In this article, we discuss the 10 best stocks to buy now according to Eminence Capital.
Investing prowess runs in Ricky Sandler’s family. The manager of prominent hedge fund Eminence Capital had a 13F portfolio worth more than $7 billion at the end of the first quarter of 2024. His father was a research analyst at Goldman Sachs, one of the premier investment banks in the world, and later went on to manage a hedge fund. Sandler has had a somewhat similar career trajectory, beginning as a research associate for Mark Asset Management before making his name as a hedge fund manager at Fusion Capital Management. In 1999, Sandler founded Eminence Capital, growing the small fund into a multi-billion dollar investment firm over the course of two decades. The fund focuses on uncovering value in the market through fundamental research, an art that seems to be dying on Wall Street as fast money schemes become more popular.
The investing philosophy of Sandler has been influenced by his work at Mark Asset Management and Fusion Capital Management. At the former, Sandler learned the importance of focusing on a bottom-up research strategy aimed at picking great businesses. At the latter, Sandler learned that investing in good businesses was not enough. In order to create wealth, money managers had a duty to invest in great businesses at value prices, thereby creating room for future growth. Sandler calls this the “quality value” approach to investing. He made these comments in an appearance on the Equity Mates podcast last year. Sandler, in remarks made during the podcast, stressed that investors should not only buy at good prices but should also not stay invested in equities when they become too expensive. Young investors would do well to pick up on this simple yet effective tip.
At Eminence Capital, Sandler has developed a long-short equity strategy that has paid huge dividends for clients. Per the hedge fund manager, the Asian debt crisis in the late 1990s was one of the formative events in his life that led him to understand the value of an effective shorting strategy. During the crisis, the International Monetary Fund had to pump in more than $40 billion into large economies in East Asia to contain the spread of the meltdown to the world economy. The company Sandler was a part of at the time owned stakes in many mid-cap Asian firms that were hit particularly hard by the crisis, leading to huge losses for his fund. Sandler now makes sure that his stock pickers spend at least half of their time developing individual stock shorts, a strategy that aims to build up the defenses of his fund should the market take a turn for the worst.
Sandler believes that in the present economic environment, only investors that have valuation discipline and short selling skills will be able to keep pace with the changing dynamics of the stock market. However, he also underlines that long bets remain equally important. The New York-based manager outlines his long investing philosophy as owning mispriced stocks that have the potential to take a turn for the better in the coming two or three years. Sandler emphasizes the importance of investing in ownable companies — businesses that he describes are well-positioned competitively, sound structurally with trusted management teams, and able to generate solid cash flows. Sandler urges money managers to invest only in firms that they would be comfortable investing in for their family portfolio. A look at the top picks in his latest 13F portfolio illustrates this strategy in action.
Our Methodology
For this article, we scanned the stock portfolio of Eminence Capital according to the 13F filings submitted at the end of the first quarter of 2024. We selected the top 10 stocks from this portfolio. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Ricky Sandler of Eminence Capital
Top Stock Picks of Eminence Capital
10. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 61
Eminence Capital’s Stake: $167,259,761
Sea Limited (NYSE:SE) is a Singapore-based technology company with interests in a wide array of businesses that include digital entertainment, ecommerce, and fintech. Eminence Capital bought a stake in the company during the fourth quarter of 2024. In the first quarter of 2024, Sandler effectively doubled this stake. This underlines his bullish call on the stock even as it emerges from a strong 2023, with solid revenue growth, improved profitability, market expansion, and positive financial outlook. In earnings for the first quarter of 2024, posted in mid-May, the company reported a revenue of more than $3.7 billion, up over 22% compared to the revenue over the same period last year.
There are several reasons why Sandler believes that Sea Limited (NYSE:SE) stock may still be mispriced, even after gaining more than 23% in value over the past year. One of these is the growth of Free Fire, a popular video game across the world that is played by tens of millions. After the post-COVID bust, video games sales are turning around. The digital financial services offered by the firm are also booming. In the recent earnings report, the firm reported that digital services grew revenues by 21% from the previous year. It highlighted that the loan book reached $3.3 billion, increasing 29% from the prior year.
