Ron Baron

Ron Baron

Last Update: 2014-03-10

Number of Stocks: 347
Number of New Stocks: 47

Total Value: $24,118 Mil
Q/Q Turnover: 7%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

Ron Baron Watch

  • Baron Funds Spring Newsletter - Finding Growth Opportunities in Large Cap Stocks

    In late 2011, Alex Umansky joined Baron to take over management of the Baron Fifth Avenue Growth Fund. We are pleased to report that since then, the Fund has significantly outperformed its benchmarks. We thought it would be a good time to provide an update on the portfolio, our strategy, and our outlook for Large Cap stocks.

      


  • A Cinema Experience Worth Investing In

    Going to the movies is a fun activity, but Imax Corporation (IMAX) has established a new gold-standard for large screen films over the past decades, with its high resolution and fidelity sound. Its immersive experience for filmgoers has helped the company earn a niche spot in the vastly conventional cinema market and so far success was a no-brainer. In fact, the IMAX branded theatres generate a per-screen average of over $1 million gross, due to premium pricing and quality advantages. Since investment gurus Ron Baron (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) bought the company’s shares last quarter, I decided to look a little deeper into this firm’s business model.


    Expansion and Dependency

      


  • Baron Funds Comments on Del Frisco's Restaurant Group

    Del Frisco's Restaurant Group, Inc. (DFRG) is an operator of 46 fine dining steakhouse restaurants under three brands (Del Frisco's Double Eagle, Del Frisco's Grille and Sullivan's). These include the highest volume restaurant in all of New York City (the Del Frisco's Double Eagle steakhouse on Sixth Avenue in midtown Manhattan does about $37 million in annual sales!) The menu at Del Frisco's looks like a typical steakhouse menu (steaks, seafood and an extensive wine list) but the food is phenomenal. In fact, it is our favorite steakhouse in New York (and if you go we would highly recommend the bone-in rib eye). We are most excited about the company's growth concepts, Del Frisco's Double Eagle Steakhouse and Del Frisco's Grille. The Del Frisco's Grille concept is the newest concept and as the name suggests, it is a more casual version of the flagship Double Eagle restaurant. The Grilles are open for lunch (unlike most of the Double Eagles) and they attract more female guests, extending Del Frisco's demographic.


    We believe that the company can double the number of Del Frisco's Double Eagle Steakhouses (to 20 from 10 today) and can grow Del Frisco's Grille from 17 units today to around 100 units over time. The combination of restaurant growth and comparable store sales of 2% to 5% should deliver top line growth in the mid-teens. This, combined with some margin leverage, should deliver 20% EPS growth. And there is upside from a potential corporate restructuring, which would enhance the company's growth profile. Over the next few years, EPS could grow to around $2, and we believe that a fast-growth concept like Del Frisco's could earn a multiple of 25x or more. This would represent at least a double from the current price of around $23.

      


  • Baron Funds Comments on Ascent Capital Group

    Ascent Capital Group, Inc. (ASCMA) is the second largest residential alarm monitoring company in the U.S. behind ADT. It has over 1 million subscribers in all 50 states, DC, Puerto Rico and Canada. Accounts are 95% residential and 5% small business. Ascent has a monitoring center in Dallas (which has won Five Diamond Certified status, which fewer than 5% of central stations achieve) with a backup in McKinney, TX. It features cellular transmission options, as well as technology to provide some next- generation services, such as remote arm/disarm. The company runs on an "asset light" model, which means that it only does monitoring, not installation or customer service. For the latter, it relies on its pre-qualified nationwide network of dealers from which Ascent buys new accounts (using its free cash flow). Its customers are of very high quality with FICO scores averaging 720. The industry is incredibly fragmented, and we believe that Ascent has only 4% of overall subscribers in an industry which itself is only 20% penetrated into U.S. households. The long customer life (8-9 years), combined with a high return on investment provides a significant stream of free cash flow to the company (and its investors).


    We like these types of businesses as they exhibit excellent stable free cash flow characteristics (subscribers are growing, retention is nearly 90%, and cash flow margins are nearly 70%). We believe that over the next five years the company can grow its revenues by 50%, and its cash flow by nearly 70%. Therefore, the current multiple of under 7x is too cheap given the company's prospects. We think that a business like this could trade at a 10x multiple in the right circumstances. Therefore, we believe that shares could at least double over their current $82 price over the next five years. Upside could come from additional accretive acquisitions or the return of excess free cash flow to shareholders

      


  • Baron Funds Comments on Pacira Pharmaceuticals

    Pacira Pharmaceuticals, Inc. (PCRX) is a vertically integrated (IP to manufacturing) pharmaceutical company. Its main line of business is the sale of a drug called EXPAREL, which was approved by the FDA in October 2011 and launched in the U.S. in April 2012. EXPAREL is a pain control drug (using slow release bupivacaine) injected directly into the wound/cut site during a surgical procedure, prior to closing the incision. It is also being studied for use as a nerve block agent for additional procedures. Bupivacaine is a well-known drug that has been used for decades during surgery. Its safety profile is well understood. The key advantage of EXPAREL over generic bupivacaine is that it incorporates a proprietary time-release "wrapper" called DepoFoam that lets the pain relief delivered by bupivacaine last for up to three days post-surgery. This enables reduced usage of dangerous opiates and other treatments, such as pain balls. In the end, we believe that based on clinical studies, EXPAREL is cheaper, safer and more effective than current pain management practices. We believe that EXPAREL has significant IP protection and has limited potential competitors.


