A fund manager who’s crushing nearly all of her peers breaks down 3 under-the radar stocks driving her strong performance

"There's still lots of room for growth," Zhang said, notwithstanding the stock's 88% surge this year and 135% gain since it went public in 2013. "We always invest in companies that have long-term secular trends," Zhang said, including another tech company called Cognex . Zhang describes it as making "machines that can act like the human eye and the human brain, which is not easy." Cognex's machine-vision products span from barcode readers to laser cutters and Zhang's self- professed favorite: inspecting pizzas to ensure they're adequately covered with cheese . "It's more precise," she said, and taps into the longer-term trend of human tasks being reassigned to machines that can do them more efficiently. What also makes Cognex attractive is that its core technologies can be applied — and are already being used — in various industries, which gives the company longevity, Zhang said. The company's total addressable market is north of $3.5 billion, she said. A common thread that runs through these companies is that they have a healthy spend on research and development as a share of revenue. For Zhang, it's a demonstration that they are investing in the future. Cognex spent $27 million, or 13% of its revenue, on R&D during the second quarter. It reported $755 million in cash and investments and no debt. Another characteristic Zhang looks for when picking stocks is companies that address a pain point for customers. That's partly why Apptio was a buy, and it remains a top-10 holding in her portfolio. Apptio uses companies' IT data combined with details of their finances to budget and plan their technology needs. The company started with enterprises but is now gaining federal clients including Washington state. "That's opened up a whole new addressable market," she said, adding that these tended to be sticky long-term contracts that are expensive to cancel. Apptio is also net cash positive, with $255 million in cash and $143 million in debt at the end of the second quarter. Its stock has surged 72% in 2018.

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