In this article, we discuss the 5 best stocks to buy according to Angela Aldrich’s Bayberry Capital Partners. If you want to read about some more stocks in the Aldrich portfolio, go directly to 10 Best Stocks to Buy According to Angela Aldrich’s Bayberry Capital Partners.
5. Berry Global Group, Inc. (NYSE:BERY)
Bayberry Capital Partners Stake Value: $17 million
Percentage of Bayberry Capital Partners 13F Portfolio: 5.34%
Number of Hedge Fund Holders: 37
Berry Global Group, Inc. (NYSE:BERY) is a top producer and marketer of engineered materials and value-added plastic consumer packaging worldwide.
The company beat market expectations on earnings per share in the third fiscal quarter. On August 4, Truist analyst Michael Roxland maintained a Buy rating on Berry Global Group, Inc. (NYSE:BERY) stock and slashed his price target to $70 from $77. Roxland noted that due to higher pricing from the pass-through of inflation, the company’s Q3 results showed segments above his model.
By the end of the second quarter, Berry Global Group, Inc. (NYSE:BERY) was part of 37 hedge fund portfolios. The consolidated stakes these funds had in the company were worth $933.6 million, down from $1 billion the prior quarter. Canyon Capital Advisors is the most significant stakeholder of Berry Global Group, Inc. (NYSE:BERY), with a $150.5 million position in the company.
Here is what Bonhoeffer Capital Management has to say about Berry Global Group, Inc. (NYSE:BERY) in its Q2 2022 investor letter:
“As described in previous letters, our investment universe has been extended beyond value-oriented special situations to include growth-oriented firms using a value framework. This includes companies that generate growth through transition and consolidation. There have been modest changes within the portfolio in the last quarter in line with our low historical turnover rates. We sold some of our slowergrowing names and invested some of our cash into Thryv (described in the case study below) and Berry Global Group, as well as to fund the Millicom rights offering and oversubscription. There are also some interesting developments in the US digital marketing market that I discuss below.
One example of public LBO firms you have in your portfolio is Berry Global (Berry). Berry is a plastic and engineering materials packaging firm that provides packaging solutions to health, hygiene products, and consumer products firms in the United State and Europe. Berry’s growth model focuses on plastic and engineered materials continuing to take more shares of packaging from other materials, specifically in the health, hygiene, and consumer products realm where the growth is the strongest which provides 2- 3% annual growth. Synergistic M&A is adding an additional 3-4% per year to growth. These sources of growth are enhanced by opportunistic operational leverage from scale and share repurchases (5% annual growth). Over the past eight years, Berry’s net income margins doubled, with a 3x increase in revenues. These factors should lead to 10-12% EPS growth going forward. Berry has had 18% and 28% EPS growth over the past five and 10 years, respectively. Part of Berry’s strategy is to lever up to purchase a geographically expanding or complementary product packaging firm and pay the debt down with cash flows post acquisition, similar to private equity funds. Berry has done this three times since its IPO in 2011. Once debt is paid down a reasonable level, Berry has been repurchasing stock if another reasonably priced acquisition cannot be found. This strategy is similar to that of Asbury, described in previous letters. Compared to other packaging firms, Berry has amongst the highest inventory turns and margins. This has resulted in 25% to 40% returns on equity over the past five years. Berry currently trades for a FCF multiple of about 7.6x and a free cash flow yield of 13%. Berry’s BBBrated debt (with an EBITA coverage ratio of 6.2x) is currently yielding 6.2%, for a FCF-debt yield of 6.8%, which is high compared to the current market equity risk premium of about 5% and the projected growth in excess of the market. Given the projected EPS growth of 10% per year, Berry should trade at 29x earnings using Grahams’ formula of 8.5 + 2 * growth rate. Even at half this multiple—15x—Berry would trade at two times its current price.”
