This article discusses the top 10 stock picks of Charles Paquelet’s Skylands Capital at the end of the second quarter. If you are interested in knowing only the top five stock picks of this fund based in the Midwest, please go to 5 Best Stocks to Buy According to Charles Paquelet’s Skylands Capital.
Charles Paquelet has been heading Skylands Capital since he started the fund in 2004. However, Skylands Capital’s origin can be traced back to 1983 when its predecessor firm Strong Capital Management launched the first of its five private investment portfolios.
Mr. Paquelet graduated from Case Western Reserve University’s Weatherhead School of Business in 1987 with a Bachelor of Science degree and then proceeded to get his MBA from Indiana University in 1989. He is also a CFA charterholder. Before joining Strong Capital Management, Mr. Paquelet worked as a financial analyst for B.F. Goodrich & Company.
At Strong Capital Management, Mr. Paquelet served as the portfolio manager for four mutual funds, an offshore hedge fund, two private investment partnerships and several separate accounts. In 2004, with support from Strong Capital Management’s owners and senior management, Mr. Paquelet led a management buyout of the former’s hedge fund business unit, resulting in the creation of Skylands Capital.
Skylands Capital’s Portfolio
Skylands Capital takes pride in doing on-ground research. According to the fund, its employees visit between 500 and 700 companies annually, talking to their management and evaluating opportunities. At the end of June, the fund revealed holding 148 positions in its 13F portfolio with an aggregate value of $682.115 million, a considerable decline from the $826.07 million aggregate value it had reported at the end of the first quarter. Skylands’s top 10 stock picks, which included names like Arch Resources, Inc. (NYSE:ARCH), General Motors Company (NYSE:GM) and Apple Inc. (NASDAQ:AAPL) accounted for over 45% of its portfolio’s aggregate value at the end of Q2. We will discuss those stocks in detail in this article.
Photo by Austin Distel on Unsplash
Our Methodology
To select Skylands Capital’s top 10 stock picks at the end of June, we looked at the fund’s most recent 13F filing submitted with the SEC. Including Skylands Capital, at Insider Monkey, we actively track the portfolios of 912 hedge funds and share our findings with our readers.
Best Stocks to Buy According to Charles Paquelet’s Skylands Capital
10. Grand Canyon Education, Inc. (NASDAQ:LOPE)
Skylands Capital’s Stake Value: $14,870,000
Percentage of Skylands Capital’s 13F Portfolio: 2.17%
Number of Hedge Fund Holders(Q1): 21
There was a noteworthy decline in smart money’s interest in Grand Canyon Education, Inc. (NASDAQ:LOPE) during Q1 as the number of hedge funds tracked by us that held the stock declined by around 25% in that period. After suffering a more than 50% decline between mid-2019 and March 2020, Grand Canyon Education, Inc.’s (NASDAQ:LOPE) has been mostly trading in the $70 to $100 range since then.
On August 4, Grand Canyon Education, Inc. (NASDAQ:LOPE) reported its FY2022 second-quarter numbers. Though the company managed to top analysts’ EPS estimates by $0.01, declaring $0.85 in non-GAAP EPS for the period, its revenue of $199.75 million was $1.31 million lower than analysts’ expectations. Additionally, for its fiscal Q3, Grand Canyon Education, Inc. (NASDAQ:LOPE) lowered its service revenue guidance. The company now expects Q3 service revenue to be between $207.3 and $209.3 million from the $209.8 million and $218.0 million range it had predicted earlier.
9. Oshkosh Corporation (NYSE:OSK)
Skylands Capital’s Stake Value: $15,531,000
Percentage of Skylands Capital’s 13F Portfolio: 2.27%
Number of Hedge Fund Holders(Q1): 28
Skylands Capital upped its stake in specialty vehicles manufacturer Oshkosh Corporation (NYSE:OSK) marginally by 4% during the second quarter. Oshkosh Corporation’s (NYSE:OSK) stock has declined by over 27% year-to-date but is still up almost 250% in the last decade.
Oshkosh Corporation (NYSE:OSK) was founded in 1917 in the town of Oshkosh in Wisconsin. The company had a long history of regular dividend payments before the financial crisis forced it to stop paying dividends in early 2009. In late 2013 Oshkosh Corporation (NYSE:OSK) resumed paying quarterly dividends and, since then, has managed to rebuild its reputation among the dividend investor community. Oshkosh Corporation’s (NYSE:OSK) annual dividend payment per share has grown by close to 12% annually in the last five years. The company currently pays 55.12% of its net income as dividends and, based on its current stock price, has a forward dividend yield of 1.78%.
