This article discusses the top 5 stock picks of Angela Aldrich’s Bayberry Capital Partners at the end of Q2. If you want to read about the fund’s recent performance and the changes it made to its portfolio during Q2, please check out 10 Best Stocks to Buy According to Angela Aldrich’s Bayberry Capital Partners.
5. Hillman Solutions Corp. (NASDAQ:HLMN)
Bayberry Capital Partners’ Stake Value: $27,086,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 8.47%
Number of Hedge Fund Holders: 18
Hillman Solutions Corp. (NASDAQ:HLMN) became an independently traded public company in July 2021 following its merger with Landcadia III, a SPAC led by Tilman Fertitta. Founded in 1964, Hillman Solutions Corp. (NASDAQ:HLMN) is a leading supplier of hardware-related products in North America. Funds tracked by Insider Monkey that initiated a stake in the company during the second quarter included Greg Eisner’s Engineers Gate Manager, Kenneth Tropin’s Graham Capital Management, and billionaire Louis Bacon’s Moore Global Investments.
On August 4, following the company’s second-quarter result announcement, analysts at Raymond James reiterated their ‘Outperform’ rating on the stock while lowering their price target to $12 from $13, which still represents a potential upside of over 66% from the stock’s current trading levels. In its fourth quarter 2021 “Small Cap Value Strategy” investor letter, ClearBridge Investments, an investment management firm, had this to say about Hillman Solutions Corp. (NASDAQ:HLMN):
“We completely agree with Ben Graham’s alleged assessment: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” In 2021 we observed votes being cast against companies based solely on how and when they raised capital, as if the choice of financing vehicle overrides the longterm value creation of the underlying business. The Initial Public Offerings Class of 2021 and companies that raised capital by merging with Special-Purpose Acquisition Companies (SPACs) were two such areas that detracted from the Strategy’s performance. Over time we trust that the value of each of the businesses underlying these holdings will be reflected as the “weighting machine” resumes operation. Of course, many IPOs and SPAC acquisitions were immature businesses — often just concepts — that shouldn’t be public, but with so many deals done, there are sure to be babies in that bathwater.
One such example is Hillman Solutions, which concluded the process of merging with Landcadia Holdings III (a SPAC) in mid2021. Hillman is a hardware distributor and provider of automation tools (for example, key making and knife sharpening) to retailers in the U.S. In the short term, supply chain issues have impacted the business while the treatment of SPAC-related warrants appears to have been a focus for bearish investors. In the long-term, Hillman is well-positioned to continue growing given the quality and labor alternative provided by its services. Despite a recent decline, Hillman’s fill rates (i.e., in-stock inventory) remain the highest in the industry, which should lead to market share gains and likely entry into additional product categories. Hillman’s business model, which includes taking over inventory, distribution and floor staffing, as well as solutions such as automated self-service kiosks, helps to address one of the main pressure points in its customers’ business: labor. Meanwhile the expectations for future growth and profitability discounted in Hillman’s current stock price are extremely modest relative to its potential.”
4. Zurn Water Solutions Corporation (NYSE:ZWS)
Bayberry Capital Partners’ Stake Value: $34,867,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 10.9%
Number of Hedge Fund Holders: 29
Founded in 2006, Zurn Water Solutions Corporation (NYSE:ZWS) is a Milwaukee, Wisconsin-based designer and manufacturer of water system solutions that help in enhancing water quality, safety, flow control, and conservation in and around non-residential buildings. Zurn Water Solutions Corporation’s (NYSE:ZWS) stock went nowhere between 2014 and early-2020, but after suffering a massive decline during the broader market carnage in March 2020, it has appreciated significantly and is currently trading up close to 100% over the previous five years.
ClearBridge Investments also had a take on Zurn Water Solutions Corporation (NYSE:ZWS), which it shared in its “SMID Cap Growth Strategy” first quarter 2022 investor letter. Here is what the firm said about the company:
“The Strategy also established a starter position in Zurn Water Solutions (NYSE:ZWS). Zurn is a pure-play water business that came out of Rexnord and is looking to double earnings over the next three to five years. The company has invested heavily in new product and recently acquired Elkay, a manufacturer of sinks and commercial water products.”