In a recent investor letter, Lakehouse Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:
“At the portfolio level, the biggest contributor to performance during the month was Sea Limited (NYSE:SE) (+18.2%), which performed well as both Shopee and its primary competitor, TikTok Shop, raised take-rates meaningfully across several countries during the quarter. This is a noteworthy development as we are now starting to see mounting evidence of more rational competitive behaviour from the dominant players in Southeast Asia’s e-commerce market, which in turn,signals a more favourable industry structure lay ahead.”
9. Okta, Inc. (NASDAQ:OKTA)
Number of Hedge Fund Holders: 54
Eminence Capital’s Stake: $176,179,452
Okta, Inc. (NASDAQ:OKTA) owns and runs an identity management platform. Even though the company faces tough competition from giants in the cybersecurity sector that can spend more, it has managed to adapt and even grow the user base in the past few months, underlining the superiority of the identity and access management software offered by the firm. In the recent earnings report, the firm reported that it had grown revenue by more than 19% year-over-year in Q1 2024, driven by the boost it had received as a result of winning large customers in the public sector. During the first three months of 2024, the firm raked in 150 new customers, bringing the total number of customers to over 19,000.
Even as Okta, Inc. (NASDAQ:OKTA) embarks on an aggressive sales mission, the fundamentals remain strong. Last year, the firm posted more than $2.26 billion in revenue, up 22% compared to the previous year. This top-line growth was driven by subscription revenue, which increased 23% to over 2.20 billion. The company also significantly improved its profitability. Non-GAAP operating income for the full year was $310 million, or 14% of total revenue, compared to a non-GAAP operating loss of $10 million in the previous year. This turnaround demonstrated effective cost management and operational efficiency.
8. Louisiana-Pacific Corporation (NYSE:LPX)
Number of Hedge Fund Holders: 48
Eminence Capital’s Stake: $177,034,744
Louisiana-Pacific Corporation (NYSE:LPX) provides building solutions primarily for use in new home construction, repair and remodeling, and outdoor structure markets. The stock has performed well over the past year, jumping close to 20% in value on the back of strong revenue growth, improved profitability, and effective capital management. For Q1 2024, the firm reported revenue of $724 million, a 24% increase compared to the same quarter last year. This beat analyst estimates of $686 million, showcasing robust top-line growth. The EPS over the period was $1.53, significantly exceeding the consensus estimate of $1.13. This also marked an improvement from the EPS of the same period in the prior year, indicating enhanced profitability.
Other financial metrics also highlight the strong position of Louisiana-Pacific Corporation (NYSE:LPX) in the present market. The adjusted EBITDA for the firm in the first quarter of 2024 was $182 million, up from $66 million in the first quarter of 2023. This substantial increase underscored the improved operational efficiency and cost management of the firm. The firm also demonstrated the ability to convert revenue into profit more effectively, as the net income for Q1 2024 was $137 million, compared to $37 million in Q1 2023. The firm also paid out $57 million in dividends in the first quarter of the year, returning value to shareholders.
In its Q1 2024 investor letter, Cooper Investors, an asset management firm, highlighted a few stocks and Louisiana-Pacific Corporation (NYSE:LPX) was one of them. Here is what the fund said:
“Highlights are often the private site tours we undertake with portfolio companies, two worth discussing on this trip were with Louisiana-Pacific Corporation (NYSE:LPX) and Eurofins Scientific (Eurofins). LP is a business we invested in mid-2023 and represents a Low-Risk Turnaround where the proposition is a commodity-to-specialty transformation story. The company is a leading manufacturer of wood-based building materials produced from its 24 mills and finishing plants, comprising ~4bn sq. ft of Oriented Strand Board (OSB) capacity and ~2bn sq. ft of siding capacity. Historically, OSB was the core output of LP but is a commoditised product in which LP is a price-taker. Group profits and losses swung around and led to highly volatile earnings over the years for a business at the whim of the underlying OSB price.
Siding on the other hand is a genuinely differentiated product that gives LP pricing power and generates consistent incremental margins of 25-30%. Made in the same mills as OSB using engineered wood flake and embossed with a grain finish (a processing marvel we’ve witnessed first-hand at a Source: Company Disclosures, Redburn Atlantic mill in Upper Michigan), LP ‘Smartside’ is a sustainable way to wrap homes in an attractive durable substrate that is gaining popularity among small and medium builders…” (Click here to read the full text)
7. LPL Financial Holdings Inc. (NASDAQ:LPLA)
Number of Hedge Fund Holders: 47
Eminence Capital’s Stake: $194,415,797
LPL Financial Holdings Inc. (NASDAQ:LPLA) provides an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at enterprises. The stock holds immense value for investors, indicated by revenue and earnings growth over the past few months, recent strategic acquisitions and partnerships, an impressive dividend profile, and the advisory and brokerage assets it holds. For example, the firm has recently entered into agreements to acquire Atria Wealth Solutions and is preparing to onboard the wealth management businesses of Prudential Financial and Wintrust Financial. These acquisitions are expected to enhance the market position of the company and provide substantial growth opportunities.
