When it comes to investing, Daniel Sparks is lighting it up. According to TipRanks.com, his 300-plus stock picks since 2013 have averaged a gain of 26.2 per cent within a year. This performance puts him in the top three of the 6,842 financial bloggers tracked by TipRanks.
Prior to obtaining an MBA, the thirtysomething Mr. Sparks worked as an apprentice electrician, entrepreneur, and soldier in the U.S. Army on active duty in Germany and Afghanistan. He currently lives in Colorado and writes for the Motley Fool investing website.
The Globe and Mail recently spoke with Mr. Sparks about his investing approach.
How do you decide which companies make good investments?
My ideal investment is one with meaningful profit margins relative to peers, rapid revenue growth and improving cash flow from operations. And it has to have good operating leverage, meaning revenues are growing faster than operating expenses. There also has to be a strong competitive advantage, a management team with a great track record, meaningful insider ownership and a conservative valuation.
You are a contributing senior technology specialist at the Motley Fool – why have you chosen to focus on technology stocks?
A key reason I concentrate on tech stocks is because of their scalable business models, which can lead to faster-than-expected revenue growth for longer-than-expected periods – often while maintaining lucrative profit margins.
Do you have other asset classes in your portfolio besides stocks?
Since I have a high tolerance for volatility and a long-term approach to investing, I maintain a fairly small cash position in my portfolio, with the rest invested in stocks.
What has been your worst investment?
Buying Tesla Inc. stock in 2013 paid off nicely in the beginning but doubling down on the electric-car maker’s stock as its shares soared in subsequent years was a mistake. Though the company’s gross profit has soared since 2014, it took Tesla longer than I expected for its operating expenses as a percentage of revenue to come down.
What has been your best investment?
Apple Inc. has been one of my best investments. I bought early and held on for years, adding to the position at times when shares dipped to irrational levels.
Do you still like Apple?
Yes. While iPhone sales may be lacklustre compared to year-ago periods, and concerns persist about the impact of a U.S.-China trade war on its business, Apple’s cheap valuation relative to its underlying fundamentals means these risks are largely already priced into the stock. In addition, Apple’s high-margin services business and its nascent wearables segment are morphing into significant catalysts for the tech giant.
What is your top stock idea at this time?
My top pick is Telaria Inc. It’s a software company that helps online video publishers like Hulu sell their ads. Not only is Telaria growing rapidly, but its growth has accelerated in the past two quarters. Further, its trailing 12-month profit margin is a mind-boggling 84 per cent and cash flow from operations is on the rise. Yet, measured by price-to-sales ratio, Telaria trades at a significant discount compared to other peers benefiting from the same secular tailwinds in connected TV.
What else do you like?
I also like Walt Disney Co. I see the evolving landscape of television – from traditional, linear TV to internet-streaming TV – as an opportunity for the House of Mouse to improve the monetization of its high-quality content. Management’s plan to launch and expand direct-to-consumer platforms will allow the company to build a subscription business while earning more on each ad spot thanks to the improved targeting for connected-TV ads compared to linear TV ads. This opportunity and Disney’s long history of growing its bottom line, more than justifies its price-to-earnings ratio of 17.
This interview has been edited and condensed.
Special to The Globe and Mail