3. Janus International Group, Inc. (NYSE:JBI)
Bayberry Capital Partners’ Stake Value: $41,222,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 12.89%
Number of Hedge Fund Holders: 11
Janus International Group, Inc. (NYSE:JBI) continued to remain Bayberry Capital Partners’ third most loved stock at the end of June, the same spot it commanded at the end of Q1. Though Bayberry Capital Partners upped its stake in the company by 12% during Q2, the popularity of Janus International Group, Inc. (NYSE:JBI) among funds tracked by Insider Monkey reduced by half during that period.
On August 16, Janus International Group, Inc. (NYSE:JBI) declared its second-quarter numbers. It reported non-GAAP EPS of $0.17 on revenue of $247.7 million for that period, beating analysts’ estimates by $0.04 and $21.4 million, respectively. Wasatch Global Investors, an investment management firm, released its first-quarter investor letter for its “Wasatch Small Cap Value Fund” earlier this year in which it had this to say about Janus International Group, Inc. (NYSE:JBI):
“Companies with international exposure in terms of both sourcing and customers were hurt by increased supply-chain disruptions. Fund holding felt some of these pressures in the first quarter, as did Janus International Group, Inc. (NYSE:JBI). We maintained holdings in the company on the view that it is well-positioned to grow once shorter-term issues have dissipated.”
2. Burford Capital Limited (NYSE:BUR)
Bayberry Capital Partners’ Stake Value: $42,580,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 13.31%
Number of Hedge Fund Holders: 12
With Bayberry Capital Partners increasing its stake by 43% and Burford Capital Limited’s (NYSE:BUR) stock appreciating close to 10%, the company jumped fourth spots and became the fund’s second most loved stock at the end of Q2. Burford Capital Limited (NYSE:BUR) is a specialized financial services company that is currently the world’s largest provider of arbitration and litigation finance.
Earlier this year, Burford Capital Limited (NYSE:BUR) issued several bonds, including a $350 million offering in April through which it raised more than $1 billion in a span of three months. In its second-quarter 2022 investor letter, Alphyn Capital Management, an investment management firm, had this to say about Burford Capital Limited (NYSE:BUR):
“The most significant event affecting Burford will be the outcome of its YPF case against Argentina. Should Burford win, it could receive net proceeds between $1.1bn and $5.6bn. These numbers are derived from a formula written in YPF’s prospectus and bylaws and depend on several assumptions, hence the wide range, but in any case, are significant when compared to Burford’s current market capitalization of approximately $3bn. In a recent lengthy interview, an Argentinian legal expert concluded that based on what we know, the case should be a home run for Burford, but “we don’t know 70% of what is said, we don’t know the private documents, we don’t know the private positions. We don’t know lots of things. Experts have testified in both sides; we don’t know what’s there.” Hardly conclusive.
Nevertheless, I believe Burford remains an attractive investment regardless of the outcome of this one case. To understand why it is helpful to consider how Burford’s litigation finance works. Each case Buford funds has one of three outcomes, a win, a loss, or a settlement. A loss typically results in Buford losing its entire investment. Which has, historically, occurred 10% of the time. Given this risk, Buford actively assesses a case’s merits and potential return. A high payout on wins, typically 5x, increases the expected payout of the whole portfolio. In this way, litigation financing somewhat resembles venture capital investing, where VCs expect only a handful of big wins to make up for lost investments and still provide a reasonable return on the overall portfolio…”
1. WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC)
Bayberry Capital Partners’ Stake Value: $51,386,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 16.07%
Number of Hedge Fund Holders: 61
WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) retained its top spot in Bayberry Capital Partners’ 13F portfolio at the end of Q2. The company was earlier known as WillScot Corporation and changed its name to WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) after its merger with Mobile Mini, Inc., which got completed in the second half of 2020.
During the second quarter, Bayberry Capital Partners upped its stake in the company by 24%, and it had ample reasons to do so. WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) has been one of the best-performing stocks in the fund’s portfolio, with the stock currently trading up by 6% year-to-date and very close to its lifetime high of $44.15. On October 5, the workspace and portable storage solutions provider, which currently operates 18 locations in Canada, announced that it has relocated to a new and enhanced facility in Lévis, Quebec.
You can also look at 10 Best Stocks to Buy According to Billionaire Chris Hohn and 10 Best Healthcare Stocks to Buy According to Billionaire Larry Robbins.
