It's certainly been an interesting market recently. The Dow Jones Industrial Average and S&P 500 index are at or near record highs, but there is a wide spectrum when it comes to sector performance. Specifically, some of the highest-growth stocks in the market and the companies that entered 2021 with the most momentum have dropped significantly in recent weeks.
I decided to take advantage of some of the bargains in the market by adding shares to some of my favorite stock positions in my own portfolio. Here are three in particular I've added to recently, and why I'm so optimistic about each one.
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The market can't seem to figure this company out
Boston Omaha (BOC 3.62%) is a company unlike any other in the market. Often compared to an early stage Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%), Boston Omaha owns a few subsidiary businesses, has minority stakes in a few others, and owns a portfolio of common stock investments. It also has a special purpose acquisition company, or SPAC, that it sponsors called Yellowstone Acquisition (YSAC), which is still looking for a company to take public.
Recent price action highlights the fact that the market doesn't really know how to value the company. Boston Omaha's stock price soared from about $15 in September to nearly $50 earlier in 2021 on very little news. And since that time, it has lost nearly half of its value, also on little news. Sure, the company recently announced a secondary stock offering, but that happened after the recent decline.
Boston Omaha is using the Berkshire model of creating shareholder value over the long term, with little concern for quick profits. The company's management team has shown their ability to allocate capital wisely, and I'm taking advantage of this correction by adding to my position.
A disruptive player in an industry that sorely needs disruption
It may sound odd that insurance disruptor Lemonade (LMND 0.83%) is down by nearly 50% from its 52-week high. The company hit 1 million customers in late 2020, and in a fraction of the time it took some of the biggest insurance companies in the market to hit the same milestone. In-force premiums increased by 87% year-over-year in the fourth quarter, the company's loss ratio improved dramatically, and its customers are spending more, on average, as time goes on.
And most importantly, Lemonade just entered the term life insurance market in the first quarter, and the reviews so far have been generally fantastic. Life insurance is an $800 billion market that is just begging to be disrupted. The process of applying for life insurance is clunky at best, and can be aggravating to the point where many people simply give up. If the company can replicate its success in homeowners and renter's insurance in the life insurance market, Lemonade's growth story could still be in the very early chapters.
Keeping the faith in Chamath
Technically, this is two more stocks I've added to, but I'll group them into the same category. While I certainly think the SPAC boom has gone a bit too far, I'm a big believer that the blank check companies led by top-notch managers are still great places to park money. And that's especially true now as many of the most closely watched SPACs have seen their premium valuations all but evaporate.
That's why I added to the two Chamath Palihapitiya-led SPACs that are still searching for acquisition targets, Social Capital Hedosophia Holdings IV (IPOD) and Social Capital Hedosophia Holdings VI (IPOF). Both are down from 52-week highs of $18.31 and $17.81, respectively, and now trade for about $11.
While we don't know what companies these SPACs will ultimately take public, the risk/reward certainly looks far more attractive right now. Remember that these SPACs have roughly $10 per share sitting in trust accounts, which sets somewhat of a price floor in the meantime. Palihapitiya's previous SPACs have a solid track record -- three of the four that have identified targets are up by 70% or more from their $10 SPAC IPO price, so at a price closer to that level, I like my odds much better, and decided to buy more of both.
Lots of bargains to be found
These are just a few examples of the companies in my portfolio that have been hit hard in the recent market action. There are plenty of great companies with rapid growth, great management, and/or massive addressable market opportunities to put money to work right now. The bottom line is that when stocks you love decline -- even when it happens quickly and sharply -- it's a good opportunity to take advantage, not to be fearful.
