Ron Baron

Ron Baron

Last Update: 01-10-2017

Number of Stocks: 309
Number of New Stocks: 24

Total Value: $18,864 Mil
Q/Q Turnover: 2%

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

Ron Baron Watch

  • Baron Funds Comments on Dominion Midstream Partners

    Dominion Midstream Partners, L.P. (NYSE:DM), a holder of natural gas storage, processing, and transportation assets, was also a new purchase in the quarter. The company is a high growth MLP formed by Dominion Resources, Inc., a diversified energy company that provides electricity and natural gas to homes and businesses in the eastern U.S. Dominion Resources recently acquired Questar and as part of that transaction, Dominion Midstream completed its acquisition of Questar Pipelines and the related financing. The market anticipated the equity financing and pushed the stock lower ahead of the equity offering. We took advantage of the pressure to buy what we believe is a long-term growth opportunity at an attractive price. As Dominion Midstream completed the equity offering, the stock price appreciated, validating our belief that recent stock pressure was purely technical in nature. We continue to like Dominion Midstream both because of its 22% guided distribution growth and its large “drop down” inventory of assets that can be sold from Dominion Resources to Dominion Midstream over time.


    From Baron Discovery Fund's fourth quarter 2016 commentary.

      


  • Baron Funds Comments on Liberty Expedia Holdings

    Liberty Expedia Holdings, Inc. (NASDAQ:LEXEA) is a holding company where the majority of the value is derived from its stake in Expedia, Inc., and therefore the stock trades largely in tandem with Expedia. We are bullish on Expedia, the largest online travel agency (“OTA”) in the U.S. and the second largest in the world. We think the investments that Expedia is making in both its core OTA business and in its HomeAway business (acquired in December 2015) that caused a headwind to profitability this year, will ultimately show respectable returns in 2018. We believe we bought the company at a depressed multiple because of near-term earnings headwinds and, in time, we believe the stock has significant upside as these headwinds abate.


    From Baron Discovery Fund's fourth quarter 2016 commentary.

      


  • Baron Funds Comments on Foundation Medicine

    Foundation Medicine, Inc. (NASDAQ:FMI) is a high end genomic cancer testing and information services company. Delays in obtaining reimbursement have caused guidance reductions, and shares have dropped significantly since Roche purchased over 50% of the company at $50 per share in early 2015. Now there is a definitive catalyst that we believe will be a game changer. Foundation Medicine has submitted an application to the FDA for approval of its tissue based test which could sanction its use as a companion diagnostic for FDA approved drugs covering over 40% of the metastatic cancer population in the U.S. Moreover, as part of the process, Foundation Medicine is simultaneously seeking CMS (the Medicare payer) coverage for the test. We expect approval to be obtained in the second half of 2017.


    From Baron Discovery Fund's fourth quarter 2016 commentary.

      


  • Baron Funds Comments on Cerus Corp

    Cerus Corporation (NASDAQ:CERS) has an FDA and EU approved device that inactivates pathogens such as viruses and bacteria in donated blood. Current regulatory approvals cover use of the Cerus device for platelets and plasma from donated blood (an $800 million worldwide, and $350 million U.S. market opportunity, for which Cerus has signed up over 80% of all U.S. blood centers). If additional approvals for usage with red blood cell (RBC) components are obtained, Cerus will add an estimated $2.5 billion in market opportunity ($1 billion in the U.S., in the same blood centers), for which there is no current competition. Shares slipped in the fourth quarter as the company slightly extended its timeline (by what we estimate might be one to two quarters) to get the RBC product to market. We believe Cerus is targeting EU approval for RBC in early 2018, and we believe that U.S. approval could be obtained for RBC in 2019. We believe growth prospects for Cerus are significant for 2017 and beyond.


    From Baron Discovery Fund's fourth quarter 2016 commentary.

      


  • Baron Funds Comments on Flotek Industries

    Flotek Industries, Inc. (NYSE:FTK) is primarily a supplier of chemical additives to the global oil & gas industry with some other ancillary oilfield service operations. The company has a proprietary product dubbed “complex nano-fluid (CnF)” that is proving to be extremely effective at increasing oil & gas shale well productivity. The company’s shares fell in the quarter following the assertion by a short-seller that independent consultant studies commissioned by Flotek earlier in 2016 were based on incomplete data and therefore the short-seller questioned the efficacy of the CnF product. In response to these allegations, the independent consultants referenced above later incorporated additional data and still reiterated their conclusions about the positive impact of CnF on customer well productivity. We expect Flotek’s shares to rebound as the company demonstrates that customer demand for CnF remains strong.


    From Baron Discovery Fund's fourth quarter 2016 commentary.