8. Beacon Roofing Supply, Inc. (NASDAQ:BECN)
Skylands Capital’s Stake Value: $17,620,000
Percentage of Skylands Capital’s 13F Portfolio: 2.58%
Number of Hedge Fund Holders(Q1): 14
Skylands Capital has held a stake in Beacon Roofing Supply, Inc. (NASDAQ:BECN) for a very long time. As per regulatory filings, Skylands initiated its stake in the company for the first time in the third quarter of 2004. Beacon Roofing Supply, Inc. (NASDAQ:BECN) has been a distributor of residential and non-residential roofing materials and building products to contractors, home builders, and retailers since 1928.
For its FY2022 second quarter, Beacon Roofing Supply, Inc. (NASDAQ:BECN) reported earnings per share of $2.12 on revenue of $2.36 billion on August 4, beating analysts’ expectations by $0.15 and $80 million. During the quarter, the company saw y-o-y sales growth in all three of its line of business(LOB). While sales in the residential line of business grew 22%, non-residential and complementary sales were up by 40% and 19%, respectively, compared to the same quarter last year.
7. Owens Corning (NYSE:OC)
Skylands Capital’s Stake Value: $21,647,000
Percentage of Skylands Capital’s 13F Portfolio: 3.17%
Number of Hedge Fund Holders(Q1): 26
Owens Corning’s (NYSE:OC) stock has largely remained stable and rangebound during the last one year. However, hedge funds’ interest in the company seems to be on the decline. At the end of the first quarter, 26 hedge funds covered by us reported a stake in Owens Corning (NYSE:OC), down from 35 at the end of 2021.
Earlier this month, Owens Corning (NYSE:OC) disclosed acquiring Illinois-based spray polyurethane foam insulation manufacturer Natural Polymers for an undisclosed sum. Natural Polymers products are used for construction and building applications, and Owens Corning (NYSE:OC) expects to grow this business significantly in the coming years.
6. FMC Corporation (NYSE:FMC)
Skylands Capital’s Stake Value: $21,787,000
Percentage of Skylands Capital’s 13F Portfolio: 3.19%
Number of Hedge Fund Holders(Q1): 26
FMC Corporation (NYSE:FMC) was Skylands Capital’s sixth favourite stock pick at the end of June. Shares of FMC Corporation (NYSE:FMC) recently made their all-time high of $140.99 in April this year but have corrected almost 25% since then.
Aristotle Capital Management, an independent/employee-owned investment management organization, is also bullish on FMC Corporation (NYSE:FMC). In its first quarter 2022 letter to investors, here is what the firm said about the company:
“FMC is an agricultural sciences company providing solutions for the protection of crops from different pests. Its products are used by farmers to ensure bugs, weeds and fungi do not negatively impact their harvest. Headquartered in Philadelphia, Pennsylvania, the company has a rich history dating back to 1883 when inventor John Bean set out to build a better insecticide spray pump. Over the decades, through acquisitions, FMC became a disparate collection of chemical companies. FMC has transformed itself to solely focus on crop chemicals, having acquired DuPont’s crop chemicals portfolio in 2017, and completed the separation of its lithium business in 2019. FMC is now one of the largest patented crop protection companies globally.
Its presence is balanced both geographically around the world, as well as from a crop exposure standpoint, with soybeans being the largest at roughly 20% of total revenue. In terms of products, FMC’s portfolio skews toward insecticides, which account for over 60% of its revenue. The remainder are herbicides (~25%), as well as fungicides and other crop chemicals (~15%).
High-Quality Business
Some of the quality characteristics we have identified for FMC include:
- Strong portfolio of brands allowing for differentiation outside of price, as many customers refer to the brand name, not the active ingredient;
- Strong competitive position with many products being either protected by patents or niche products, perhaps unlikely to be targeted by generics;
- Oligopolistic industry, as FMC is one of just five companies that collectively contribute the majority of research and development performed on crop protection chemicals; and
- Capable management team with operational experience and ability to commercialize new products.
Attractive Valuation
We believe FMC’s current stock price is offered at a discount to our determination of the company’s intrinsic value given our estimates of both enhanced margins and higher earnings on a normalized basis.
Compelling Catalysts
Catalysts we have identified for FMC, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include:
- FMC is poised to benefit from its focus on crop chemicals, as yield gains are needed to support rising food consumption in emerging markets;
- Continued margin improvements from its product pipeline. These new products should be particularly effective against insects, weeds and fungi that have grown resistant to traditional crop chemicals; and
- Further cross-selling of FMC products to DuPont customers. For example, in Argentina, 78% of the customers it gained from the DuPont acquisition were unique to FMC, providing cross-selling opportunities.”
Click to continue reading and see 5 Best Stocks to Buy According to Charles Paquelet’s Skylands Capital.
Suggested articles:
Simon Sadler’s Segantii Capital is Bullish on These 10 Stocks
7 Best Stocks to Buy According to Stephen Feinberg’s Cerberus Capital Management
Morris Mark’s Mark Asset Management Latest Portfolio: Top 10 Stock Picks
Disclosure: None. 10 Best Stocks to Buy According to Charles Paquelet’s Skylands Capital is originally published on Insider Monkey.
