolio is Facebook, Inc. (NASDAQ:FB) as of the end of the second quarter of 2021, with an approximate stake value of $340.8 million.
Before joining Immersion Capital, Sidhom was the principal and managing director at Ziff Brothers Investments, a private family investment firm in New York City. Sidhom was responsible for their European division, where he managed a multibillion-dollar equities portfolio from 2005 to 2014. Previously, Sidhom was an associate at Morgan Stanley (NYSE:MS), from 2001 to 2005. This was where he started his career in finance, after graduating from the University of Cambridge, with a Bachelor’s degree in 2001.
At the end of June, Sidhom sold out of Airbnb, Inc. (NASDAQ:ABNB) completely, while reducing holdings in Microsoft Corporation (NASDAQ:MSFT) and Facebook, Inc. (NASDAQ:FB) by 1.03% and 0.02%, respectively.
Sidhom’s 13F portfolio comprises stocks that are immensely popular among individual investors and hedge funds alike. Some of the most notable stock picks of Michael Sidhom’s Immersion Capital are Facebook, Inc. (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and Netflix, Inc. (NASDAQ:NFLX), among others discussed extensively below.
Why should we pay attention to hedge fund sentiment while choosing stocks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here are some of the top stock picks of Michael Sidhom’s Immersion Capital. We used Immersion Capital’s 13F portfolio for the second quarter of 2021 to rank these stocks. The list was compiled according to the value of each holding in the investment portfolio.
The analyst ratings for each company are also discussed to provide readers with some more context about their investment decisions. The hedge fund sentiment around each stock was gauged using the data of 873 hedge funds tracked by Insider Monkey.
Top Stock Picks of Michael Sidhom’s Immersion Capital
8. Visa Inc. (NYSE:V)
Immersion Capital’s Stake Value: $3,617,000
Percentage of Immersion Capital’s 13F Portfolio: 0.34%
Number of Hedge Fund Holders: 162
Visa Inc. (NYSE:V) is an American multinational financial services company, headquartered in California.
Sidhom’s Immersion Capital owns 15,470 shares in Visa Inc. (NYSE:V), worth $3.61 million at the end of June.
As of the end of Q2, 162 hedge funds in Insider Monkey’s database reported owning stakes in Visa Inc. (NYSE:V), down from 164 in Q1.
The company reported earnings on October 26. The EPS was $1.49, up $0.14 as compared to estimates. Visa Inc. (NYSE:V)’s revenue was $6.56 billion, exceeding estimates by $45.89 million.
On October 27, JPMorgan analyst Tien-tsin Huang kept an Overweight rating on Visa Inc. (NYSE:V), raising the price target from $267 to $277.
Visa Inc. (NYSE:V) is one of Michael Sidhom’s top stock picks, just like Facebook, Inc. (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and Netflix, Inc. (NASDAQ:NFLX).
“Visa Inc. faced pressure as some believe these “old payment infrastructure” businesses will be disrupted by newer fintech companies using blockchain, buy now, pay later (BNPL), or other innovations to provide better/cheaper payment services. However, we believe that some of these technologies have meaningful limitations which could benefit existing payment networks. For example, BNPL transactions are often funded with cards and turn a one-time transaction into many smaller ones with more transaction fees for Visa. Just like with regulation, we continually monitor for competition and technological disruption. As of now, we do not see a significant risk in the foreseeable future to this company.”
7. Uber Technologies, Inc. (NYSE:UBER)
Immersion Capital’s Stake Value: $3,959,000
Percentage of Immersion Capital’s 13F Portfolio: 0.38%
Number of Hedge Fund Holders: 135
Another top stock pick by Michael Sidhom is Uber Technologies, Inc. (NYSE:UBER), a mega corporation that has transformed the face of transportation, making it feasible for millions with its mobility-as-a-service business model.
Immersion Capital holds stakes valued at $3.95 million in Uber Technologies, Inc. (NYSE:UBER), representing 0.38% of Sidhom’s Q2 portfolio.
At the end of June, 135 hedge funds in Insider Monkey’s database were bullish on Uber Technologies, Inc. (NYSE:UBER), up from 130 in the previous quarter.
“The pandemic has also brought attention to the question of gig worker employment status for companies, including ClearBridge holdings Uber and Lyft. In the U.K., Uber proactively classified its drivers as “workers” ahead of final rulings from the British court system. The worker status in the U.K. is a designation between self-employed and employed status that entitles drivers to minimum wage, holiday pay and in some cases a pension.
ClearBridge has engaged with Uber on labor issues since its IPO, and we have given feedback over that time to the CEO, CFO, Chief Legal Officer and Investor Relations on labor relations as well as strategy and communications. Uber’s agreement on this designation is ahead of other competitors in the market and the legal mandate represents a step forward in the company’s thinking about labor. The agreement represents a short-term hit to earnings, yet in some ways it places Uber ahead of the market in its ability to balance labor and shareholder interests. Workers benefit from improved conditions, with new contributions amounting to roughly 3% of a driver’s earnings, while Uber establishes more certainty on costs and visibility into its regulatory environment and operation conditions in the future.”
6. ServiceNow, Inc. (NYSE:NOW)
Immersion Capital’s Stake Value: $76,401,000
Percentage of Immersion Capital’s 13F Portfolio: 7.36%
Number of Hedge Fund Holders: 91
ServiceNow Inc. (NYSE:NOW) is an American software company specializing in cloud based platforms that help enterprise level firms manage their business operations efficiently.
Sidhom’s Immersion Capital owns 139,025 shares in ServiceNow Inc. (NYSE:NOW), amounting to $76.4 million, and making up 7.36% of Sidhom’s 13F portfolio.