    Uptake among large hospital formularies has been brisk, and EXPAREL has been at least initially purchased at over 75% of the top 100 hospitals in the U.S. and most of the top 500 hospitals.Yet penetration of the potential $40 million procedure market is still minimal. Most current sales are for soft tissue procedures, but orthopedic studies also look promising. EXPAREL did about $14.5 million in sales in 2012, which grew to about $76 million in 2013 based on information recently released by the company. The fourth quarter annualized run rate of the drug is over $120 million.This means that the company is going to have to expand capacity from its current $100 million volume plant. It has built capacity for up to $400 million in sales, and is awaiting what we believe will be near term approval from the FDA on the plant. We believe EXPAREL represents a worldwide market opportunity of potentially billions of dollars and that it is just at the start of its overall volume penetration.Additionally, the company has longer term plans to use its DepoFoam "wrapper" technology on other drugs, including methotrexate (for rheumatoid arthritis). If this massive opportunity set is properly exploited, we believe that Pacira could become a billion dollar revenue company within a few years, and earnings per share could ultimately exceed $10 on EXPAREL alone. At a current price of $65, shares trade at only 6.5x this level, and it's possible that they could trade at 15-20x if growth hits our expectations.

      


  • Baron Funds Commentary - Energy Investing Is Really NOT a Commodity Story

    By Baron Funds Portfolio Manager Jamie Stone


    As an energy investor, one ignores the outlook for commodity prices at one's own peril. However, while a fundamental under - standing of the macro forces shaping supply/demand and price outlook is an important part of our investment process, we believe that other forces beyond price will be more significant in the next several years and favor investing in energy equities over commodities.

      


  • Baron Funds Comments on Xoom Corporation

    Xoom Corporation (XOOM), a money transfer service provider, was down 14.5% in the quarter. While the company reported solid third quarter earnings results, it issued guidance for the fourth quarter that was disappointing. Investors were also concerned that Typhoon Haiyan would impact transaction volumes in the Philippines, which is one of Xoom's highest volume markets. We believe Xoom has a large opportunity in online money transfer and ultimately can continue to take share from its bigger competitors.

      


  • Baron Funds Comments on Ellie Mae Inc.

    Ellie Mae, Inc. (ELLI), the provider of cloud based software services to the mortgage industry, stumbled badly after the mortgage market was softer than expected. We sold the position (at a 27% loss) after we realized that the correlation of its revenues to mortgage volumes was much higher than we had originally modeled.

      


  • Baron Funds Comments on Foundation Medicine Inc.

    Foundation Medicine, Inc. (FMI), a provider of high end genetic oncology testing and informatics, was hurt by 33% during the quarter after investors grew concerned over reimbursement for its tests. Certain competitor tests were cut substantially by CMS (which determines Medicare pricing, and which in many cases is followed by private payers). However, the competitor tests provide testing for only a handful of genes and other markers, while Foundation's tests provide for hundreds at only about twice the price. The additional markers provided in Foundation's tests allow oncologists to determine whether there might be other disease pathways at work in a patient's cancer, which allows better targeting of therapy (costing orders of magnitude more per year than the testing). We continue to believe that Foundation will establish itself as a share leader, and that it has many years of growth ahead.

      


  • Baron Funds Comments on BioScrip Inc.

    BioScrip, Inc. (BIOS), an operator of infusion therapy pharmacies, fell 16.5% for the Fund in the quarter. While the company continues to execute its strategy of consolidating the infusion services industry, it stumbled after a non-core legacy business performed worse than expected. While the miscue is not dire for the company, it hurt management's credibility after it had to reset guidance. We continue to believe there is substantial value and growth in the core infusion business, and that this has been validated by CVS's purchase in December of the number two player in the space, Coram, for a very high multiple of cash flow.

      


  • Baron Funds Comments on RigNet Inc.

    RigNet, Inc. (RNET) a provider of telecommunication services to the oil and gas industry, was up 29% in the quarter. The company benefitted from two events. First, the company announced its intent to acquire Inmarsat's Energy Broadband business. We believe that this acquisition will be highly accretive for RigNet and that RigNet can significantly improve margins in the first couple of years of operations. The second event that benefitted the company was the acquisition by KKR of a 27% stake from Cubera (both KKR and Cubera are private equity firms). The possibility for Cubera to exit via a secondary stock sale had been an overhang on the stock, so this transaction removed that issue.

