Dorsal Capital Partners Sees a 13% Boost in 2023: Its Top 15 Stock Picks
In this article, we discuss Dorsal Capital Partners sees a 13% boost in 2023: its top 15 stock picks. If you want to skip about some more stocks in Dorsal Capital Partners’ portfolio, go directly to Dorsal Capital Partners Sees a 13% Boost in 2023: Its Top 5 Stock Picks.
Founded in 2009, Dorsal Capital Management is a long/short hedge fund seeking to produce risk-adjusted total returns uncorrelated to the broad stock indexes. The hedge fund whose main fund has never suffered a large annual loss is the brainchild of Ryan David Frick and Oliver Evans, two SAC Capital alums.
An MBA graduate from Stanford University, Frick boasts tremendous experience in the investment world and has served as a portfolio manager at CR Intrinsic Investors, an affiliate of SAC Capital, for four years. He also gained rich experience as an analyst at Credit Suisse First Boston. Having also doubled up as analyst covering media and internet segment at Kicap Management, he is currently the Managing Partner and Chief Investment Officer at Dorsal Capital Management.
Evans has been a retired partner since 2014 and currently manages direct public equity at the family offices of Apercus Holdings and Keystone LP. Having completed his MBA at the Harvard Business School in 2004, he also worked as an analyst at CR Intrinsic for two years before founding Dorsal Capital Management.
Dorsal Capital Management mostly invests in technology stocks that account for about a third of the total portfolio. It also boasts significant exposure in the services sector, with consumer goods holdings summing up the top three investment areas. However, the Redwood City, California-based hedge fund is not open to funds from outside investors.
As of the third quarter of 2023, Dorsal Capital Management had stakes in some of the biggest tech companies that fueled the bull run in 2023. The long-short hedge fund boasts of investments in Meta Platforms, Inc. (NASDAQ:META), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) that posted triple and double-digit percentage gains in 2023. Likewise, the hedge fund finished 2023 on a high, up by about 13%.
The tech services and consumer-focused hedge fund manages about $2.92 billion while applying long- and short-term investment strategies. In addition, it considers itself an expert in managing pooled investment vehicles. Investments in tech stocks allow the hedge fund to gain exposure to some of the fastest growth areas at a time of artificial intelligence operations. Investments in consumer goods also offer exposure to inflation-immune segments.
While the hedge fund underperformed the S&P 500, which gained 24% in 2023, its returns showed a significant improvement from 2022. As the overall equity market came under pressure in 2022 amid a ferocious sell-off triggered by runaway inflation and a push by the US Federal Reserve to hike interest rates, Dorsal Capital Management narrowly escaped losses with a 0.9% decline. The 0.9% decline in 2022 was impressive considering that the S&P 500 was down by about 19% the same year.
Dorsal Capital Management's impressive track record of returns dates back to 2018, when it delivered a gain of 2.18% compared to a loss of 4.38% for the S&P 500. The hedge fund continued the impressive run in 2019 as it delivered a half-year return of 7.4% through June 2019 with an annualized return of 7.5%. Even as the COVID-19 pandemic caused havoc in 2020, sending the markets into a tailspin, the hedge fund came on top, delivering 9.7% gains in the year's first half. The impressive run would continue into 2021 as the hedge fund achieved a 4.1% return.
Investments in Salesforce, Inc. (NYSE:CRM), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) present massive opportunities as Dorsal Capital Management looks to profit from the explosive AI theme in 2024. In addition, the hedge fund's significant exposure to technology stocks presents yet another massive opportunity as the Federal Reserve moves to tweak its monetary policy. The Fed cutting interest rates as expected is one of the catalysts expected to send most tech stocks higher, as has always been the case during periods of lower interest rates.
Our Methodology
Dorsal Capital Management is one of the few hedge funds that has navigated the equity market successfully, and never posted a large loss since inception. Its long-short investment strategy focusing on high-growth stocks in tech, consumer goods, and services sectors has proved to be a great success. After analyzing 13F filings, we have listed the hedge funds' top stock picks. The stocks are ranked in ascending order based on the value of the hedge fund’s equity stakes. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Dorsal Capital Partners Sees a 13% Boost in 2023: Its Top Stock Picks
15. EPAM Systems, Inc. (NYSE:EPAM)
Dorsal Capital Management’s Equity Stake: $83.10 Million
Number of Hedge Fund Holders: 34
EPAM Systems, Inc. (NYSE:EPAM) is one of Dorsal Capital Management's top stock picks and one of the latest additions to the portfolio. The hedge fund acquired stakes worth $83.10 million in the information technology services company to gain exposure to digital platform engineering and software development services.
