Sohn Conference

GoDaddy, LendingClub and other stock picks from rising investing stars

Key Points
  • Marcelo Desio, a portfolio manager at Lucha Capital Management, likes GoDaddy for its potential to grow internationally in areas outside of website hosting.
  • Gil Simon, CIO and managing partner at SoMa Equity Partners, recommends Coupa Software for its ability to win major clients away from its competitors.
  • Seth Wunder, founder and portfolio manager at Black-and-White Capital, expects significant loan growth will help LendingClub's stock to more than double.
  • Vineer Bhansali, founder and CIO at LongTail Alpha, recommends investors buy ETFs in financial stocks and gold as a way to play the low volatility market.
David A. Grogan | CNBC

Before major investors gave their presentations at the Sohn investment conference in San Francisco, the "next generation of talent" in investing laid out their favorite stock picks, mostly in technology companies.

Here are the rising stars and the picks they shared Wednesday:

Marcelo Desio, portfolio manager, Lucha Capital Management

Pick: GoDaddy

"Really, it's more than just a domain company," Desio said. "We think it's a misunderstood growth stock."

Best known for hosting websites, GoDaddy has since expanded to a range of software products in areas such as search engine optimization and email services.

The market is also global.

"We think GoDaddy is in a great spot both internationally and domestically," Desio said. He pointed to how the company became a leading provider of .IN and .COM domains in India within five years.

The company also has a significant opportunity in small businesses, of which only half have an online presence, Desio said. He estimates the total addressable market is three times what it is now.

Gil Simon, CIO and managing partner, SoMa Equity Partners

Pick: Coupa Software

"This is the fastest-growing stock in our portfolio," Simon said.

Coupa's software helps companies see all their spending in one place, making it easier to identify excesses and cut costs. So far about $500 billion of corporate spending has gone through Coupa's system, allowing companies to save about $18 billion, Simon said, citing figures from Coupa.

The company went public last October and has about 600 customers, including Procter & Gamble and Coca Cola. Coupa can increase this customer base to "thousands over time," Simon said, adding that the company is taking customers away from major competitors such as enterprise software company SAP.

Seth Wunder, founder and portfolio manager, Black-and-White Capital

Pick: LendingClub

"LendingClub has the potential to be a high growth company taking advantage of technology and scale to produce high incremental margins," Wunder said. "Comparisons to specialty lenders are misplaced since LendingClub has limited absorption of credit risk."

Wunder noted that investors providing loans through the online lending platform bear the credit risk, rather than LendingClub itself. But even then, LendingClub has access to a broader range of consumer data than just FICO scores, allowing it to better assess credit risk than a traditional lender, he said, citing a case study with a regional bank.

New loans, or originations, through LendingClub increased 3.6 percent, to nearly $8.7 billion in 2016, despite a scandal that resulted in the CEO's resignation. Wunder said he expects originations to more than double to $20 billion in about five years.

With those growth prospects, Wunder expects the stock to climb 160 percent to $17 a share from Thursday's price around $6.50 a share.

Vineer Bhansali, founder and CIO, LongTail Alpha

Pick: Financial Select Sector SPDR ETF (XLF)

Rather than picking one stock, Bhansali laid out how investors should play "offense and defense" in a low volatility market.

"There is a lot of fear, but risk as expressed in the market is very low," he said, noting that investors generally still expect the central bank to support high stock prices.

Playing offense, his investment recommendation is to buy the Financial Select Sector SPDR ETF (XLF), which tracks banks, insurers and other financial companies that should benefit from rising interest rates.

On the defensive side, Bhansali likes physical assets such as the precious metal tracked by the SPDR Gold Shares ETF (GLD). He also recommends the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) as a way to benefit from rising interest rates and increased volatility.

Wednesday's event is the West Coast version of the prominent investment conferences which began in New York and are best known for hedge fund managers making market-moving presentations. The Sohn conferences benefit pediatric cancer and other causes for underserved youth. The conference is presented in partnership with CNBC.