In this article, we present the list of the top 10 stock picks Angela Aldrich’s Bayberry Capital Partners at the end of the second quarter. If you want to skip the fund’s history, recent performance and details about its overall portfolio, please go directly to 5 Best Stocks to Buy According to Angela Aldrich’s Bayberry Capital Partners.
Bayberry Capital Partners is a New York-based hedge fund founded by Angela Aldrich and Brian Smith in 2019. Prior to starting Bayberry Capital Partners, both Ms. Aldrich and Mr. Smith worked at John Griffin’s Blue Ridge Capital, which shut down in 2017 after a glorious 21-year run during which it returned its investors an average return of 15.3% annually.
Ms. Aldrich graduated from Duke University with an economics degree, after which she got her MBA from Stanford University Graduate School of Business. Ms. Aldrich has previously worked at Goldman Sachs, BDT Capital Partners and the now-defunct Scout Capital Management. Mr. Smith graduated from Boston University’s Questrom School of Business with a Bachelor’s of Science in Business Administration degree specializing in accounting. He spent more than 18 years at Blue Ridge Capital. After Blue Ridge Capital closed down and before starting Bayberry Capital Partners in the interim period, Mr. Smith also co-produced Broadway shows. His show ‘Once on This Island’ won a Tony award in 2018.
Bayberry Capital Partners’ Portfolio
The aggregate value of the fund’s 13F portfolio at the end of June was only $320 million, a slight decline from the $313.075 million that it was worth at the end of March. The firm had a large concentration of stocks from the finance sector in its portfolio at the end of June, contributing roughly 65% of the portfolio’s value in aggregate. During the second quarter, the fund made additional purchases in six stocks and initiated a stake in five companies. Janus International Group, Inc. (NYSE:JBI), WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC), and Zurn Water Solutions Corporation (NYSE:ZWS), which were among the fund’s top five stock picks at the end of Q1, continued to remain among Bayberry Capital Partners’ top five stock picks at the end of June.
Photo by Nicholas Cappello on Unsplash
Our Methodology
At Insider Monkey, we cover the portfolios of 895 hedge funds, closely tracking the stocks they buy and sell. We selected the ten stocks discussed in this article based on the 13F regulatory filing submitted by Bayberry Capital Partners with the SEC for the quarter ending June 30.
Best Stocks to Buy According to Angela Aldrich’s Bayberry Capital Partners
10. Funko, Inc. (NASDAQ:FNKO)
Bayberry Capital Partners’ Stake Value: $13,950,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 4.36%
Number of Hedge Fund Holders: 18
Funko, Inc. (NASDAQ:FNKO) is a pop culture consumer products company based in Everett, Washington. It was founded in 1989 by Mike Becker, who is not involved with the company in any capacity anymore. Funko, Inc. (NASDAQ:FNKO) was acquired by ACON Investments in 2015 and became a public company after it filed for a $200 million IPO in late-2017. Since getting listed, Funko, Inc.’s (NASDAQ:FNKO) stock has more than tripled.
Earlier this year, the Chernin Group (TCG), a multi-stage investment firm, announced that a consortium led by TCG would be making a $263 million strategic investment in Funko, Inc. (NASDAQ:FNKO). As part of the deal, TCG and its investor consortium purchased 80% of ACON Investments’ stake in the company or 12,520,559 Funko Class A common stock, for $21 per share. Following the completion, TCG and its investor consortium, which includes eBay (NASDAQ:EBAY) and former Disney CEO Robert Iger, will own 25% of the company.
9. Cannae Holdings, Inc. (NYSE:CNNE)
Bayberry Capital Partners’ Stake Value: $14,989,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 4.68%
Number of Hedge Fund Holders: 19
Cannae Holdings, Inc. (NYSE:CNNE) is an investment company that primarily invests in financial services firms, technology-enabled healthcare services, and restaurant businesses. Cannae Holdings, Inc.’s (NYSE:CNNE) stock has lost more than half of its value since peaking above the $45 level in January last year. However, smart money investors had been fleeing the stock much earlier. Among funds covered by Insider Monkey, only 19 disclosed a stake in the company at the end of the second quarter, down from 43 during the same time two years ago.
For its most recent quarter, Cannae Holdings, Inc. (NYSE:CNNE) reported a GAAP per share loss of $3.15 on revenue of $174.5 million, missing analysts’ estimates by $3.22 and $52.73 million, respectively. Despite the earnings disappointment, a day later, on August 9, analysts at Stephens reiterated their ‘Overweight’ rating on the stock while upping their price target to $42 from $41, representing a potential upside of close to 100% from the stock’s last closing price.
8. Berry Global Group, Inc. (NYSE:BERY)
Bayberry Capital Partners’ Stake Value: $17,102,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 5.34%
Number of Hedge Fund Holders: 37
Berry Global Group, Inc. (NYSE:BERY) has been a part of Bayberry Capital Partners’ portfolio since the first quarter of 2020. However, the fund has been consistently reducing its stake in the metals and glass container company for the past three quarters. During the second quarter, the fund lowered its stake further by 19% to 313,000 shares. Apart from Bayberry Capital Partners, billionaire Steve Cohen’s Point72 Asset Management and Ricky Sandler’s Eminence Capital also lowered their holdings in the company by 36% to 350,200 shares and by 9% to 2.33 million shares during the second quarter, respectively.
