These ‘creative destruction’ actions are where you should look for winners now

The age-old battle between supporters of growth or value investing styles has intensified. But RiverPark Funds’ Mitch Rubin says any move to the value will be short-lived. Rubin, in an interview, said that successful portfolio allocation has little to do with economic factors, such as public spending, “and has everything to do with the forces of creative destruction brought on” by the COVID-19 pandemic.

“There are companies that are new or that have pivoted and are well positioned to dominate a world where digital first,” he said. “And there are those who have not adapted and will face severe secular headwinds.” Rubin added that some companies that have done especially well during the pandemic lockdown will not continue to grow rapidly for long after life returns to normal. Rubin is chief investment officer at RiverPark, which is based in New York and manages assets worth $ 3.8 billion. He manages the RiverPark Long / Short Opportunity Fund, rated five stars (highest) by Morningstar. The fund was described in this article in April 2020. Its goal is long-term growth, with downside and volatility tempered by what Rubin calls “tactical” short positions. You can see more about its performance below. To short a stock is to borrow your shares and sell them immediately, with the expectation of buying them back after they go down, returning them to the lender, and pocketing the difference. Rubin said he avoids betting against stocks that are already heavily undercut by other investors. This protected the fund from losses suffered by some institutional investors earlier this year when there was extraordinary interest in auctioning shares of GameStop Corp. GME, -1.00% and other stocks that had fallen out of favor. Long Positions Two examples of Rubin long investments named were Snap Inc. SNAP, + 2.91% and Pinterest Inc. PINS, + 1.37%. “For us, both are profitable, both have large cash balances and both are growing at extraordinary rates with expanding margins,” he said. Rubin noted the “dramatic” growth in user bases at both companies. He said there are long-term opportunities because of the potential to increase advertising revenue. “Both Snapchat and Pinterest are monetized [through advertising prices] with a discount on Facebook, which has a discount on Google, which has a discount on all other forms of media, such as television and newspapers, ”he said. Other long positions include Exact Sciences Corp. EXAS, + 1.32%, Illumina Inc. ILMN, + 1.37% and DexCom Inc. DXCM, + 1.69%. “They are all innovative healthcare companies that detect and manage diseases that are massively prevalent in society,” Rubin said. Some of Rubin’s long positions were taken due to falling prices. These included Charles Schwab Corp. SCHW, -0.61%, UnitedHealth Group Inc. UNH, + 0.06%, and Walt Disney Co. DIS, -0.71%. “The opportunity, if you were patient, was to buy big businesses for sale,” he said. In particular, he was “very excited about the launch of Disney +,” a rival to Netflix NFLX, + 0.34%. Short positions Rubin is short in Peloton Interactive Inc. PTON, + 6.10% and Zoom Video Communications Inc. ZM, + 2.00%, two companies whose shares have soared during the pandemic. Peloton’s combination of fitness equipment and subscriptions for streaming exercise classes has been perfectly tailored to a population trapped at home, while Zoom has become the standard for corporate video conferencing. But Rubin has been short due both to a combination of high equity valuations and “business models that we do not believe are cumulative.” “They were exceptionally profitable at one point,” he said. Another short is Boston Properties Inc. BXP, -1.02%, a real estate investment trust that operates office buildings not only in Boston, but also in the metropolitan areas of Los Angeles, New York, San Francisco and Washington DC. Rubin said the company is a good example of one that will be interrupted by “creative destruction” as there will be a reduction in demand for office space in the long term. Sales Growth Estimates Here are the three calendar year sales growth projections for the eight companies mentioned above where Rubin is long, along with future price-to-earnings ratios based on consensus earnings estimates for the companies listed above. next 12 months among analysts surveyed by FactSet:

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The revenue growth numbers for the 2020 calendar are marked as “estimated” because not all fiscal years or business quarters coincide with the calendar. For Snap and Exact Sciences, there are no future P / E ratios because companies are expected to post negative earnings per share for calendar 2021. For Schwab and UnitedHealth, you can see that future P / E ratios are not high compared to a Advance P / E of 22.3 for the SPDR S&P 500 ETF Trust SPY, + 0.28%. Disney’s upfront P / E is pretty high. However, the company’s earnings are expected to increase by $ 2.74 in 2021 to $ 5.38 in 2023, which would make a P / E of 34.8, based on the closing price of $ 187.56 on April 7. Here are the same numbers for the three shorts that Rubin discussed. :

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For Peloton and Zoom Video Communications, sales growth rates are expected to cool off from the triple digits of 2020, but remain in the double digits until 2023 at least. But both stocks have regressed this year. Late 2019 shows that the fund was able to meet its objective of limiting volatility when the stock market crashed during the first quarter of 2020:

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The institutional class of the fund has a minimum initial investment of $ 50,000 and annual expenses of 1.75% of assets, while the retail class has a minimum of $ 1,000 and an expense ratio of 2.00%. Neither class has a sales charge (or charge). Those expenses are high, but they are not unusual for an active long / short management style. The returns above are after expenses, as are the following average returns for longer periods:

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