Below we present the list of 5 Best Catalyst-Driven Value Stocks to Buy Now. For further background on this list and more of Clearline Capital’s top stock picks, please see 10 Best Catalyst-Driven Value Stocks to Buy Now.
5. Whole Earth Brands Inc. (NASDAQ:FREE)
Leading off the second half of our list of Mark Majzner’s top catalyst-driven value stock picks is Whole Earth Brands Inc. (NASDAQ:FREE), a packaged foods company that focuses on healthy foods and sugar-free sweeteners. Clearline Capital took a stake in FREE during Q2 and added another 618,514 shares to it in Q3.
Whole Earth, which announced the acquisition of health food brand Swerve for $80 million earlier this month, is chaired by former longtime The Hain Celestial Group, Inc. (NASDAQ:HAIN) CEO Irwin Simon, who took that company from less than $20 million in sales in 1994 to more than $2 billion today.
The company’s valuation looks dirt cheap according to Maran Capital, which discussed Whole Earth Brands in its Q3 investor letter:
“It has dominant market share in France and parts of Europe with its Canderel brand, leading market share in its licorice-based flavorings business, and strong growth brands in its Whole Earth and Pure Via natural non-sugar sweeteners (the former grew 70% y/y in 1H 2020).
These leading brands should generate just under $300mm of revenue, ~$65mm of EBITDA, and over $1/sh of cash earnings next year. Yet, at a market cap of $300mm and an enterprise value of $385mm, FREE is trading at 1.3x sales, 6x EBITDA, and 8x cash earnings. An undemanding set of expectations is embedded in this valuation.”
4. MagnaChip Semiconductor Corporation (NYSE:MX)
Clearline bought just over 151,000 shares of MagnaChip Semiconductor Corporation (NYSE:MX) during Q3, building a position of 1.19 million shares valued at $16.36 million on September 30. Hedge funds have gradually been growing more bullish on the chipmaker, which is in the process of a major transformation that seeks to make it a smaller, more profitable company.
MagnaChip completed the sale of its Foundry Services Group and Fab 4 in September, using the proceeds to strengthen its balance sheet. The company anticipates strong future growth in several areas of its remaining operations as OLED and 5G adoption continue to grow, with plans to achieve a topline CAGR in the double digits and consistent gross profit margins in the 30% range.
3. MicroStrategy Incorporated (NASDAQ:MSTR)
MicroStrategy Incorporated (NASDAQ:MSTR) has been a huge performer for Clearline Capital this year, gaining 88%. The fund first took a position in the data analytics software company back in 2017 and raised the size of its position by another 56% during Q3.
However, it’s not the company’s software, but rather its recent move to push the majority of its cash holdings into bitcoin that has made the company more valuable and piqued investors’ interest. The company’s $425 million Q3 purchase of 38,250 BTC has already made the company hundreds of millions of dollars, with the price of BTC up by over 50% since the company’s investment. A few days ago, short seller Citron Research, which is also long BTC, said MicroStrategy is now the best way to play bitcoin on the stock market, suggesting MSTR shares could hit $700 if BTC hits $50,000 (granted, that’s a somewhat big if).
2. Mednax Inc. (NYSE:MD)
Clearline bought another 440,869 Mednax Inc. (NYSE:MD) shares during Q3, giving it 1.36 million shares worth $22.18 million on September 30. There was a surge in hedge fund ownership of Mednax at the end of 2019 after Jeffrey Smith’s Starboard Value took a stake in the health services company and pushed for a partial or full sale and to remake its board.
The acclaimed activist has been successful on both counts, reaching a settlement with the company in July that included its CEO being removed and several board members replaced. Mednax then announced in September that it would be divesting its radiology business in a deal for $885 million, improving its struggling balance sheet and allowing it to focus on its core businesses.
1. Xperi Holding Corporation (NASDAQ:XPER)
Xperi Holding Corporation (NASDAQ:XPER) is Clearline Capital’s top holding for the second consecutive quarter, with the fund buying another 418,848 shares of the digital technology platform, which completed its merger with TiVo at the beginning of June. Shares of XPER have gained 38% since, largely on the strength of the company’s $202.8 million revenue showing in Q3, a 250% hike from a year ago.
Xperi recently reached a settlement with Comcast Corp (NASDAQ:CMCSA) regarding several disputed patents, removing any doubts about its IP portfolio. There are further catalysts to come, as Xperi plans to split its assets into two separate businesses (IP licensing and products) next year, a move that TiVo was originally planning itself before agreeing to the merger with Xperi instead.
For more great value investing ideas, be sure to check out the Top 10 Stocks Warren Buffett Just Bought.
Disclosure: None.
