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Here’s Why Autodesk (ADSK) Stock is an Attractive Pick for Investors

Alex Smith
·4 min read

Forager Funds recently released its Q2 2020 Investor Letter, a copy of which you can download here. The International Fund’s 23.3% gain for the quarter took it to a 13.7% positive return for the full financial year, some 10.6% ahead of its benchmark. You should check out Forager’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Forager highlighted a few stocks and Autodesk Inc. (NASDAQ:ADSK) is one of them. Autodesk Inc. (NASDAQ:ADSK) is a software company. Year-to-date, Autodesk Inc. (NASDAQ:ADSK) stock gained 25.7% and on August 10th it had a closing price of $231.88. Here is what Forager said:

"Autodesk (Nasdaq:ADSK) is the global market leader in design software for the engineering, construction, manufacturing and media and entertainment industries. We did a lot of work on the stock in 2019, but the share price ran up before we placed a bet. COVID-19 gave us an unmissable second chance.

The company’s flagship product AutoCAD was launched more than three decades ago and is the most popular and widely-used mechanical computer-aided design product on the market. But the tailwinds remain strong. Construction, making up 60% of group sales, is still in the early stages of a compelling digitalisation shift.

Building Information Modeling (“BIM”) is the term used for an intelligent 3D model-based process that gives architecture, engineering and construction professionals the insight and tools to efficiently plan, design, construct and manage buildings and infrastructure, and to work on them simultaneously. More countries and companies are mandating BIM. It helps reduce waste, adding to companies’ green credentials, and ensures completions are done on time. BIM penetration is still low in most developed markets (15-35%) and there is a huge opportunity in emerging markets as they migrate to more efficient architectural and construction standards.

Moreover, COVID-19 and the rapid shift to work from home has driven acceleration in customers taking up their cloud product offerings. This should continue to be a tailwind over the coming years.

Autodesk also has a big incremental revenue opportunity given a large base of ‘pirate’ users who don’t currently pay to use its software. The company has five million paying subscriptions and an estimated 14 million non-compliant users of legacy software. Its conversion to a subscription model gives the company much better control over usage, and that should mean more paying clients.

Unlike many other Software-as-a-Service companies, Autodesk is already profitable. It has spent the last few years migrating customers over from perpetual licences to subscriptions, temporarily crimping its profitability. As this migration ends over the coming few years, profit margins, as a percentage of revenue that itself should grow quickly, will increase significantly.

Given that the company is growing revenue at 15-20% per annum, we estimate profits can grow at closer to 30% per annum. Thanks to a COVID-induced selloff, we’ve been able to buy a piece of that at a perfectly reasonable price."

Last month, we published an article revealing that Brown Advisory is bullish about Autodesk Inc. (NASDAQ:ADSK) stock. The investment firm believes that the company is likely to continue benefiting from the coronavirus pandemic.

In Q1 2020, the number of bullish hedge fund positions on Autodesk Inc. (NASDAQ:ADSK) stock increased by about 2% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Autodesk's growth potential. Our calculations showed that Autodesk Inc. (NASDAQ:ADSK) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.