Below we present the list of 5 Small-Cap Value Stocks Hedge Funds Love. For our methodology and a more comprehensive list please see 10 Small-Cap Value Stocks Hedge Funds Love.
5. United States Steel Corporation (NYSE:X)
Number of Hedge Fund Shareholders: 37
United States Steel Corporation (NYSE:X) is near its all-time high in hedge fund ownership after smart money ownership of the company shot up by 42% over the past two quarters. John Overdeck and David Siegel’s Two Sigma Advisors and Joel Greenblatt’s Gotham Asset Management are some of funds that have taken new stakes in United States Steel over the previous two quarters.
Sky-high steel prices are likewise sending United States Steel Corporation (NYSE:X)’s financial results to new heights, with the company delivering a record second quarter. United States Steel pulled in $6.29 billion in revenue and earnings per share of $3.86. Over the past year, the company has generated $6.7 billion in adjusted EBITDA and over $4 billion of free cash flow.
United States Steel Corporation (NYSE:X)’s latest cash infusion allowed the company to launch another $500 million share buyback program after recently completing its prior $800 million authorization. X now trades at just 1.37x earnings and 1.47x cash flow.
4. Academy Sports and Outdoors, Inc. (NASDAQ:ASO)
Number of Hedge Fund Shareholders: 40
Hedge fund ownership of Academy Sports and Outdoors, Inc. (NASDAQ:ASO) dipped by 15% in Q1, but has otherwise been strong over the last several quarters, including jumping by 77% between the company’s Q4 2020 IPO and Q2 2021. Jim Simons’ Renaissance Technologies and Steve Cohen’s Point72 Asset Management both owned more than 1 million ASO shares on March 31, with both also more than doubling their stakes in the company during Q1.
Academy Sports and Outdoors, Inc. (NASDAQ:ASO) has been a strong performer on the market over the last year, gaining 19% amid a declining broader market. The sporting goods retailer has been making strong gains on both the bricks-and-mortar and digital sides of its business, all while chasing down its debt.
Academy Sports and Outdoors, Inc. (NASDAQ:ASO) issued strong 33% – 33.5% gross margin guidance for FY 2022 in June alongside its second quarter results, which prompted a price target upgrade to $72 from $70 by Stephens analyst Daniel Imbro, who has an ‘Overweight’ rating on the stock. ASO shares trade at 6.38x forward earnings, down from 8.29x in 2020.
3. Macy’s, Inc. (NYSE:M)
Number of Hedge Fund Shareholders: 42
Hedge fund ownership of Macy’s, Inc. (NYSE:M) is up by 50% since Q3 2020, though it remains about 33% off the stock’s all-time high smart money ownership levels of 2016. David Tepper’s Appaloosa Management owns 7.91 million shares of Macy’s worth $193 million after selling off 22% of his holding during Q1.
While Macy’s, Inc. (NYSE:M) is making inroads on e-commerce sales and had a strong 2021 (revenue up 40%) compared to easier pandemic comps, the long-term outlook for the company’s 500 full-line stores remains murky. NIKE, Inc. (NYSE:NKE) cut ties with Macy’s and several other wholesalers last year as it pushes its direct-to-consumer model, which highlights the lack of moat that Macy’s business has. Macy’s shares have lost 35% of their value this year and trade at 0.21x sales and 3.42x earnings.
The ClearBridge Investments Small Cap Value Strategy likes Macy’s, Inc. (NYSE:M)’s progress on paying down its debt and growing its online sales, as revealed in the fund’s Q3 2021 investor letter:
“Meanwhile, Macy’s, an omnichannel retail organization that operates stores, websites, and mobile applications under the Macy’s, Bloomingdale’s, and Bluemercury brands, also had a strong quarter (+21.5%). Macy’s delivered strong second-quarter earnings, beating on earnings and revenue and raising guidance as the retailer continues to pay down debt and grow its digital business.”
2. Lyft, Inc. (NASDAQ:LYFT)
Number of Hedge Fund Shareholders: 47
Lyft, Inc. (NASDAQ:LYFT) was a hedge fund darling upon first going public in Q1 of 2019, but smart money ownership of the stock has sunk by 37% since then. There has been a 38% jump in shareholders over the past two quarters however, and the company still ranks second on this list. Panayotis Takis Sparaggis’ Alkeon Capital Management owns the largest position in LYFT among the funds tracked by our database, owning 5.67 million shares. It’s owned the company since its market debut.
Lyft, Inc. (NASDAQ:LYFT) is facing several headwinds that have driven investors to the sidelines in recent quarters, as shares of the ride sharing operator have crashed by 69% year-to-date. Demand for the sector remains strong, but high oil prices are heavily weighing on the firm’s profit potential and broader economic concerns are also causing unease. Lyft laid off 60 people, or about 2% of its workforce, last month and shuttered its car rental program. LYFT shares trade at just 1.36x sales.
Rowan Street Capital is no longer confident about Lyft, Inc. (NASDAQ:LYFT)’s value proposition, unloading the stock in Q1 in favor of more promising positions, as revealed in its Q1 2022 investor letter:
“Lyft (NASDAQ:LYFT): We sold Lyft in Q1 ’22 to fund the acquisitions of our 3 new positions as we’ve outlined. We had owned Lyft for a little less than 3 years and realized approximately 50% gain on the stock. The new companies we bought with the proceeds from the sale are significantly better businesses, in our view.”
1. Tenet Healthcare Corp (NYSE:THC)
Number of Hedge Fund Shareholders: 57
Hedge fund ownership of Tenet Healthcare Corp (NYSE:THC) has nearly doubled since the middle of 2020, reaching an all-time high for the stock at the end of Q1, and pushing it to the top of the list of small-cap value stocks that hedge funds love. Larry Robbins’ Glenview Capital and Andreas Halvorsen’s Viking Global own large stakes in THC, consisting of 6.38 million and 2.23 million shares respectively.
Tenet Healthcare Corp (NYSE:THC) was one of several hospital operators that suffered a cyberattack during the second quarter, which impacted the company’s full-year top-line guidance. THC’s cash flow and bottom-line forecasts weren’t affected though. THC’s improving profitability metrics haven’t been reflected in its stock price, which is trading at a forward P/E of just 11.3x, well below its five-year average of 14.1x.
Oakmark Funds shared its thoughts on Tenet Healthcare Corp (NYSE:THC) and the pandemic’s effects on the industry in its Q3 2021 investor letter:
“Tenet may be best known as the second-largest public hospital chain in the U.S., but its largest business is outpatient acute care centers. In early 2020, investors fled the health care industry because of the great uncertainty that the pandemic presented. The early days of the pandemic were very hard on the hospital industry especially, but as the Covid-19 surge peaked and diminished, hospitals were able to schedule elective procedures and engage in profitable activities.”
For more of the latest stock picks worth considering for your portfolio, check out 10 Safe Stocks to Buy Now According to Billionaire Dan Loeb and Billionaire Philippe Laffont is Selling These 10 Stocks.
Disclosure: None.
