Below we present the list of 5 Long-Term Stock Picks of Skylands Capital. For our methodology and a more comprehensive list please see 10 Long-Term Stock Picks of Skylands Capital.
5. General Motors Company (NYSE:GM)
Value of Skylands Capital‘s 13F Position: $27.9 million
Number of Hedge Fund Shareholders: 77
Charles Paquelet’s Skylands Capital has been a General Motors Company (NYSE:GM) shareholder since the final quarter of 2010, when the company emerged from bankruptcy protection. Despite transforming itself into one of the better run car companies in the U.S since its bankruptcy, GM shares have gained just 5% in the nearly 12 years since its re-emergence on the public markets.
Chip shortages have weighed on General Motors Company (NYSE:GM)’s ability to push out vehicles, particularly its high-end and high-margin trucks and SUVs. That’s particularly unfortunate for the carmaker given the pent-up demand for those vehicles, as dealers are averaging just 15 and 10 days of supply for the company’s pickups and SUVs respectively. The result was a 43% plunge in operating profit during Q2, to $2.3 billion.
The Diamond Hill Large Cap Fund owns over 11 million GM shares, but cautioned potential General Motors Company (NYSE:GM) investors in its Q1 2022 investor letter:
“General Motors—and the auto industry in general—continues to face headwinds related to supply chain disruptions and raw material cost inflation. In addition, uncertainty surrounding global energy markets due to inflation and the conflict in Ukraine has created a greater economic burden on consumers, which tends to slow automotive sales.”
4. Crown Castle International Corp. (NYSE:CCI)
Value of Skylands Capital‘s 13F Position: $43.7 million
Number of Hedge Fund Shareholders: 50
Crown Castle International Corp. (NYSE:CCI) has had a place in Skylands Capital’s portfolio since the second quarter of 2004, making it one of the firm’s three oldest holdings. CCI shares have gained 1,152% over the past 18 years. Hedge fund ownership of CCI hit a 6-year high in the first quarter, rising by 28% quarter-over-quarter.
Crown Castle International Corp. (NYSE:CCI) owns a network of more than 40,000 towers and 85,000 routes of fiber that it leases to wireless service providers. Its towers business continues to deliver impressive organic growth and requires minimal investment to maintain. On the other hand, its small cells division isn’t providing any value and is in fact dragging down the company’s return on invested capital, which currently sits at just 5.88%, while the company’s peers are generally above 10%.
The ClearBridge Investments Global Infrastructure Income Strategy noted that Crown Castle International Corp. (NYSE:CCI) was one of its biggest Q1 detractors, but remains bullish on the communications infrastructure sector, having this to say in its Q1 2022 investor letter:
“U.S. communications company Crown Castle International (NYSE:CCI) was the largest detractor from quarterly performance. Crown Castle is the leading independent owner and operator of wireless communications infrastructure in the U.S. with a portfolio of approximately 40,000 towers. The stock underperformed as, driven by rising interest rates, investors rotated away from defensive into more value-oriented sectors. Communications infrastructure remains attractive, however, as companies continue to deploy greater capital spend to support the strong tailwinds from 5G.”
3. Arch Resources, Inc. (NYSE:ARCH)
Value of Skylands Capital‘s 13F Position: $45.2 million
Number of Hedge Fund Shareholders: 45
Arch Resources, Inc. (NYSE:ARCH) is one of Skylands’ newer holdings in terms of the stocks on this list, dating back to Q4 2016, when the company first landed on the stock market. ARCH shares have gained 109% in the nearly six years since its public debut. Skylands cut its stake in ARCH by 14% during Q2, leaving the fund with 316,070 shares.
Arch Resources, Inc. (NYSE:ARCH) achieved record net income during Q2 on the strength of record coke realizations and margins. Revenue for the quarter hit $1.13 billion, while EPS was $19.30. The company is using its net income gains to strengthen its financial position and reward shareholders, paying down $136 million in debt during the quarter and raising its authorization for share repurchases to $500 million.
Nordstern Capital shared its bullish take on Arch Resources, Inc. (NYSE:ARCH) in the fund’s Q2 2022 investor letter:
“‘It’s atypical for a company with our cash-generating capabilities to have such modest cash requirements’ – Paul Lang, CEO Arch Resources Inc
This statement sounds like it came from a mature capital-light software giant. However, those are the words of the CEO of an American coal mine operator trading at 2-times free cashflow with a 25% forward dividend yield and a massive share buyback program. Not everything is rosy in coal investor land. ARCH struggles with persistent rail and shipping issues. In the first quarter ARCH only sold about 16% of the met coal tonnage that management expects to sell throughout 2022. The company received only 60% of the required train capacity. Management cited inadequate rail service as the single biggest challenge. However, ARCH delivered record quarterly net income regardless…” (Click here to see the full text)
2. Apple Inc. (NASDAQ:AAPL)
Value of Skylands Capital‘s 13F Position: $45.8 million
Number of Hedge Fund Shareholders: 132
Skylands Capital has been on the Apple Inc. (NASDAQ:AAPL) bandwagon since the second quarter of 2011 and the position has undoubtedly been one of its best investments, gaining 1,225% since the middle of 2011. Skylands trimmed its Apple stake by 3% to 334,760 shares during Q2.
Apple Inc. (NASDAQ:AAPL)’s fiscal Q3 data showed that the company is successfully converting more and more users over to its smartphones from other devices, achieving double-digit year-over-year growth on that front during the quarter. Those are important customers for Apple to wrangle, not only because they weaken the competition, but because they build up Apple’s installed base of users compared to a previous Apple user simply upgrading to a newer model phone. When coupled with the fact that user engagement across its services is also rising, bringing new users into the Apple ecosystem is even more rewarding.
Wedgewood Partners is bullish on Apple Inc. (NASDAQ:AAPL)’s ability to maintain its competitive advantage in the lucrative high-end tier of the smartphone market, having this to say about the company in its Q2 2022 investor letter:
“Apple grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit.[1] As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.
1. Union Pacific Corporation (NYSE:UNP)
Value of Skylands Capital‘s 13F Position: $57.6 million
Number of Hedge Fund Shareholders: 90
Topping the list is Union Pacific Corporation (NYSE:UNP), which ranks as Skylands Capital’s top stock pick for the 8th straight quarter. The fund has owned shares of UNP since the final quarter of 2004, during which time they’ve gained 1,303%. Hedge fund ownership of UNP jumped by 48% during the first quarter, hitting an all-time high.
Union Pacific Corporation (NYSE:UNP)’s operating ratio landed at 60.2% during Q2, down by 510 basis points year-over-year. Operating income was up by just 1% to $2.5 billion, being impacted by rising costs and fuel prices. The company admitted that Q2 was a tough one, but believes better things lie ahead, projecting year-over-year operating ratio improvements in the second-half, along with improved volumes.
The Carillon Eagle Growth & Income Fund shared some of Union Pacific Corporation (NYSE:UNP)’s competitive advantages in its Q1 2022 investor letter:
“Union Pacific (NYSE:UNP) benefited from rising oil prices, which typically bring more demand for rail shipping as opposed to moving freight by truck. Rail transportation can be much more fuel-efficient than over-the-road trucking.”
For more of the latest stock picks worth considering for your portfolio, check out 10 Cybersecurity Stocks to Buy as US-China Tensions Mount and Cathie Wood’s Top 10 Buys in July.
Disclosure: None.