      


  • Baron Funds Comments on Spectranetics Corporation

    The Spectranetics Corporation (SPNC) is a manufacturer of medical devices that assist in the treatment of peripheral arterial disease and also with the removal of coronary leads used for implanted devices such as pacemakers and defibrillators. Shares were up 46% in the quarter. Most of the company's devices use disposable products that lead to a highly recurring revenue stream. The company is on the verge of opening up large new markets with the expected 2014 approval of a new laser based device that can open up arteries that have previously been stented. If approved, it will be the only device on the market that has this capability.

      


  • Baron Funds Comments on Barracuda Networks Inc.

    Barracuda Networks, Inc. (CUDA) is a provider of cloud based security solutions to small and medium-sized businesses. Shares were up 122.5% in the period after a successful IPO. Typical Barracuda products include email, spam and malware protection. The company's revenue is largely recurring as it is subscription based, and Barracuda is in the midst of rolling out new storage products with higher ASP's than its current offerings. While the company went public in the quarter, we've known it for quite some time as it is a player in the network security space which we follow closely.

      


  • Baron Funds Comments on voxeljet AG

    voxeljet AG (VJET), a manufacturer of 3D printing equipment and provider of printing services, was an extreme performer in the period, gaining 267%.We purchased our investment at the time of voxeljet's IPO, but after the gain, we sold the investment because we could no longer justify the valuation even factoring in what we believe is a large market opportunity. We continue to follow the company and the 3D printing industry closely and would potentially re-invest at more reasonable valuations.

      


  • Baron Funds Comments on Tesoro Logistics

    Tesoro Logistics LP (TLLP) is a refiner and marketer of petroleum products. We view Tesoro's weak performance in the fourth quarter as mainly technical, since several peers made their debuts through IPOs and Tesoro's position in the AMZ index was rebalanced again, leading to some selling pressure. We continue to see significant cash flow growth for Tesoro over the next two to three years and believe in management's ability to develop and buy accretive assets. We see the current valuation gap between Tesoro and its peers as too wide.

    From Ron Baron (Trades, Portfolio)'s Baron Funds fourth quarter 2013 commentary.  


  • Baron Funds Comments on Flotek Industries

    Flotek Industries, Inc. (FTK) is primarily a supplier of specialty chemicals and directional drilling tools to the oil industry. Its products are principally used to enhance the productivity of unconventional resources and horizontal drilling operations. Flotek's shares pulled back in the quarter following flooding in Colorado and storms in Texas, which caused near-term earnings concerns. We continue to like Flotek's growth potential and we have been using the weakness to add to positions.

    From Ron Baron (Trades, Portfolio)'s Baron Funds fourth quarter 2013 commentary.  


  • Baron Funds Comments on Bonanza Creek Energy

    Bonanza Creek Energy, Inc. (BCEI) is an independent exploration & production company focused on the Niobrara Shale play in northeast Colorado. Bonanza shares rose to new highs in October and the company posted better than expected third quarter results, but its shares still slumped into year-end. Bonanza appears to have responded well to weather-related challenges and appears to be on track for another strong year of growth in 2014. However, investor concerns about Rockies oil price differentials due to infrastructure constraints may have weighed on the share price.

    From Ron Baron (Trades, Portfolio)'s Baron Funds fourth quarter 2013 commentary.  


  • Baron Funds Comments on Cobalt International Energy

    Cobalt International Energy, Inc. (CIE) is an offshore, deepwater-focused exploration and development company. The company has an active exploration program in the Gulf of Mexico and west coast of Africa. Its shares have been hurt over the last several months by a series of well results that were either completely unsuccessful or less successful than investors had anticipated. The company still has an attractive base of discovered resources and a deep inventory of undrilled prospects providing for long- term upside potential.

    From Ron Baron (Trades, Portfolio)'s Baron Funds fourth quarter 2013 commentary.  


  • Baron Funds Comments on Chart Industries Inc.

    After almost doubling in the first nine months of 2013, shares of Chart Industries, Inc. (GTLS) pulled back after third quarter results came in below expectations and management cut its 2013 guidance. Although timing of short term billings of large projects contributed to the shortfall, long term indicators such as backlog continued to show strength. We continue to see liquid natural gas increasing its share of global energy consumption and view Chart as a direct beneficiary, given its industry leading position in storage, distribution, chemicals, energy and biomed gases.

    From Ron Baron (Trades, Portfolio)'s Baron Funds fourth quarter 2013 commentary.  


  • Baron Funds Comments on Primoris Services Corp

    Primoris Services Corp. (PRIM), a leading specialty utility and industrial contractor, has substantial opportunities, in our view, for long-term growth. The stock was up 22.3% in the fourth quarter as management highlighted potential for multi-hundred million dollar wins on Gulf Coast industrial and water transportation work in West Texas. Both of these potential contracts would add to a strong multi-year backlog in large pipeline construction, pipeline integrity, and power plant construction.

    From Ron Baron (Trades, Portfolio)'s Baron Funds fourth quarter 2013 commentary.  


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User Comments

Francesca turner
ReplyFrancesca turner - 3 weeks ago
why is illumina performing so badly and do you still own it?



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