It seems like the worst is over for high-growth stocks as they rallied hard in the last one week. This spells good news for ARK as its flagship ARK Innovation ETF was up 8.4% in just 5 days.
One of the reasons could be due to the fund flows from hedge funds and private equity firms. We began to see a handful of them buying stakes in these high-growth stocks.
This could signal a few things. First, the smart money believes that these high-growth stocks are cheap enough.
Second, the interest rate threat is not as high as before, and growth stocks should worth more in this case.
Third, other investors might expect more deals to be done and hence, ‘front-running’ by buying these high-growth stocks in anticipation that their stocks get an offer.
Let’s look at some of the prominent deals lately.
Elliott Management is led by the combative Paul Singer. Read up on him if you don’t know him already.
Elliott took a $2 billion stake in PayPal, which is about 2% of the company. Doesn’t sound a lot but the action caused PayPal to rally 10% on 27 Jul 2022.
PayPal was one of the worst performers among the S&P 500 index components, which lost 70% of its market cap at one point in time.
Investors welcome an activist like Elliott because they bring the stick to straighten up the management. Change is coming and there’s a chance of a turnaround in the company.
Also, PayPal 2Q results beat expectation and revised its guidance upwards. The share price rose 9% yesterday.
The results were better than expected for other fintech stocks such as SoFi (+28%) and Donnelley (+18%). Fintech stocks went up as a group
Coinbase +20%
Upstart +14%
Affirm +13%
Robinhood +12%
Block +11%
StoneCo +11%
Elliott also accumulated a 9% stake in Pinterest in July. Despite missing estimates, the share price jumped 11% after the results were released. I believe this is due to the improving macro environment.
An even bigger winner yesterday was Ping Identity, which saw its share price rose 61%. This was due to an all-cash offer of $28.50 for each share of PING from Thoma Bravo.
The private equity firm also bought Anaplan for $10.4 billion and the deal was completed in June.
Zendesk was offered a buyout by Hellman & Friedman And Permira.
We might see more deals in the coming months and that should bode well for these high-growth stocks. But if you are thinking of finding the next stock that could be bought out, don’t. That’s like buying a lottery ticket.