At the end of the second quarter of 2021, 91 hedge funds in Insider Monkey’s database held stakes amounting to $7.01 billion in ServiceNow Inc. (NYSE:NOW), up from 98 in the previous quarter with stakes worth over $6.13 billion.
The company reported third quarter’s earnings per share of $1.55 on October 27, beating analysts’ consensus estimates by $0.16. ServiceNow Inc. (NYSE:NOW)’s revenue was $1.51 billion, exceeding analysts’ expectations by $33.34 million.
Here is what Baron Opportunity Fund has to say about ServiceNow, Inc. (NYSE:NOW) in their Q1 2021 investor letter:
“We believe short-term focused investors and consensus often miss the longer-term strength and durability of growth and business-model efficiency (earnings and free cash flow margins) of truly special businesses. An example of this is ServiceNow, a SaaS-industry leader and pioneer, and a long-time Fund investment. As shown in the table below, over the seven years from March 2014 through March 2021, ServiceNow experienced eight multiple declines that averaged –32%, ranging from a low of –19% to a high of –52%.
But during that period, ServiceNow demonstrated compounding revenue performance and stronger operating leverage and FCF generation than expected by consensus. The table below shows the first quarter 2014 projections of one of the top software analysts on the Street, Keith Weiss of Morgan Stanley, versus what ServiceNow achieved.
As you can see, over this three-year period, ServiceNow beat revenue expectations by $315 million, or 29%, and generated FCF margins of 23%, trouncing estimates by $186 million, or 138%.The compounding effects of seven years of strong revenue growth and FCF generation drove ServiceNow’s share price to increase from $70.03 on March 5, 2014 to $500.11 on March 31, 2021, a 32% annualized return. A 7-bagger!
ServiceNow delivered these point-a-to-point-b returns despite the eight multiple pullbacks described above, including the one that occurred towards the end of the first quarter. The power of faster-for-longer, cash-generative business models.”
5. Netflix, Inc. (NASDAQ:NFLX)
Immersion Capital’s Stake Value: $127,346,000
Percentage of Immersion Capital’s 13F Portfolio: 12.27%
Number of Hedge Fund Holders: 113
The next top stock in Michael Sidhom’s Q2 portfolio is Netflix, Inc. (NASDAQ:NFLX), an online streaming service and an original programming production company.
Sidhom’s Immersion Capital owns 241,090 shares in Netflix, Inc. (NASDAQ:NFLX), amounting to $127.34 million. This accounts for 12.27% of Sidhom’s Q2 portfolio.
As of the end of the second quarter of 2021, 113 hedge funds tracked by Insider Monkey were long Netflix, Inc. (NASDAQ:NFLX), with reported stakes of $13.2 billion, down from 110 in the previous quarter with stakes worth $14.1 billion.
On October 19, the company reported earnings for the third quarter. The EPS for Netflix, Inc. (NASDAQ:NFLX) was $3.19, exceeding estimates by $0.63. The revenue exceeded analysts’ estimates by $0.16 million at $7.48 billion.
“Netflix stock had a disappointing first half of 2021 performance, treading water while the S&P 500 rallied, after a very strong 67% return in 2020. It benefited from the global pandemic in 2020, signing on 36.6 million new subscribers vs the typical 25 million or so it typically does. Total subscribers exceeded 200 million, up 22% over the previous year. However, in the first half of 2021, new subscriber additions slowed substantially, totaling only 5.5 million due to slower new content additions impacted by production delays, a resumption of outdoor activity as people everywhere adjusted to living with COVID, and the impact of a “pull-forward effect” on subscriber growth in last year’s very strong results. The third quarter saw new content velocity start to pick up, which is usually what drives new subscribers to the service, with expectations of an even stronger content slate going into the final quarter of the year, causing the stock to increase 15% in the quarter.”
4. Microsoft Corporation (NASDAQ:MSFT)
Immersion Capital’s Stake Value: $132,584,000
Percentage of Immersion Capital’s 13F Portfolio: 12.77%
Number of Hedge Fund Holders: 238
Microsoft Corporation (NASDAQ:MSFT) is an American multinational tech mega corporation, offering computer software, consumer electronics, personal computers, and related services. The company is best known for Microsoft Windows, the Microsoft Office suite, Internet Explorer, and Microsoft Edge browsers.
Out of the 873 hedge funds in Insider Monkey’s extensive database, 238 funds were long Microsoft Corporation (NASDAQ:MSFT), with stakes worth $62.46 billion at the end of June, down from 251 in the previous quarter, with a total stake value of $58.9 billion.
Here is what Alger has to say about Microsoft Corporation (NASDAQ:MSFT) in its Q3 2021 investor letter:
“Microsoft Corporation was among the top contributors to performance during the third quarter. Microsoft is a Positive Dynamic Change beneficiary of corporate America’s transformative digitization. Microsoft’s enterprise cloud product, Azure, is rapidly growing and accruing market share. Microsoft reported that Azure grew 51% in the second quarter. This high unit volume growth is a primary driver of the company’s higher share price, but the company’s strong operating execution has enabled margin expansion that has also helped to increase forward earnings estimates. We believe Microsoft’s subscription-based software offerings and cloud computing services have a durable growth profile because they enhance customers’ growth initiatives and help them to diminish costs. Additionally, investors appreciate Microsoft’s strong free cash flow generation and its return of cash to shareholders in the form of dividends and share repurchases.”
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Disclosure: None. Top 8 Stock Picks of Michael Sidhom’s Immersion Capital is originally published by Insider Monkey.
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