- COVID-19 has forced companies to accelerate innovation at unprecedented rates to survive.
- But investing blindly in pandemic era winners like Zoom Video can be a risky and losing strategy.
- Mitch Rubin, CIO of RiverPark Funds, named seven stocks that can disrupt their peers and dominate.
- See more stories on the Insider business page.
The pandemic turned life as we knew it over 18 months and ushered in an era known as the “new normal”. This term can also be applied to the investment world as emerging companies like Tesla and Peloton follow in COVID-19’s footsteps by disrupting the status quo.
Markets must now adapt to “massive creative disruption” and blurring of industry boundaries as technology becomes ubiquitous, said Mitch Rubin, CIO of RiverPark Funds, in a recent interview with Insider. Rubin manages his company’s RiverPark Large Growth Fund (RPXFX), which manages $ 1 billion in assets and has beaten 96% of its peers in the past year, according to Morningstar.
As technology becomes more and more vital for businesses, it becomes less and less relevant as an industry label, Rubin said. Technology is the nexus between seemingly independent companies like Chipotle Mexican Grill (CMG) and Nike (NKE), which have used apps and websites to dominate during the pandemic and expand leads on less digitally savvy competitors.
“Every business is a technology company,†said Rubin, “because if they don’t embrace the technology, they don’t provide the most efficient service at the lowest price and they will lose out in the market. … If your business doesn’t. don’t have a technological perspective, they’re probably on the wrong side. “
COVID-19 has forced companies to accelerate innovation that would otherwise have taken years or even months, and the lack of in-person activity has necessitated new business models in some industries.
The Direct-to-Consumer Selling (DTC) strategies employed by Disney (DIS) and Nike have allowed every leading US company to cut out the middleman. Disney’s flagship streaming platform saw explosive user growth in 2020 as it avoided
Netflix
(NFLX) and built its own customer base while Nike sold products to customers seamlessly while avoiding Amazon (AMZN).
But DTC is not synonymous with “do it yourself”. Disney, Nike, and countless other companies are reaching out to users with the help of online advertising giants like Facebook (FB) and Google (GOOGL), which Rubin says have significant profit margins that eclipse historical standards.
One of the biggest risks of investing in innovators is that while the future is inherently uncertain in some ways, it is crystal clear in other ways. It is so obvious that the technology is here to stay that blindly buying stocks of proven winners is not a good investment strategy.
Parts A and B are the Peloton Exercise Bike Manufacturer (PTON) and the teleconferencing platform
Zoom
Video (ZM). Investors saw these stocks drop 35% and 17.6% in 2021, although the latter held steady at the start of the week before collapsing after what markets saw as a disappointing quarter.
Neither has “a defensible business for the future,” said Rubin, who is short of both names. The best days could be behind Peloton and Zoom, Rubin said, adding that the two disruptors could possibly be disrupted themselves – a cruel turn that is far from uncommon in the markets.
Despite bubble characteristics in some sectors, stocks are trading at all time highs and historically high multiples, Rubin said, said optimism is generally justified. Fundamentals are strong, interest rates are low and there are a lot of
liquidity
in the markets, Rubin said, but he cautioned investors shouldn’t get too complacent.
“The market generally exceeds,†Rubin said. “There is no doubt that there is emotion and fashions in the market. Whether or not we are in a bubble period is more industry specific.”
Beware of not capitalizing on the momentum of “story stocks,†which trade at very high multiples and attract a more “game-oriented†audience of day traders, Rubin said. But high price-to-earnings (P / E) ratios are no reason not to invest in a promising company.
“It is less, I think, about the current valuation compared to other stocks than:” What is the market opportunity for the company, and what is the quality of the management team, and what could be the business in five to 10 years? »» Rubin mentioned. “… I think the real differentiator isn’t ‘what was the P / E when you bought it?’ It is “by how much has income increased or by how much has income decreased over the next five years?” “
As a portfolio manager, it’s natural for Rubin to say he thinks active stock picking presents better opportunities than just buying an S&P 500.
index fund
. He argued that the gap between winners and losers will widen as innovation breeds competition, adding that incumbents who do not address change and technology are doomed to fall behind. .
Below are seven stock picks from Rubin, the portfolio manager of RiverPark Large Growth Fund (RPXFX), as well as the ticker and market capitalization of each name, along with a slightly edited category designation and commentary. by Rubin.
