Paul Lambert, CFA, is a Portfolio Manager at Tocqueville Asset Management L.P. Mr. Lambert is the Portfolio Manager of the Tocqueville Opportunity Fund and for several private wealth clients of the firm. He also provides research support for the U.S. Multi Cap Equity Strategy at Tocqueville Asset Management.
Prior to joining Tocqueville in 2010, Mr. Lambert served as a securities analyst at Key Bank where he worked within their Asset Recovery Group helping middle-market companies to restructure their debt. Mr. Lambert received his A.A. from Dean College in 2005 and a B.S. from Babson College in 2007.
In the extensive and wide ranging 2,144 word interview, exclusively in the Wall Street Transcript, Paul Lambert of the Tocqueville Opportunity Fund details his current and future stock buying plans.
“The Tocqueville Opportunity Fund (MUTF:TOPPX) focuses on small- and medium-sized U.S. companies that exhibit clearly defined sustainable competitive advantages tied to secular growth opportunities.
These companies typically offer a disruptive technology that makes their customers more productive and efficient or have a product or service that is extremely difficult to replicate. Our sector ratings are, as of today, 60% in technology, 17% in health care, 12% in industrials and 5% in consumer discretionary.
I have been working on the fund for about 10 years now and took over as lead Portfolio Manager within the last three years.”
The Tocqueville Opportunity Fund portfolio is maintaining it’s large tech stock positions:
“The revenue model of the companies that assist in digital transformation are recurring-revenue, subscription-based businesses. They are getting very predictable revenues with low churn rates and high gross margins — typically 80%-plus — which allows for rapid reinvestment of capital for new product development and cross-sell of existing products.
We are very bullish on technology as we sit here today and believe we are in the early innings of the digital transformation theme.”
This leads to the Tocqueville Opportunity Fund (MUTF:TOPPX) top picks:
“Our biggest position remains Shopify (NYSE:SHOP), which was our biggest position pre-pandemic. And it is our biggest position post-pandemic.
We could not be more bullish about the company’s prospects. Early on, when all the lockdown restrictions went into place as a result of the pandemic, brick-and-mortar retailers that were without online capabilities were basically out of business.
As a result, they were turning to companies like Shopify to, at the very least, get an online store and take payments. Shopify saw its merchant count double in 2020 from about a million merchants to roughly 2 million.
Part of the allure and genius of Shopify is its open architecture platform, which enables a robust developer network and more choices for merchants. On the sales side, Shopify has partnered with some of the biggest retailers and social media companies including Facebook/Instagram (NASDAQ:FB), Pinterest (NYSE:PINS), Walmart (NYSE:WMT) and Google (NASDAQ:GOOG).
This makes it easier for Shopify merchants to reach more end consumers through an integrated offering that enables online consumers to transact on a Shopify store seamlessly. We believe this is a very important development and only deepens Shopify’s moat versus other competitors.
Despite these positive developments, Shopify has been very aggressive reinvesting capital in areas like logistics, Shopify Capital to help their merchants grow faster, and they are investing in marketing.
They are doing all these things to help their end merchant transact more through the platform. And the more commerce that goes through the Shopify platform, the more Shopify and its shareholders benefit because they get a requisite take rate.
The secular growth theme of ecommerce is accelerating. Today, approximately 20% of worldwide retail sales happens online and we expect that to increase considerably as consumers have gotten more comfortable transacting online.”
The recurring revenue model is found in another top holding of the Tocqueville Opportunity Fund (MUTF:TOPPX):
“ServiceNow (NYSE:NOW) is our second-largest position. It is one of the preeminent enterprise software providers as it functions as a platform of platforms that sits on top of an enterprise tech stack.
It enables digital workflows to be done faster and quicker through its low code products. NOW’s software offering can sit on top of all the legacy software applications and can integrate with them. As businesses embark on their digital transformation, enterprises are using the NOW platform to facilitate digital workflows and expedite time-intensive tasks.
The company has shown impressive growth, compounding revenues at 35% for the last five years.
They are projected to do about $5.5 billion in revenues in 2021 with a 30% free cash flow margin, which is one of the best combinations of growth and profitability in software. We continue to be very bullish on the company as its opportunity set continues to grow.
Management estimates its total addressable market at roughly 160 billion. This includes its products in areas such as IT service management, IT operations management, customer service management, and human resources.
Eighty-five percent of the Fortune 500 are already customers and NOW has a retention rate of over 95%, so clearly large enterprises are seeing the positive impacts of the NOW platform. We believe the company is in the very early innings of upselling and cross-selling its enterprise install base, which could expand FCF margins even further as cross-selling is the most capital efficient way to grow revenues.”
Even in other sectors the Tocqueville Opportunity Fund (MUTF:TOPPX) likes to keep focus on the recurring revenue model:
“Within industrials we have been selective. One of the sectors we continue to be bullish on is housing. We think the steady migration out of urban areas will continue and that has put upward pressure on housing prices.
Homeowners have more home equity and are reinvesting back into their homes as work from home is likely a trend that will persist for some time. The way we have approached the sector is somewhat like the technology sector insofar as targeting companies with recurring or maintenance revenues.
Pool Corp (NASDAQ:POOL) and SiteOne Landscape (NYSE:SITE) are examples.
Both have large maintenance components to their revenue base, north of 50%. Pool Corp is a name we have owned for a long time. They are a wholesale distributor of swimming pool supplies, equipment and related leisure products.
Sixty percent of their revenue base is maintenance; pools require constant attention — from chlorine to keep the right pH levels to pumps to keep the water fresh and circulating.
These types of expenditures cannot be delayed or ignored, which has manifested in very sustainable revenue growth and high ROIC. We remain positive on the company as homeowners have been electing to construct pools, which requires these maintenance purchases.
SiteOne Landscape Supply is one the largest distributors of commercial and residential landscape supplies…”
Get the complete detail on the 2021 top picks from the Tocqueville Opportunity Fund (MUTF:TOPPX) by reading the entire
Paul Lambert, CFA, Portfolio Manager
Tocqueville Asset Management L.P.