Barron's - USA (2021-02-15)

(Antfer) #1

30 BARRON’S February 15, 2021


TECH TRADER


The Jacob Internet fund soared 123% last year.


And it wasn’t because ofApple, Microsoft,


Amazon.com, Alphabet, or Facebook.


How to Benefit From


Tech’s Run, Without


Big Tech Exposure


R


emember Ryan Jacob?


The investor had a


brief moment in the


spotlight when he


started hisJacob


Internetfund in late



  1. But shortly after


the bubble burst in 2000, his fund fell


to last among the more than 5,000


mutual funds tracked by Morningstar.


As the jeering died down, Jacob went


back to work building his Los Angeles–


based asset-management firm. More


than 20 years later, he’s still at it. The


fund (ticker: JAMFX) soared 123% last


year and is up nearly 40% in 2021.


Jacob, a soft-spoken Drexel Univer-


sity grad with a distinct Philadelphia


accent (takes one to know one), shuns


most megacaps and takes a bottom-up


approach to finding growing busi-


nesses with strong network effects.


The resulting portfolio includes an


eclectic mix of microcaps.


Jacob notes that his fund underper-


formed in 2019, as megacaps domi-


nated tech’s growth. But his disdain


for large-caps has generally worked,


with the fund returning an annual


average of 23% over the past decade—


without a losing year since 2011.


As of Dec. 31, the fund’s largest po-


sition wasDigital Turbine(APPS), a


longtime holding that’s more than 9%


of the portfolio. The Austin, Texas–


based company handles app installa-


tion for non-Apple devices, working


with phone makers—in particular


Samsung—and carriers, including


Verizon Communications, AT&T, and


Telefónica.


Shares of Digital Turbine have gone


from $6 to $86 over the past 12 months.


By Eric J. Savitz


While the fund’s cost is under $2, Jacob


sees further gains for the stock. “There


was a lot of sputtering before the fly-


wheel started to go,” he says. “But


growth and margins are accelerating.


Just because something is up a lot


doesn’t mean it’s overvalued.” He


thinks Wall Street estimates are too low.


Jacob thinks thatOptimizeRx


(OPRX)—another of his top-five


holdings—could be this year’s Digital


Turbine. The Rochester, Minn.–based


company runs a communications plat-


form that sits between health providers


and patients. It uses ads, coupons, mes-


saging, and loyalty cards to drive pa-


tient compliance with prescriptions.


Jacob says OptimizeRx could be a


good acquisition target, especially for


GoodRx(GDRX), which focuses on a


related market, giving consumers infor-


mation on how to buy prescription


drugs more inexpensively.


Another obscure pick from Jacob


isSharpSpring(SHSP), a Gaines-


After the dot-com bubble


burst, Ryan Jacob had


the worst mutual fund


in America. Two


decades later, the fund


is thriving—thanks to


small-cap tech stocks.


Zillow expects revenue from that busi-


ness to double in the current quarter,


but Jacob thinks the opportunity could


be even greater once housing supply


improves.


Other more familiar bets from Ja-


cob includeTwilio(TWLO), the pro-


vider of communications services to


many online businesses; database


companyMongoDB(MDB); and


online-payments firmSquare(SQ).


And he’s bullish onTwitter(TWTR),


which he says remains undermone-


tized. “The challenge has been, what


does the financial model look like?” he


says. “They have to start proving out


monetization, and we’re starting to see


good ideas on that front.”


I


n my Dec. 28 column, I shared a


pair of stock picks from Jeffrey


Meyers, founder of Cobia Capital, a


New York–based hedge fund with


its own focus on obscure tech stocks.


So far, both picks have worked well.


Nordic Semiconductor(NDO.Nor-


way), a specialist in Bluetooth chips,


has rallied on better-than-expected


fourth-quarter results. “Forward reve-


nue growth would be even higher ex-


cept for the tight semiconductor-supply


situation that is gripping the industry,”


Meyers says. The stock is up 37% since


my column ran, but Meyers thinks that


it can still double from here.


Meyers’ other pick, antenna maker


AirGain(AIRG), has rallied 72%. Its


antennas are helping to strengthen


signals for AT&T’s FirstNet, a commu-


nications network for first responders.


Meyers sees a $500 million market


opportunity—for a company with an-


nual revenue of around $50 million.


I followed up with Meyers this past


week and asked for another pick. His


choice:Silicom(SILC), an Israeli com-


pany that makes specialized devices for


telecom networks. Silicom benefits


from the growth in software-defined


networks, and Meyers says it “has a


huge opportunity” in 5G network


buildouts.


He notes that Silicom trades


for just 2.4 times estimated 2022


sales and under 20 times 2022


projected earnings. He thinks that the


stock could double in 12 months—and


quadruple over the next four years.B Courtesy of Jacob Asset Management


ville, Fla., marketing-software com-


pany with a value under $300 million.


Jacob describes the company as “like


HubSpot[HUBS] at a fraction of the


valuation.” He says HubSpot’s soft-


ware has more features, but at a much


higher cost. Based on a multiple of


sales, SharpSpring trades at half the


value of HubSpot. “Marketing auto-


mation is hot,” he says. “I’m surprised


no one has tried to buy them.”


One contributor to the fund’s run


this year isVoyager Digital(VYGVF),


a New York–based, Canadian-listed


cryptocurrency exchange. Among


other things, Voyager makes a market


in the oddball Bitcoin rival called Doge-


coin, which has recently run up from a


penny a share to eight cents. Voyager


itself is now worth over $2 billion, up


240% in 2021. Jacob has taken some


profits, but he thinks the stock could


still get more attention—and rally fur-


ther—when better-known rival Coin-


base goes public later this year.


Not all of Jacob’s stocks are obscure.


He has a big bet onZillow(Z), which


ran up more than 25% last week on


strong fourth-quarter results. Jacob


notes that the online real estate firm is


benefiting from low interest rates and


a home-buying boost from the work-


from-anywhere trend. He’s particularly


bullish on Zillow’s iBuyer business,


which flips homes for its own account.

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