Dorsal Capital Management took advantage of a significant pullback to acquire stakes in EPAM Systems, Inc. (NYSE:EPAM) as it ended the year down by about 8%, underperforming the S&P 500, which was up by about 24%. According to Insider Monkey's database data, 34 elite hedge funds held positions in EPAM Systems, Inc. (NYSE:EPAM) stock in the third quarter of 2023. Stephen Mandel’s Lone Pine Capital was one of the company's significant shareholders in the third quarter of 2023, with shares worth $269.56 million.
Analysts at Morgan Stanley have downgraded EPAM Systems, Inc. (NYSE:EPAM) to Underweight from Equal Weight, citing pricing pressure and slower budget growth in a research note to the investors.
Here is what Baron Funds said about EPAM Systems, Inc. (NYSE:EPAM) in its second quarter 2023 investor letter:
“EPAM Systems, Inc. (NYSE:EPAM) provides outsourced software development to business customers. Shares declined 24.8% due to investor concerns over the negative potential impact of GenAI, slowing growth and a weaker financial outlook. Greater economic uncertainty is causing a pullback in customer demand as corporate clients temporarily focus on near-term cost optimization rather than more strategic digital transformation projects. Management reduced its full-year guidance twice during the quarter, which was highly unusual given the company’s strong execution track record. We believe this slowdown is temporary and continue to own the stock due to EPAM’s long runway for growth and strong technical capabilities.”
14. V.F. Corporation (NYSE:VFC)
Dorsal Capital Management’s Equity Stake: $91 Million
Number of Hedge Fund Holders: 24
V.F. Corporation (NYSE:VFC) was one of Dorsal Capital Management's top stock picks as the hedge fund raced to a 13% gain in 2023. The consumer cyclical investment play in the design procurement marketing and distribution of lifestyle apparel footwear and other related products was down by 33% in 2023.
The long-short hedge fund took advantage of a steep pullback to bolster its stakes in V.F. Corporation (NYSE:VFC) in Q3 2023 by 61% to $91 million. According to Insider Monkey's database data, 24 hedge funds held positions in V.F. Corporation (NYSE:VFC) in the third quarter of 2023, down from 26 in the previous quarter.
Joseph Sirdevan’s Galibier Capital Management is one of the significant shareholders of V.F. Corporation (NYSE:VFC), with shares worth $1.54 million.
13. Burlington Stores, Inc. (NYSE:BURL)
Dorsal Capital Management’s Equity Stake: $98.09 Million
Number of Hedge Fund Holders: 49
Burlington Stores, Inc. (NYSE:BURL) is one of Dorsal Capital's top stock picks in the consumer cyclical sector. The company operates as a retailer of branded apparel products, providing fashion-focused merchandise, including women's ready-to-wear apparel, menswear, and youth apparel.
Burlington Stores, Inc. (NYSE:BURL) is up by more than 60% since late October as it bounces back following the 2023 rout. The rally is supported by strong earnings and comparable store sales in the recent quarter. Dorsal Capital Management increased its stake in Burlington Stores, Inc. (NYSE:BURL) by 16% in Q3 2023 to $98.09 million.
At the end of the third quarter of 2023, 49 hedge funds in the database of Insider Monkey held stakes worth $1.29 billion in Burlington Stores, Inc. (NYSE:BURL), compared to 41 in the previous quarter worth $1.20 billion.
In its Q3 2023 investor letter, Argosy Investors shared its thoughts on Burlington Stores, Inc. (NYSE:BURL). Here is what it said:
“Burlington Stores, Inc. (NYSE:BURL) participates in the off-price retail category and competes against well-known players such as TJ Maxx and Ross Stores. BURL recently suffered from an inventory overhang that dented margins and is also suffering from a slowdown in same store sales. With that said, the company has capacity to double its stores, double its margins to levels consistent with peers, and expand same-store sales growth. On normalized margins, which the company last achieved in fiscal 2019, BURL is trading at ~10x earnings, with potential to grow to
12. Five Below, Inc. (NASDAQ:FIVE)
Dorsal Capital Management’s Equity Stake: $120.68 Million
Number of Hedge Fund Holders: 30
Five Below, Inc. (NASDAQ:FIVE) was one of the catalysts behind Dorsal Capital Management's 13% return in 2023. The consumer cyclical investment plays operating as a specialty value retailer increased by 21% in 2023. The rally came as Five Below, Inc. (NASDAQ:FIVE) benefited from improved consumer spending on jewelry, hair, and accessories, among other personal living space products.
