2. The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 29
The Scotts Miracle-Gro Company (NYSE:SMG) was founded in 1868 and is headquartered in Marysville, Ohio. The company is involved in the production, advertising, and distribution of lawn, garden, indoor gardening, and hydroponic gardening products in the United States and globally. Hawthorne Gardening Company, a subsidiary of The Scotts Miracle-Gro Company (NYSE:SMG), has acquired the leading companies in hydroponics, lighting, and other supplies needed for cultivation. Now, Scotts is increasing its involvement by supporting legalization efforts through lobbying and investing in ventures that could allow it to sell cannabis products directly to consumers in the future. The Scotts Miracle-Gro Company (NYSE:SMG) is one of the best marijuana stocks to monitor.
On January 23, The Scotts Miracle-Gro Company (NYSE:SMG) declared a quarterly dividend of $0.66 per share, in line with previous. The dividend is payable on March 10, to shareholders of record on February 24. The forward yield was 4.11%. On February 1, the company reported market-beating FQ1 results, and it expects free cash flow of $1 billion over the next two years.
According to Insider Monkey’s Q3 data, 29 hedge funds were bullish on The Scotts Miracle-Gro Company (NYSE:SMG), compared to 25 funds in the prior quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the biggest stakeholder of the company, with 1.5 million shares worth $67.3 million.
Madison Funds made the following comment about The Scotts Miracle-Gro Company (NYSE:SMG) in its Q4 2022 investor letter:
“Stock selection was the poorest for us in this sector. Two stocks in particular – Hain Celestial (HAIN) and The Scotts Miracle-Gro Company (NYSE:SMG) – while big winners for us in 2020 and 2021, hurt the portfolio in 2022.
While both companies were so-called COVID beneficiaries (businesses that benefited from consumers staying home and spending on their homes during COVID), we felt they possessed certain additional drivers that would maintain their fundamentals into 2022 and beyond.
Scott’s Miracle-Gro is arguably one of the great American franchises. The brand is synonymous with lawn care and pest control, has a dominant market share (~60%) with historically-impressive ~30% cash flow margins, and has the country’s largest Cannabis supply business. Scotts’ core business saw a significant windfall during COVID lockdowns. Lawn and garden care is not a growth business, and SMG dominance does not allow for much incremental gain in market share. However, our thesis was that even in a reopening scenario where lawn and garden businesses would revert to the mean, the cannabis market was poised for years of growth as more states legalized recreational use.
What we missed was the highly inefficient structure of the U.S. cannabis market. Currently, California, Colorado, and Michigan have the biggest and most mature markets. However, over the course of the last few years, several very large states and regions have voted to legalize recreational use, including New York, New Jersey, and Connecticut. The fly in the ointment has been Oklahoma, which is a medical marijuana state. Although recreational use is still prohibited, licenses to grow the crop were granted in Laissez Faire fashion to anyone willing to buy one. Oklahoma began to grow and cultivate the crop far in excess of their medical marijuana demand. That excess supply bled into gray markets across the country, devastating pricing for growers in other states. This glut put a near complete stop to capital spending on grow operations. With no new or incremental facilities coming on, Scotts’ Hawthorne business was cut in half from its peak in F21. This, of course, had a devastating effect on the stock.”