      


  • Baron Funds Comments on Qualys

    Qualys, Inc. (NASDAQ:QLYS) is a cloud-based cybersecurity services provider that specializes in assessing software vulnerabilities of hardware attached to internet networks. Shares were down in the quarter as investors worried that the costs of launching new products would hamper operating margins in 2017. The company has been very successful with new product offerings, particularly its cloud agent technology, which allows customers to see changes to hardware configurations in a rapid and dynamic manner. This allows for quicker responses to potential cyber-intrusions. We are not concerned, and we applaud this kind of value-generating investment. Qualys is accelerating its revenue growth to nearly 20% and continues to trade at a very reasonable multiple of real free cash flow whereas many of its cyber peers are still losing money.


    From Baron Discovery Fund's fourth quarter 2016 commentary.

      


  • Baron Funds Comments on Novadaq Technologies

    Novadaq Technologies Inc. (NASDAQ:NVDQ) is a medical imaging company. Its tools, which show blood flow (perfusion), have been clinically proven to dramatically improve outcomes in many types of surgeries, including colon resection (where a segment of colon is removed and the ends are re-attached), breast reconstruction (typically in cancer surgeries), and many other general surgeries. Significant clinical trials are underway with leading medical institutions that will assess the ability of Novadaq devices in guiding complex lymph node surgeries related to the spread of cancer. The company also sells human-based tissue replacement (complementary to breast reconstruction, and potentially useful for diabetic foot ulcer treatment). Shares fell in the fourth quarter due to, what in our opinion was, a misunderstanding of the halting of a clinical trial in colon resection. The company halted the trial (which was to be a larger version of a prior successful trial in the space) because its devices have been proven to be so good that the company couldn’t find doctors willing to forego its use on surgeries needed to create a control group cohort. Another issue holding back the shares is a change of business plan to sell capital equipment to customers over three-to-four years versus an upfront payment, which defers revenue and cash flow. Thus, despite recurring revenues growing at 40-50% rates (half the business), equipment sales growth has slowed to single digits. This has caused overall revenue growth to slow to 25% from about 30%-40% growth. We are assessing the situation, but believe the current multiple reflects the change in business dynamics. Also, because of the model change, more of the company’s revenues will be recurring, making Novadaq more attractive to potential acquirers, particularly at its current valuation.

      


  • Baron Funds Comments on ESCO Technologies

    ESCO Technologies, Inc. (NYSE:ESE) posted an impressive 20% earnings per share increase in its September quarter. Management drove solid organic growth, supplemented by four announced acquisitions that should be accretive. In addition, a major comparable company operating in its filtration segment was purchased at a very high multiple, highlighting that much value still remains in ESCO’s equity. In November, ESCO offered positive guidance for its upcoming fiscal year. Also, like many industrial stocks, it has benefited from the perception that the proposed policies of President-elect Trump will be positive for the economy.

      


  • Baron Funds Comments on Dominion Midstream Partners

    Dominion Midstream Partners, L.P. (NYSE:DM), a holder of natural gas storage, processing and transportation assets, was a contributor in the quarter. The company acquired assets of Questar pipeline during the quarter, which was highly accretive to unit holders. The announced deal also removed the overhang of an equity offering that was also concluded during the quarter. We believe the company still has a large pipeline of future drop downs, and we remain comfortable with management’s 22% distribution growth guidance.

      


  • Baron Funds Comments on BlackLine

    BlackLine, Inc. (NASDAQ:BL) modernizes manual accounting processes through a cloud solution, providing better visibility and efficiency to customers. BlackLine’s shares outperformed this quarter, as the company continued to grow its market share both in the mid- and high-end portions of the market and continued to expand its strategic partnerships. With its growing product line and investments in sales capacity, we believe that BlackLine should continue its rapid sales growth going forward.

      


  • Baron Funds Comments on Kinsale Captial Group

    Kinsale Captial Group, Inc. (NASDAQ:KNSL) is a specialty insurance company that focuses exclusively on excess and surplus lines, which includes risks that are unique or hard to place in the standard insurance market. The company, which went public in July 2016, outperformed in the fourth quarter after reporting excellent financial results. Earnings were much higher than expected thanks to strong underwriting and favorable reserve development. The stock also benefited from a secondary offering that increased float and a sector rotation into small-cap financials following the U.S. elections on expectations for faster economic growth, higher interest rates, and lower corporate tax rates. We continue to own the stock because of Kinsale’s niche market focus, industry-leading growth, industry-leading ROE, and experienced management team.

      


  • Baron Funds Comments on Mercury Systems

    Mercury Systems, Inc. (NASDAQ:MRCY) is a provider of complex electronic subsystems to major defense contractors. In March, Mercury made a significant acquisition of a defense unit that was part of Microsemi Corp. This unit added embedded protection capabilities that are like military hardware cybersecurity, as well as solid state storage capabilities for its systems (versus using hard disk drives). During the fourth quarter, shares performed well as Mercury continued to win contract awards. This was aided by the sentiment that a Republican administration will be more likely to increase defense spending. We agree with this theory, but believe that Mercury’s growth is likely to be driven as much, or more, by market share gains as more work is outsourced to it by major defense prime contractors.

