Baron Funds recently released its portfolio updates for the second quarter of 2021, which ended on June 30.
Founded by Ron Baron (Trades, Portfolio) in 1982, Baron Funds is a long-term asset management firm that invests in well-researched value opportunities led by quality management teams. The firm seeks to ignore short-term market fluctuations as long as they do not change a company’s fundamentals. Baron manages the Growth and Partners funds and co-manages the Asset Fund, with a preference for small and mid-cap companies that might be struggling now but which demonstrate strong competitive advantages and growth prospects.
Based on its investing criteria, the firm’s top buys for the quarter were RingCentral Inc. (RNG, Financial) and Zymergen Inc. (ZY, Financial), while its biggest sells were Opendoor Technologies Inc. (OPEN, Financial) and IDEXX Laboratories Inc. (IDXX, Financial).
RingCentral
The firm added 453,242 shares, or 60.89%, to its investment in RingCentral (RNG, Financial) for a total of 1,197,548 shares. The trade had a 0.30% impact on the equity portfolio. During the quarter, shares traded for an average price of $285.53.
Based in Belmont, California, RingCentral is a provider of cloud-based communications and collaboration solutions for businesses. Its offerings include message, video, phone and contact center services for small businesses, larger enterprises, service providers and developers.
On Aug. 13, shares of RingCentral traded around $252.76 for a market cap of $23.13 billion. According to the GuruFocus Value chart, the stock is modestly undervalued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 2 out of 10. The cash-debt ratio of 0.23 is lower than 90% of industry peers, though the Altman Z-Score of 7.73 indicates the company is not in danger of bankruptcy. The three-year earnings per share growth rate is 26.4%, but the three-year earnings per share without non-recurring items growth rate is -150.2%, showing a significant decline in profitability.
Zymergen
The firm took a 2,666,218-share stake in Zymergen (ZY, Financial), impacting the equity portfolio by 0.24%. Shares traded for an average price of $39.32 during the quarter.
Zymergen is an American biotech startup that develops genetically engineered microbes used for industrial fermentation. It went public in April of 2021, but it has come under fire in August as a class-action lawsuit from shareholders is suing the company for misleading them.
On Aug. 13, shares of Zymergen traded around $10 for a market cap of $1.0 billion. Since it went public near the end of April, the stock is down 73%.
The company has a financial strength rating of 3 out of 10 with a cash-debt ratio of 1.52 after its successful initial public offering. With an operating margin of -2,233.17% and a net margin of -2,264.66%, the company is still a long way away from becoming profitable.
Opendoor Technologies
The firm cut its Opendoor Technologies (OPEN, Financial) position by 5,678,556 shares, or 97.46%, leaving a remaining holding of 147,779 shares. The trade had a -0.29% impact on the equity portfolio. During the quarter, shares traded for an average price of $17.84.
Opendoor is a residential real estate company that makes instant cash offers on homes through its online process, repairs the properties it purchases and then relists them for sale. It charges a 5% fee for reducing the complexity and hassle of the traditional selling process.
On Aug. 13, shares of Opendoor traded around $17.55 for a market cap of $10.61 billion. Since the stock went public in December of 2020, shares have lost 32%.
The company has a financial strength rating of 5 out of 10. Following its successful public offering, the company’s cash-debt ratio stands at 2.68. With an operating margin of -31.20% and a net margin of -35.96%, the company is not yet profitable.
IDEXX Laboratories
The firm trimmed its stake in IDEXX Laboratories (IDXX, Financial) by 214,247 shares, or 7.36%, for a remaining holding of 2,696,326 shares. The trade had a -0.26% impact on the equity portfolio. Shares traded for an average price of $550.32 during the quarter.
IDEXX Laboratories is a multinational veterinary services company based in Westbrook, Maine. It develops, manufactures and distributes products for and provides services to domestic and livestock veterinary practices. It also operates in the water testing and dairy markets.
On Aug. 13, shares of IDEXX Laboratories traded around $672.10 for a market cap of $57.18 billion. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 10 out of 10. The cash-debt ratio of 0.23 is lower than 84% of industry peers, though the Piotroski F-Score of 8 out of 9 implies a very healthy financial situation. The return on invested capital is consistently higher than the weighted average cost of capital, meaning the company is creating value as it grows.
Portfolio overview
As of the quarter’s end, Baron Funds held shares in 394 stocks valued at a total of $40.57 billion. The turnover rate was 5%.
The top holdings were Tesla Inc. (TSLA, Financial) with 9.56% of the equity portfolio, IDEXX Laboratories with 3.90% and CoStar Group Inc. (CSGP, Financial) with 3.56%. In terms of sector weighting, the firm was most invested in consumer cyclical, technology and health care.
