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L/S boutique founder names three stocks to back in 2020
The past year proved tough for fund managers focused on the US small-cap market, according to Christopher Hillary, who believes several out-of-favour names could come back into play.
Citywire + rated Hillary runs the Prosper Stars & Stripes fund, which is a Ucits-compliant version of the flagship hedge fund from his Denver-based boutique Roubaix Capital.
Speaking to Citywire Selector, Hillary said, ‘We feel that a number of our most compelling investment ideas – for whatever sort of reasons – haven’t played out and, in a year, where we would have liked to see more play out.
‘We are particularly enthusiastic about a number of our largest positions and so simply a function of those stocks moving or progressing along their continuum and the value of those equities coming up is quite strong next year.’
Park Aerospace: set to fly
One of the first ideas Hillary is favourable on is advanced materials company Park Aerospace, which is the single largest long holding at 5.6%. He said it has benefitted from its manufacturing deal with the Airbus 320 Neo platform but remains undervalued.
‘It is a classic example of what we look for, which is an undiscovered, under-followed stock. There is no sell-side research or Wall Street research. In this day and age, where the markets are dominated by indices and non-fundamental investors, I believe this is one of these examples that just hasn’t gotten the right amount of attention to appreciate and value the strong earnings potential that is there.’
TransMedics: resuscitate performance
The second rebound stock on Hillary’s watchlist is TransMedics (4.6%), which has been overlooked by the market. It has a commercially available organ care system that allows the supply of organ donations to increase ten-fold. Hillary said, however, that it had a terrible performance in share price and is now looking to recover.
‘It is a business model that allows payment-per-transplant. They are commercial with one organ. They want by 2020 to be commercial with heart transplants, which is obviously quite exciting, and then add liver transplants.’
‘The company was able to use a heart from a deceased patient and successfully transplant that to a patient in need. Historically you wouldn’t use the organs of a deceased patient as you couldn’t be sure of the health of their organs, so this is pretty exciting.’
Rogers: ready for lift-off
The third stock pick that Hillary hopes will reverse a difficult 2019 is Rogers, which is an electric components company that accounts for a roughly 4% long position. Hillary believes the company is exceptionally well positioned for the onset of the Internet of Things (IoT) and increased 5G rollout.
‘While there was some disruption with Huawei, they have a market share of around 80% compared to all of the providers. So, 80% is a ringing commercial endorsement of the performance and quality of their products.’
‘They have very high share in these various automotive applications currently, where they might get something like $1 per car. But, as you add more sophisticated safety systems, that goes from $1 to $10. For electric vehicles in Europe, you can see the commitments that mean $20 to $25 per car for Rogers.’
‘That makes it a compelling choice, and it is hard to see companies that have such access to rapid trends such as vehicle safety and the electrification of the market. Then, in the case of wireless communications and IoT, they are a primary beneficiary.’
“In performance, Hillary sits top quartile in the Alt Ucits – Equity Long/Short sector for his three-year returns on the Prosper Stars and Stripes fund. He returned 6.1% to the end of November 2019, while the average fund in his sector returned 2.9%.”
Reporting (EN)
Publication – Citywire Selector – January 6th, 2020
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