LPL Financial Holdings Inc. (NASDAQ:LPLA) has grown assets under management in the past few months primarily driven by organic growth and the successful onboarding of new clients and advisors. These would in turn strengthen the financial position of the firm by contributing to higher fee-based revenue. At the end of the first quarter of 2024, total advisory and brokerage assets of the firm grew to $1.22 trillion, up from $1.10 trillion at the end of Q1 2023, representing an 11% increase.
In its Q4 2023 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and LPL Financial Holdings Inc. (NASDAQ:LPLA) was one of them. Here is what the fund said:
“LPL Financial Holdings Inc. (NASDAQ:LPLA) is the largest independent broker-dealer in the U.S. Shares declined 4.1% in the quarter as expectations for the number of interest rate cuts in 2024 increased (shares still finished the year up 12.7%). LPL invests idle client cash in both floating as well as fixed rate contracts. Rate cuts could reduce LPL’s cash revenues and earnings from its floating rate contracts. LPL’s interest rate exposure has also made it a favored stock for short-term traders to gain exposure to higher interest rates. We believe some of the stock weakness was a result of these investors reducing their stake as rates look set to fall. On a long-term basis, we believe that even under conservative assumptions for rates, the stock offers a positively skewed risk/reward profile. Moreover, LPL’s execution continues to be strong as it gains share among advisors and wins large enterprise deals. We therefore remain shareholders and have been adding to our position.”
6. Amazon.com, Inc. (NASDAQ:AMZN) CALL
Number of Hedge Fund Holders: 302
Eminence Capital’s Stake: $229,623,740
Amazon.com, Inc. (NASDAQ:AMZN) is a diversified technology firm with core interests in ecommerce. The value proposition of the stock can be understood by looking at a few key financial metrics and strategic moves made public by the firm over the past few months. Over the last twelve months, the company has generated earnings per share of $3.57. This value is expected to grow by 23% in the coming year, from $4.72 to $5.80 per share. This gives the stock plenty of room for growth and seems consistent with the Sandler strategy of buying good companies at value prices.
Amazon.com, Inc. (NASDAQ:AMZN) is investing heavily in expanding AWS infrastructure and capabilities, with plans to launch new regions and data centers, indicating long-term growth prospects and a commitment to maintaining a competitive edge. The ongoing innovation in AI and cloud services, exemplified by new AWS capabilities and customer adoption, positions the firm favorably in rapidly growing tech sectors
In a recent investor letter, Lakehouse Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“Amazon.com, Inc. (NASDAQ:AMZN) delivered an impressive quarterly result that also came in well ahead of analyst expectations. Net sales increased 13% year-on-year to $143.3 billion and operating profits increased 219% year-on-year to $15.3 billion (vs the high end of guidance at $12.0 billion). As has been the case for several quarters now, the highlight of the result was the significant improvement in profitability metrics, as management continues to drive cost efficiencies across its retail operations and Amazon Web Services (AWS). Amazon delivered to Prime members at its fastest speeds ever. In March, across the top 60 largest U.S. metro areas, nearly 60% of Prime member orders arrived the same or next day, and in London, Tokyo, and Toronto, 3 out of 4 items were delivered the same or next day. Bigger picture, we continue to believe that the market underestimates the length of the runway ahead in the core retail business (note that e-commerce sales in the U.S. still only make up 15% of total retail sales) and that there is still significant margin expansion ahead as scale and efficiency benefits continue to come through.”