Dorsal Capital Management increased its stake in Five Below, Inc. (NASDAQ:FIVE) by 42% in Q3 2023 to $120.68 million. By the end of this year’s third quarter, 30 out of the 910 funds polled by Insider Monkey had held Five Below, Inc. (NASDAQ:FIVE)’s shares. Ryan Frick And Oliver Evans’s Dorsal Capital Management is the company's largest stakeholder through its $120.68 million investment.
Here is what Wasatch Global Investors said about Five Below, Inc. (NASDAQ:FIVE) in its Q3 2023 investor letter:
“Another weak stock in the strategy was Five Below, Inc. (NASDAQ:FIVE). This discount retailer has set itself apart with its branding and unique approach of, as its name suggests, pricing most items at five dollars or less. Second-quarter revenues and earnings met expectations, and management projected that third- and fourth-quarter revenues would be in line with forecasts and better than industry peer comparisons. But the stock was down because upcoming quarterly margins and earnings are projected to decline due to theft and expenses associated with theft prevention. While this news was disappointing, we think management has responded appropriately. We still expect the company’s new-store growth rate to accelerate from the low teens to the high teens over the next 12 months. Five Below plans to add approximately 250 new locations, which we think will position the company to take advantage of both the 2023 and 2024 holiday shopping seasons.”
11. Smartsheet Inc. (NYSE:SMAR)
Dorsal Capital Management’s Equity Stake: $125.43 Million
Number of Hedge Fund Holders: 48
Bellevue, Washington-based Smartsheet Inc. (NYSE:SMAR) is a software application company that provides an enterprise platform to plan, capture, manage, automate, and report on work for teams and organizations. Smartsheet Inc. (NYSE:SMAR) offers Dashboards, Cardview, and Calendar, among other products, that allow customers to build user-friendly apps.
Smartsheet Inc. (NYSE:SMAR) was one of Dorsal Capital Management's top stock picks, going by a 20% gain in 2023. The company's upward momentum received a boost, announcing a significant milestone of reaching $1 billion in annualized recurring revenue in the fourth quarter.
Dorsal Capital Management has positioned itself to benefit from further upside action, having increased its stake in Smartsheet Inc. (NYSE:SMAR) by 73% in Q3 2023 to $133.13 million. According to Insider Monkey's database data, 48 elite hedge funds held positions in Smartsheet Inc. (NYSE:SMAR) stock, up from 46 in the preceding quarter.
In its Q2 2023 investor letter, TimesSquare U.S. Small Cap Growth Strategy provided the following insight regarding Smartsheet Inc. (NYSE:SMAR):
“Smartsheet Inc. (NYSE:SMAR) provides a workflow and customer engagement platform for teams and organizations. Mixed fiscal first quarter results caused a -20% retreat to the share price. That included in line revenues and profits; however, billings fell short due to macro conditions impacting small-to-mid sized businesses and elongated sales cycles among larger enterprises.”
10. Mercadolibre, Inc. (NASDAQ:MELI)
Dorsal Capital Management’s Equity Stake: $133.13 Million
Number of Hedge Fund Holders: 76
Mercadolibre, Inc. (NASDAQ:MELI) is one of Dorsal Capital Management's top stock picks that ensured the hedge fund bounced back to positive returns in 2023. The consumer goods company that operates online commerce platforms in Latin America was up by 84% in 2023, dwarfing the 24% gain for the S&P 500.
The Argentina-based e-commerce platform has emerged as a significant player in the sector, with operations in 19 countries. After a significant swing to the upside, Dorsal Capital Management used the opportunity to lock in some profits, having reduced its holdings in Mercadolibre, Inc. (NASDAQ:MELI) by 39% in Q3 2023 to $133.13 million.
According to Insider Monkey's database data, 76 hedge funds held Mercadolibre, Inc. (NASDAQ:MELI) stock positions in the third quarter of 2023, compared to 77 in the previous quarter. Notably, ARK Investment Management emerged as one of the significant stakeholders in the company, with 36,129 shares valued at $56.78 million as of Q4 2023.
9. Walmart Inc. (NYSE:WMT)
Dorsal Capital Management’s Equity Stake: $143.94 Million
Number of Hedge Fund Holders: 80
Bentonville, Arkansas-based Walmart Inc. (NYSE:WMT) is one of the world’s largest retailers operating discount stores. The company operates supercenters, supermarkets, hypermarkets, and warehouse clubs selling various consumer products.
