Portfolio Insights: Alger Weatherbie Specialized Growth Strategy
Josh Bennett: The heart of the second quarter earnings season is coming to a close and nearly all the Weatherbie 50 stocks, all but one, have reported at this point and frankly, the quarter has gone better than we expected and our expectations were, for the most part, ahead of Wall Street expectations. So thinking back to the first quarter, many companies in our space reduced guidance or they limited guidance to only one quarter ahead or they even removed their guidance for the entire year given an abundance of uncertainty at that time based on the COVID era. So as expected, the second quarter was difficult, but it wasn't as bad as what had been modeled out by consensus views. expectations and we were happy to see in this quarter that we did even better than we typically do with most of our names meeting or beating expectations. The current environment, we believe, is one where our fundamental research at Weatherbie and deep knowledge of our companies really paid off. We believe we were able to realize the long-term, potential value of our companies while the Street was much more focused on the near- term quarter. In terms of specific insights from management, I'll talk about some of the sectors that I follow. It was clear at a high level that the economy bottomed in late March to early April and then recovered much more quickly than most expected. In the consumer sector, people have notably been spending much more on home improvement and on household goods than most had expected. When you look at companies in our portfolio like SiteOne, which is a landscape supply company, or Ollie's, which provides essential goods at value prices, these companies have done incredibly well through this quarter given their essential nature and feeding consumer demand. Shifting to the industrial side, we saw a dramatic slowdown in the industrial space as expected. Large segments of the industrial economy like autos slowed production, but the industrial machine is definitely The Weatherbie team has been tracking how many of our portfolio companies meet, beat or miss our
coming back on and transportation, which is sort of the wheels that move that industrial product around, are moving again. So this has benefited companies in our portfolio like XPO Logistics or CerenceTechnology, which provides voice recognition for automobiles. And then finally in the technology sector, companies' adoption of new technology was clearly accelerated by months or some would even say years. Companies essentially had no choice but to quickly embrace new platforms that enabled remote work and collaboration. This benefited a lot of companies in our portfolio, but one name that comes to mind is HubSpot, which saw very strong subscriber growth and new service adoption Ted Doyle: Thanks, Josh. Let me share a question I received via e-mail. It says here there's clearly a lot of speculation about a potential vaccine. Looking at the Weatherbie portfolio, do you own any positions directly tied to a potential vaccine or do you have any positions that will potentially benefit from the impact of such a vaccine? Josh Bennett: Thanks for the question. We really don't have positions directly tied to the COVID-19 vaccine that we can talk about today. However, we've been able to position the portfolio with several health care positions that we believe should do quite well actually if and when the vaccine is approved and rolled out broadly to the population. To be a little more specific, thinking back to the period when hospitals were stressed with COVID-19 patients, they were forced to close their doors to all non-essential patients. That had a very direct effect on several of our companies that provide important surgeries, but typically they are elective surgeries or procedures. The name that comes to mind is a company called Nevro, which provides a unique high frequency spinal cord stimulation device. That stock was punished in that period—we believe unfairly because the market focused only on reduced demand in the near term—but that created a great opportunity for our team to add to a position we really believe in over the long term and at much more attractive prices. as it has a platform for marketing and sales management and other services as well.
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