5. Graphic Packaging Holding Company (NYSE:GPK)
Number of Hedge Fund Holders: 28
Eminence Capital’s Stake: $247,071,933
Graphic Packaging Holding Company (NYSE:GPK) designs, produces, and sells consumer packaging products to brands in food, beverage, foodservice, household, and other consumer products. In the past few months, the company has reported impressive growth in sales numbers along with a steady improvement in margins. In the six years spanning 2017 to 2023, the company managed to double sales to around $9.4 billion. As a packaging firm primarily focused on food, the management has slowly transitioned to a sustainable packaging model that is likely to pay dividends in the long term. As the earnings of the firm continue to grow, there is room for the valuation multiples of the firm to expand as well, positioning it nicely as a key Sandler bet in the coming months.
As Graphic Packaging Holding Company (NYSE:GPK) invests in operations, analysts expect cash flow generation to remain a cause of concern moving forward. However, this seems to be a short-term problem only as operating profits remain solid. Last year, the company grew operating profits from $906 million to $1.17 billion. The earning margins are growing as well. The adjusted EBITDA margins for the firm improved to 19.9% in 2023 from 16.9% in 2022, indicating enhanced profitability and operational efficiency.
In its Q2 2023 investor letter, L1 Capital, an asset management firm, highlighted a few stocks and Graphic Packaging Holding Company (NYSE:GPK) was one of them. Here is what the fund said:
“As a child, I am sure you tossed a coin and called out “Heads I win, tails you lose!” – seemed witty at the time. At today’s share price we believe Graphic Packaging Holding Company (NYSE:GPK) presents almost as good an investment opportunity – more like “Heads we win, tails we don’t lose!” We outlined the investment case for Graphic Packaging International in our June 2021 Quarterly Report and the substance of our views then remain current today. Right now the market is concerned about weakness in demand for paperboard packaging and medium-term increases in supply of paperboard. Both concerns are valid, but in our view are overly reflected in Graphic Packaging International’s share price.
Graphic Packaging International supplies the boxes used by food, beverages, household and personal care companies. Normally demand growth is modest but relatively stable, supported by a continuous environmentally driven shift away from plastic packaging, but it is not macro immune. Recently a number of consumer staples companies have reported weakening demand, as well as some destocking by retailers who are looking to better match demand with their inventory levels. These issues will impact Graphic Packaging International, but to a modest extent and only for a temporary period. Graphic Packaging International also benefits from supplying packaging for house brand products which are benefitting from trade-down by cost conscious consumers…” (Read more)
4. Corteva, Inc. (NYSE:CTVA)
Number of Hedge Fund Holders: 50
Eminence Capital’s Stake: $255,472,679
Corteva, Inc. (NYSE:CTVA) operates in the agriculture business. The past few months have demonstrated the strong financial performance of the firm and the ability it has to maintain growth and profitability despite market challenges. For example, the firm reported net sales of $4.8 billion in Q1 2024, a 2% increase compared to the $4.7 billion in Q1 2023. This growth was driven by a 6% increase in price, but was partially offset by a 2% unfavorable currency impact and a 1% decline in both volume and portfolio. The firm posted an adjusted EPS of $0.89 for Q1 2024, surpassing expectations and indicating solid earnings growth.
Corteva, Inc. (NYSE:CTVA) has been featured in the Eminence portfolio since the third quarter of 2019. In the first three months of 2024, Sandler increased the fund’s stake in the firm by around 17% compared to the previous quarter, highlighting his bullish thesis on the stock. At the end of the first quarter of 2024, 50 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in Corteva, Inc. (NYSE:CTVA), compared to 51 the preceding quarter worth $1.2 billion.
In its Q1 2024 investor letter, Aristotle Capital Management, an asset management firm, highlighted a few stocks and Corteva, Inc. (NYSE:CTVA) was one of them. Here is what the fund said:
“Corteva, Inc. (NYSE:CTVA), the seed and crop protection company, was one of the largest contributors. As discussed in last quarter’s commentary, we believed the crop protection business was at or near a cyclical bottom in 2023, as customer destocking followed a 2020-2022 period of robust orders. Share prices have subsequently risen with Corteva’s crop protection sales falling just 5% in the previous quarter, an improved result compared to the 9% full-year decline, accompanied by guidance calling for a return to growth in the second half of 2024. However, as long-term investors, we look past cyclical fluctuations and are encouraged as Corteva further executes on many of the catalysts we identified. These include continued innovation (with over 400 new product launches in 2023) and share gains for the company’s Enlist E3 soybeans, which achieved 58% market penetration in 2023 and became the top-selling soybean technology in the U.S.”
