Author: Riddhi Ruparelia
Covestor model: Long-Term Growth
Disclosure: Long CCSC, DANG, RENN, VIT, RVBD, SODA, MELI, IRBT, SSYS, P, HDB, STMP, ZIP
As markets continue to go through upheaval, we continue to enhance our positions in the effort to capture rapid growth. In October, we took advantage of multiple situations, as follows.
1) Prices of many Chinese ADRs listed on U.S. exchanges dropped heavily due to skepticism towards accounting practices. This provided us what we consider excellent entry points to multiple strong, high growth companies.
We enhanced our existing position in Country Style Cooking (CCSC) and added three new attractive growth companies to our portfolio. We carefully chose these companies that use auditing services from internationally recognized companies, have significant investment from U.S.-based VCs and management that seems to value business success rather than cooking books. Here are the three names we added in October:
– Dangdang (DANG) – a fast growing Internet retailer in China. DANG is following an Amazon model and expanding at a rapid pace from its origins in selling online books toward general merchandise.
– Renren (RENN) – a fast growing social networking site, popular among college students in China
– VanceTech (VIT) – a rapidly growing IT / software sub-contract company
2) We took advantage of what we consider attractive prices to buy more of our favorite names like Riverbed Technology (RVBD), Sodastream (SODA), Mercadolibre (MELI), iRobot (IRBT), Stratasys (SSYS) and Pandora (P).
We also initiated new positions in HDFC Bank (HDB), Stamps.com (STMP) and Zipcar (ZIP).
3) We exited our positions in companies whose business model strength has been reduced and/or the company faces very difficult market dynamics:
– Lumber Liquidator (LL) seems to be stuck in difficult times for the new home and housing upgrade market. Though management is smart enough to achieve some growth in this tough times, we do not see a significant catalyst for this stock over the next year or two.
– Demand Media (DMD) saw significant reduction in traffic on its flagship website eHow.com over the last three months. The company faces significant challenges in the near term while it tries to develop its new sites. Management’s cryptic response to address the traffic issue didn’t add to our confidence and therefore we decided to place our money into companies we have a higher degree of confidence in.
– OpenTable (OPEN) – As Google bought Zagat, we are afraid that OpenTable will see increasingly difficult competition in the very near future. Though the company may survive and even thrive, we are not so confident of its ability to sustain growth with high margins in the face of serious attack by the Google / Zagat combination.
That’s it for now.
Riddhi