It was one of the retailers that benefited from a resilient economy and strong consumer spending power as the stock gained 11% in 2023.
For their Q3 2023 shareholdings, 80 of the 910 hedge funds profiled by Insider Monkey held a stake in Walmart Inc. (NYSE:WMT). ZWEIG DIMENNA PARTNERS was a remarkable shareholder of Walmart Inc. (NYSE:WMT) with stakes worth $12.93 million.
8. Zillow Group, Inc. (NASDAQ:Z)
Dorsal Capital Management’s Equity Stake: $152.33 Million
Number of Hedge Fund Holders: 52
Zillow Group, Inc. (NASDAQ:Z) is a communication services company that operates real estate brands on mobile applications and websites. It operates through internet media and technology, mortgages, and home segments.
Zillow Group, Inc. (NASDAQ:Z) remains one of Dorsal Capital Management's top stock picks, going by the 78% gain that helped propel the hedge fund to a 13% return. Dorsal Capital Management increased its stake in Zillow Group, Inc. (NASDAQ:Z) by 117% in Q3 2023 to $152.33 million.
BofA Securities analyst Curtis Nagle has warned that uncertainties over lawsuits on the commissions paid out to real estate agents could pressure the real estate services company stocks in the coming months.
For their September quarter of 2023 shareholdings, 52 out of the 910 hedge funds part of Insider Monkey's database were Zillow Group, Inc. (NASDAQ:Z) investors. Robert W. Koehn’s Ivy Lane Capital was a prominent shareholder of the company in the fourth quarter of 2023, with stakes worth $13.60 million.
7. Salesforce, Inc. (NYSE:CRM)
Dorsal Capital Management’s Equity Stake: $162.22 Million
Number of Hedge Fund Holders: 122
Salesforce, Inc. (NYSE:CRM) remains one of Dorsal Capital Management's top stock picks for gaining exposure to the artificial intelligence frenzy. The company offers Customer Relationship Management technology and has seen its sentiments and fortunes improve by integrating AI into its various solutions and products.
Likewise, Salesforce, Inc. (NYSE:CRM) nearly doubled in value after rallying 96% in 2023 at the height of the AI hype. Dorsal Capital Management has benefited from the blockbuster rally, having increased its stakes in Salesforce, Inc. (NYSE:CRM) by 129% in Q3 2023 to $162.22 million.
According to Insider Monkey's database data, 122 hedge funds held positions in Salesforce, Inc. (NYSE:CRM) stock in the third quarter of 2023. Notably, Fisher Asset Management emerged as a significant stakeholder in the company, with stakes valued at $3.93 billion.
Here is what Polen Capital, an investment management company, said about Salesforce, Inc. (NYSE:CRM) in its fourth quarter 2023 investor letter:
“In the fourth quarter, the top relative and absolute contributors to the Portfolio’s performance were Netflix, ServiceNow, and Salesforce, Inc. (NYSE:CRM).
Salesforce has continued to grow its revenues at what we see as a healthy rate despite market concerns about the impact of the weaker macroeconomy on its business and penetration rates in its core CRM offering. Even its most mature and largest offerings, Sales Cloud and Service Cloud, are still growing revenue at double-digit rates. In addition, management realized that their cost structure, especially in salespeople, had gotten too bloated. Over the past year and a half, the company has run a much more streamlined expense structure that has led to strong operating margin expansion and earnings growth. Importantly, we do not feel Salesforce has cut into its innovation or sales muscle through these cost cuts but has eliminated unnecessary excess fat from the organization.”
6. Activision Blizzard Inc. (NASDAQ:ATVI)
Dorsal Capital Management’s Equity Stake: $165.21 Million
Number of Hedge Fund Holders: 111
Activision Blizzard Inc. (NASDAQ:ATVI) is a leading publisher of video games best known for World of Warcraft, Call of Duty, Guitar Hero, and Tony Hawk. It was one of Dorsal Capital Management's top stock picks for gaining exposure in the multi-billion gaming industry before Microsoft completed its acquisition late last year.
Dorsal Capital Management held stakes worth $165.21 million in Activision Blizzard Inc. (NASDAQ:ATVI) as of the end of Q3 2023, down by 35% from the previous quarter levels. According to Insider Monkey's database data, 111 elite hedge funds held positions in Activision Blizzard (NASDAQ:ATVI) stock.
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