3. CF Industries Holdings, Inc. (NYSE:CF) CALL
Number of Hedge Fund Holders: 35
Eminence Capital’s Stake: $276,323,768
CF Industries Holdings, Inc. (NYSE:CF) engages in the manufacture and sale of hydrogen and nitrogen products for energy, fertilizer, emissions abatement, and other industrial activities. The firm has several competitive advantages over peers, positioning it favorably against market fluctuations and making it a classic Sandler stock. For example, the company is the largest producer of nitrogen fertilizer in North America. It also benefits from low US natural gas prices. This gives it a cost advantage over competitors in the global arena and allows for positive free cash flow, even at low fertilizer prices.
At the end of the first quarter of 2024, Eminence Capital held more than 3.3 million shares of CF Industries Holdings, Inc. (NYSE:CF) worth over $276 million, representing 3.91% of the overall 13F portfolio. In the first three months of the year, Sandler decreased the fund’s stake in the firm by nearly 5% compared to the previous quarter. Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm AQR Capital Management is a leading shareholder in CF Industries Holdings, Inc. (NYSE:CF) with 681,526 shares worth more than $56 million.
2. Ashland Inc. (NYSE:ASH)
Number of Hedge Fund Holders: 25
Eminence Capital’s Stake: $319,895,893
Ashland Inc. (NYSE:ASH) provides additives and specialty ingredients in North and Latin America, Europe, Asia Pacific, and internationally. In April, the firm posted earnings for the second quarter of 2024, reporting earnings per share of $1.27, beating market expectations by $0.14. The revenue over the period was $575 million, down 5% compared to the previous year but in-line with estimates. In guidance numbers, the firm said it expected sales in the range of $560 million to $580 million and adjusted EBITDA in the range of $138 million to $148 million in the third quarter. For the full fiscal year, the firm expected sales in the range of $2.150 billion to $2.225 billion and adjusted EBITDA in the range of $470 million to $500 million.
Eminence Capital has consistently maintained a stake in Ashland Inc. (NYSE:ASH) since the second quarter of 2019. At the end of the first quarter of 2024, this stake represented 4.53% of the total 13F portfolio, despite a 7% quarter-over-quarter reduction by Sandler. At the end of the first quarter of 2024, 25 hedge funds in the database of Insider Monkey held stakes worth $616 million in Ashland Inc. (NYSE:ASH), compared to 21 the preceding quarter worth $609 million.
In its Q2 2023 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Ashland Inc. (NYSE:ASH) was one of them. Here is what the fund said:
“Our bottom contributors in Q2 included Ashland Inc. (NYSE:ASH) and Cal-Maine Foods. Ashland is a high-quality, specialty ingredients company providing both natural and synthetic ingredients to customers in the pharmaceuticals, home and personal care, and coatings industries. During Q2, Ashland’s customers — primarily distributors — destocked, which in turn led management to lower full-year guidance and pressured shares. However, in our view, destocking tends to exaggerate any end-market weakness, and we anticipate any effects should be transitory and minimally impact the company’s intrinsic value.”
1. Zillow Group, Inc. (NASDAQ:Z) CALL
Number of Hedge Fund Holders: 60
Eminence Capital’s Stake: $366,508,530
Zillow Group, Inc. (NASDAQ:Z) is a digital real estate firm. One of the reasons why Sandler has doubled down on his bullish bet on the firm is that the shares have lost nearly 25% in value over the past few months, creating a buying opportunity for long term bulls. Even as the stock dips, the underlying numbers for the firm remain strong. For example, the rentals business of the firm is growing at a healthy 30% year-over-year. The business is operating in a total addressable market of over $25 billion. The adjusted earnings of the firm are also growing at an impressive 20%, highlighting the health of the stock even amid a sell-off.
Latest 13F filings show that Eminence Capital held over 7.5 million shares of Zillow Group, Inc. (NASDAQ:Z) at the end of the first quarter of 2024 worth more than $366 million, representing 5.19% of the portfolio. Sandler increased the fund’s stake in the firm by nearly 120% in the first quarter of 2024, compared to the preceding quarter. Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Zillow Group, Inc. (NASDAQ:Z) with 4.3 million shares worth more than $10 million.
While we acknowledge the potential of Zillow Group, Inc. (NASDAQ:Z) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Citigroup but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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