Have you noticed there are some beaten-down growth stocks that appear more valuable than the market gives them credit for? If so, you're in good company. Steven Cohen of Point 72 Asset Management and James Simons of Renaissance Technologies have been buying up shares of some growth stocks that peaked last year and have been beaten mercilessly ever since.
Following in the footsteps of great investors isn't a bad way to pick your own stocks. Before blindly following anyone, though, let's look at the bets these billionaire investors recently placed and see what makes them attractive in the first place.
James Simons of Renaissance Technologies started a new position in Shopify (SHOP -1.04%) by purchasing around 14 million shares during the second quarter. The e-commerce giant was seen as a big winner during the stickiest moments of the COVID-19 pandemic, but the stock has fallen around 81% from its peak last year.
Since its founding in 2006, Shopify has emerged as the leader when it comes to providing merchants with business solutions. The company has expanded from just offering online stores that accept payments to offering point-of-sale and fulfillment solutions.
The stock has been under pressure lately because it's investing heavily in warehouses and fulfillment services in an attempt to keep up with Amazon. The investments are working. More merchants joining Shopify plus existing merchants keeping their subscriptions pushed monthly recurring revenue during the second quarter 13% higher year over year.
Amazon is still the king of e-commerce in North America, but Shopify has significant advantages. For example, third-party sellers can easily get lost in a sea of competitors that often include Amazon itself. When merchants sell products on Shopify, they can retain far more control over their relationships with customers than they'd would from Amazon.
Steven Cohen and Point72 Asset Management significantly increased a long position in Stoneco (STNE 0.09%), a Brazilian fintech company, during the second quarter. This is a little surprising because the stock has lost around 90% of its value since peaking in early 2021.
StoneCo mainly offers solutions for merchants that want to sell across borders, with a concentration in Brazil. The stock is down mainly because the company tried to rapidly institute a credit offering that blew up in its face. As a result, the previously profitable company reported a loss of $285.5 million in 2021. The debacle led to some dramatic executive leadership changes and ended its ambition to be a major financier of small to medium-sized businesses.
Cohen and Point72 were likely attracted to StoneCo because the company's core businesses are still going strong. Once we exclude the impacts of the company's ill-fated credit products, StoneCo reported second-quarter revenue that more than doubled year over year. After adjusting for one-time charges, net income in the second quarter came in at $15.1 million compared to a $30.7 million loss a year earlier.
Good stocks to buy now?
At recent prices, StoneCo stock trades for just 2.1 times trailing sales. The company's credit product offering was poorly executed, but it looks like the worst problems are already in its rear-view mirror. There are probably better stocks to buy in the e-commerce arena right now. That said, you could also do a lot worse than StoneCo.
Shopify's more established and far more expensive at 8.2 times trailing sales. Despite the higher multiple, Shopify looks like a much better stock to buy at the moment. The sheer amount of merchandise purchased via Shopify solutions has grown at a compound annual growth rate of 50% over the past three years. The company still has a lot of room to grow and a proven ability to execute plans that expand its offerings.