J. Dennis Jean-Jacques, CIO of Ocean Park Investments
Identifying a stock before it takes off is an elusive goal shared by many investors, but spotting three in a sector at once is an even more daunting task.
Ocean Park Investments, led by chief investment officer J. Dennis Jean-Jacques, has managed to do so in the artificial intelligence space, even as it looks beyond chipmakers like Nvidia And Advanced microsystemswhich have already attracted a lot of attention.
“We try to look for value opportunities in areas that people and businesses need and want,” Jean-Jacques told CNBC in a phone interview, adding that he has been taking a value approach for 25 years .
Thanks to this strategy, he identified three big winners: Eaton, Vertiv And Super microcomputer. All three companies are benefiting from the AI boom without directly competing with the chip giants.
Instead, according to the investor, two of them are likely to play a critical role in the transition to AI, while the third, Super Micro Computer, stands to benefit from its close ties to Nvidia.
Eaton benefits from the AI boom.
“Eaton occupies a dominant position in the electrification sector,” Jean-Jacques wrote in a newsletter provided to shareholders last week. The company focuses on building and maintaining power grids critical to the increased power and data centers required by the booming AI industry.
The International Energy Agency has predicted that the energy needs of data centers, AI and cryptocurrencies will double by 2026.
Eaton’s stock price has nearly reached that target over the past 12 months. That’s when Ocean Park saw the value of the title.
But this is not necessarily a popular opinion. Sixty-seven percent of analysts covering Eaton stock rate it a buy or overweight, according to FactSet. On average, they have a price target of $324.51, implying an upside of about 3% from Tuesday’s close.
Vertiv specializes in infrastructure and cooling technologies for the AI industry.
Around the same time the fund chose Eaton, Ocean Park also purchased Vertiv. The company, headquartered just outside Columbus in Westerville, Ohio, also builds power systems for data centers as well as cooling devices that enable servers and other manufacturing plants high technology to operate more efficiently. The stock is up more than 560% over the past year.
Analysts surveyed by FactSet are overwhelmingly positive on the stock, with almost all rating the shares a Buy or Overweight. The average price target of $89.06 implies an upside of over 8% ahead.
This technology company benefits from its relationship with Nvida, located just across the street in San Jose, California.
Super Micro’s gains over the past year have been even more staggering. He’s the biggest winner in Ocean Park. Jean-Jacques began acquiring the stock in mid-summer 2023. Since then, he is up 717%.
The stock is also the best performer in the S&P 500, with a gain of 243% so far in 2024. It was selected to join the index in March, replacing Whirlpool.
Although Super Micro is involved in several areas of the high-tech landscape, it is its close relationship with Nvidia, headquartered across the street in San Jose, California, that has attracted investors’ attention. The company is a key supplier to Nvidia that makes servers and other infrastructure, including server “clusters” used for training generative AI models.
Wall Street also likes stocks. On Tuesday, analysts at Loop Capital set a target of $1,500 for Super Micro. Additionally, JPMorgan officially began covering the stock with an “overweight rating” and a price target of $1,150, 25% higher than where the stock currently stands.
Having three performing stocks in the portfolio like Eaton, Vertiv, and Super Micro can be a once-in-a-lifetime event.
Jean-Jacques said the firm has about 40 long positions in its largest fund, the Ocean Park Omaha Dislocation Fund. It aims to keep each investment at a 3% cap to avoid overinvestment in one area.
Overall, the fund was up 8.61% in the first quarter of 2024, compared to a 10.5% gain for the S&P. But Ocean Park Investments has nearly tripled its HFRX Equity Hedge Fund Index over the same period. (There are different share class fees for Ocean Park investors, but a 1.5% management fee is typical depending on the fund.)
One of Jean-Jacques’ tests is to “look for operational efficiency” in companies that may have the capacity to increase their margins by 30 to 50%.
It also seems to value the skills of managers. Jean-Jacques was a long-time investor in Honeywell, led by CEO Dave Cote. It was Cote’s role on the Vertex board that helped him decide to invest.
Jean-Jacques also credits his ability to ask simple questions to industry insiders, saying that asking the right questions often leads to investment success.
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