      


  • Baron Discovery Fund 4th Quarter Letter

    What a year! Baron Discovery Fund (the “Fund”) turned in a really nice performance in 2016, up 21.73% (Institutional Shares), or 10.41% ahead (after fees) of the Russell 2000 Growth Index. In the fourth quarter, the Fund’s performance was flat, and the Fund lagged the index by 3.57%.

      


  • Manchester United: England’s Most Valuable Football Club

    Not sure if legendary investor Ron Baron is a fan of the sport or supporter of the club, but his 37% stake (via Bamco) is at least one reason to think about this stock, even if you’re not a fan of European football. Throw in small positions from Renaissance Technologies and DE Shaw, and it’ll be worth reading more.


    Last summer, CNBC ran an article on the most valuable sports franchises, putting Dallas at the top of the list. Manchester United (NYSE:MANU) was fifth behind the New York Yankees and the two Spanish football powerhouses – FC Barcelona and Real Madrid making it the largest publicly traded sports team in any market.

      


  • Baron Funds Comments on Qualys

    Cybersecurity Cybersecurity is another IT area in which we are finding promising investment opportunities, although the intense competition in this space means it is important to be selective. Qualys, Inc. (NASDAQ:QLYS) is a cloud-based cybersecurity services provider to large corporate clients that specializes in assessing software vulnerabilities of hardware attached to internet networks. Qualys is accelerating its growth and continues to trade at what we believe is a reasonable multiple of real free cash flow, whereas many of its peers are still losing money. It’s a fully subscription-based business, which leads to high revenue visibility.


    From Baron Discovery Fund's Investing in Earlier Stage Small Cap Growth Companies January 2017.

      


  • Baron Funds Comments on PaciraPharmaceuticals

    Other companies we favor have wrapped intellectual property around an already proven pharmaceutical to create a new, protected franchise. The risk of not receiving approval for such products is significantly lower than for a typical bio-pharma investment. An example is PaciraPharmaceuticals, Inc. (NASDAQ:PCRX), whose FDA-approved medication is comprised of the pain killer bupivacaine combined with proprietary IP called Depo-Foam that enables its timed release. The product is appealing as it can in many cases eliminate the need for post-operative opiates and result in a shorter hospital stay.


    From Baron Discovery Fund's Investing in Earlier Stage Small Cap Growth Companies January 2017.

      


  • Baron Funds Comments on Education Realty Trust

    Education Realty Trust, Inc. (NYSE:EDR) is an example of a ballast company. It is the second largest U.S. student housing operator, with a $2 billion portfolio nationwide. We believe we are in the early innings of an outsourcing trend in which universities constrained by tighter budgets are reaching out to the private sector to develop and operate student housing. We think the company will benefit from the resulting increases in occupancy and rents as well as the build-out of its development pipeline.


    From Baron Discovery Fund's Investing in Earlier Stage Small Cap Growth Companies January 2017.

      


  • Baron Funds Comments on MACOM Technology Solutions Holdings

    Growth These are companies that typically have revenue growth of 15%-20% that we think will lead to significant future earnings growth. These companies are generally more established than the higher growth companies in which we invest. An example is MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI), a high performance analog semiconductor company. MACOM sells its semiconductors, components, and subsystems to the communications, aerospace/defense, and industrial (including medical) markets. MACOM’s engineered analog chips are valuable IP-protected products. Their value is borne out by high operating margins of 23% (which we believe can expand to 40%). We believe the company can triple its revenues to $1.5 billion over the next five years, and increase profits even faster. We think its addressable market is $9.5 billion.


    From Baron Discovery Fund's Investing in Earlier Stage Small Cap Growth Companies January 2017.

      


  • Baron Funds Comments on Wingstop Inc.

    Another example of a high growth company is Wingstop Inc. (NASDAQ:WING), a franchisor of Wingstop fast-casual restaurants, which offer a chicken wing-based menu. Wingstop offers franchisees high returns on new units at a relatively low initial investment. This attractive feature, combined with innovative marketing, has driven industry-leading unit and same-store-sales growth over the past few years, which we believe can continue for several more years. With 98% of its units franchised, we believe Wingstop will be highly capital efficient, eventually allowing management to return significant amounts of capital to shareholders.

      


  • Baron Funds Comments on Glaukos Corporation

    High growth These are higher risk/return companies typified by revenue growth of 20% or more that we believe will lead to dramatic earnings growth in the future. This category includes newer businesses with novel products or services. Yet these companies are not venture businesses. An example is Glaukos Corporation (NYSE:GKOS), a medical device company that sells a stent used to treat glaucoma, a disease that damages the optic nerve due to fluid buildup inside the eye. Glaukos’ first generation device, which is inserted into the eye during cataract surgery, has been proven to decrease intraocular pressure. Glaukos also has a promising product pipeline that includes next generation stents for stand-alone glaucoma procedures and an injectable drug delivery implant. The company has a two-year lead over its competitors, patent protection, and strong clinical data. We believe the addressable market exceeds $5 billion.

      


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