Berry Global Group, Inc.’s (NYSE:BERY) expects to generate $750 million in free cash flow this year and is currently trading at a forward price-to-earnings multiple of only 6.33. In its second-quarter letter to investors, Bonhoeffer Capital Management, an investment management firm, had this to say about Berry Global Group, Inc. (NYSE:BERY):
“As described in previous letters, our investment universe has been extended beyond value-oriented special situations to include growth-oriented firms using a value framework. This includes companies that generate growth through transition and consolidation. There have been modest changes within the portfolio in the last quarter in line with our low historical turnover rates. We sold some of our slowergrowing names and invested some of our cash into Thryv (described in the case study below) and Berry Global Group, as well as to fund the Millicom rights offering and oversubscription. There are also some interesting developments in the US digital marketing market that I discuss below.
One example of public LBO firms you have in your portfolio is Berry Global (Berry). Berry is a plastic and engineering materials packaging firm that provides packaging solutions to health, hygiene products, and consumer products firms in the United State and Europe. Berry’s growth model focuses on plastic and engineered materials continuing to take more shares of packaging from other materials, specifically in the health, hygiene, and consumer products realm where the growth is the strongest which provides 2- 3% annual growth. Synergistic M&A is adding an additional 3-4% per year to growth. These sources of growth are enhanced by opportunistic operational leverage from scale and share repurchases (5% annual growth). Over the past eight years, Berry’s net income margins doubled, with a 3x increase in revenues. These factors should lead to 10-12% EPS growth going forward. Berry has had 18% and 28% EPS growth over the past five and 10 years, respectively. Part of Berry’s strategy is to lever up to purchase a geographically expanding or complementary product packaging firm and pay the debt down with cash flows post acquisition, similar to private equity funds. Berry has done this three times since its IPO in 2011. Once debt is paid down a reasonable level, Berry has been repurchasing stock if another reasonably priced acquisition cannot be found. This strategy is similar to that of Asbury, described in previous letters. Compared to other packaging firms, Berry has amongst the highest inventory turns and margins. This has resulted in 25% to 40% returns on equity over the past five years. Berry currently trades for a FCF multiple of about 7.6x and a free cash flow yield of 13%. Berry’s BBBrated debt (with an EBITA coverage ratio of 6.2x) is currently yielding 6.2%, for a FCF-debt yield of 6.8%, which is high compared to the current market equity risk premium of about 5% and the projected growth in excess of the market. Given the projected EPS growth of 10% per year, Berry should trade at 29x earnings using Grahams’ formula of 8.5 + 2 * growth rate. Even at half this multiple—15x—Berry would trade at two times its current price.”
7. Ferguson plc (NYSE:FERG)
Bayberry Capital Partners’ Stake Value: $17,714,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 5.54%
Number of Hedge Fund Holders: 32
Ferguson plc (NYSE:FERG) was the only stock among Bayberry Capital Partners’ top ten stock picks at the end of Q2 in which the fund initiated a stake during the second quarter itself. Though Ferguson plc’s (NYSE:FERG) stock has fallen close to 40% this year, its popularity among smart money investors has been soaring. The number of funds, among those tracked by Insider Monkey that disclosed a stake in the plumbing and heating giant, climbed to 32 at the end of Q2 from just 18 at the end of Q1.
Like Berry Global Group, Inc. (NYSE:BERY), Ferguson plc’s (NYSE:FERG) stock is also trading at a low forward price-to-earnings multiple of only 9.27, which could be one of the reasons why hedge funds are so enthusiastic about the stock and its future prospects. On September 27, Ferguson plc (NYSE:FERG) reported its fourth quarter and fiscal 2022 full-year numbers. During FY 2022, the company’s net sales grew by 25.3%, while its adjusted operating profit increased by 41.1%. It also made 17 acquisitions in the last fiscal year.
6. Arthur J. Gallagher & Co. (NYSE:AJG)
Bayberry Capital Partners’ Stake Value: $26,576,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 8.31%
Number of Hedge Fund Holders: 31
Bayberry Capital Partners initiated its stake in Arthur J. Gallagher & Co. (NYSE:AJG) during the last quarter of 2021 and proceeded to boost it by 43% and 4% in the subsequent two quarters. Shares of Arthur J. Gallagher & Co. (NYSE:AJG) have been resilient amidst a broader stock market rout this year as they currently trade up by around 5% year-to-date. However, despite the outperformance of the stock, several hedge funds have been reducing their holdings in the insurance broking company. This list includes names like James Parsons’ Junto Capital Management which lowered its stake by 23% to 523,479 shares, and Daniel Johnson’s Gillson Capital which trimmed its holdings by 17% to 420,046 shares.
On September 29, Arthur J. Gallagher & Co. (NYSE:AJG) announced that it would be acquiring Buffalo, New York-based M&T Insurance Agency, which is a unit of M&T Bank Corporation (NYSE:MTB). The transaction is expected to close during the fourth quarter, and Arthur J. Gallagher & Co. (NYSE:AJG) is all set to become M&T Bank Corporation’s (NYSE:MTB) preferred insurance broking partner. On October 7, analysts at Jefferies Financial Group boosted their price target on Arthur J. Gallagher & Co.’s (NYSE:AJG) stock to $215 from $208, representing a potential upside of over 20% from the stock’s current trading price.
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Disclosure: None. 10 Best Stocks to Buy According to Angela Aldrich’s Bayberry Capital Partners is originally published on Insider Monkey.
