In this article we took a look at 10 stocks hedge funds were pitching in their 2023 Q3 investor letters. You can read the first part of this article here. Here are the remaining 5 stocks that hedge funds are investing in:
5. IQVIA Holdings Inc. (NYSE:IQV)
Number of hedge fund holdings at the end of Q3: 60
2024 Return: 6.1%
IQVIA Holdings Inc. (NYSE:IQV) provides healthcare data, analytics, and technology solutions to various stakeholders. Its strong growth prospects, financial performance, and recurring revenue model make it a strong investment bet. IQVIA Holdings Inc. (NYSE:IQV) is headquartered in Durham, North Carolina, with a market capitalization of $36.441 billion.
Oakmark Select Fund made the following comment about IQVIA Holdings Inc. (NYSE:IQV) in its Q3 2023 investor letter:
“The largest detractors in the third quarter were IQVIA Holdings Inc. (NYSE:IQV) and Capital One Financial and in the fiscal year were Meta Platforms and IQVIA Holdings. We initiated our position in IQVIA during the quarter amid the decline in the health care sector. We did not eliminate any positions.
IQVIA is a leading provider of clinical trials and related health care technology formed through the merger of Quintiles and IMS Health in 2016. We believe that IQVIA’s leading data and digital capabilities enable the company to gain share of addressable clinical trial-related spending as pharma and biotech companies outsource these services to contract research organizations (CROs). In addition, we think that IQVIA has growth opportunities from delivering real-world evidence to biopharma companies and other health care providers using data to meet regulatory and reimbursement mandates. CEO Ari Bousbib has a strong track record on both operations and capital allocation and significant skin in the game through his large equity holdings in the company. We were pleased to be able to add IQVIA to the portfolio near a trough multiple of roughly 15x our estimate of normal earnings despite the company’s prospects for sustainable above-average growth.”
IQV has been growing its topline by 4% annually over the last couple of years and trade at a forward PE of 22. It doesn’t strike us as a dirt-cheap stock. We first need to see signs of revenue growth to consider an investment in IQV.
4. National Fuel Gas Company (NYSE:NFG)
Number of hedge fund holdings at the end of Q3: 23
2024 Return: 6.8%
Incorporated in 1902, National Fuel Gas Company (NYSE:NFG) is a diversified energy company headquartered in Williamsville, New York. The company engages in the exploration, production, transportation storage and distribution of natural gas and oil. National Fuel Gas Company (NYSE:NFG) is well positioned to withstand economic volatility and its strong track record makes it a preferred stock among investors.
Heartland Value Fund made the following comment about National Fuel Gas Company (NYSE:NFG) in its Q3 2023 investor letter:
“Utilities. National Fuel Gas (NYSE:NFG) is another existing holding we added to in the quarter. NFG is an energy company, with regulated utility assets, involved in the production, transportation, and distribution of natural gas. The stock’s correlation with natural gas prices has been high, so it wasn’t too surprising when the stock fell as natural gas prices declined following last year’s benign winter.
But prices are expected to rebound in the coming months now that the supply issue has been addressed with the steep drop in oil gas rig counts. Demand is also set to improve starting in 2025 with the onset of more U.S. liquefied natural gas (LNG) exports. Meanwhile, this is a well-run business with a track record of financial soundness. NFG, for instance, has raised dividends for 53 consecutive years because of the consistent cash flow generation from its midstream and utility segments.
Yet, when looking at valuations, we see a disconnect. NFG is trading at a 20% discount to its historical valuations compared with traditional oil and gas exploration and production stocks. The relative premium it typically garners is a function of the company’s ability to leverage its pipeline infrastructure to capitalize on higher natural gas prices and the stability of non-energy cash flows. We are positioning the portfolio to take advantage of this opportunity.”
NFG had flat revenues in 2023 compared to 2022, its stock price has gone nowhere in the last 5 years, and its stock price is trading at a forward multiple of 10. This is a perfect stock for a dividend investor, currently yielding 3.7%.
3. Spectrum Brands Holdings, Inc. (NYSE:SPB)
Number of Hedge fund holdings at the end of Q3: 31
2024 Return: 7.2%
Spectrum Brands Holdings, Inc. (NYSE:SPB), incorporated in 2009, is a branded consumer products company with a variety of leading brands including Black & Decker, Russell Hobbs, George Foreman, Toastmaster, Juiceman, Farberware, Breadman, Remington and LumaBella brands. Hedge funds favor this stock for its focused growth, strong brands, and global presence. Spectrum Brands Holdings, Inc. (NYSE:SPB) is headquartered in Middleton, Wisconsin, and has a market capitalization of $2.769 billion.
Heartland Mid Cap Value Fund made the following comment about Spectrum Brands Holdings, Inc. (NYSE:SPB) in its Q3 2023 investor letter:
“Consumer Staples. During the quarter, we initiated a new position in Spectrum Brands Holdings, Inc. (NYSE:SPB), another deep value company with multiple self-help catalysts.
After several divestitures in recent years, Spectrum is mostly a pureplay Consumer Staples company focusing on pet care and home and garden supplies, including recognizable brands such as Spectracide lawn and garden products and SmartBone dog treats.
SPB is in the process of transforming itself from an acquisition-oriented holding company into an integrated operating company with sharper focus. As part of that process, the company recently divested its Hardware and Home Improvement segment, selling it to the Swedish conglomerate Assa Abloy for $4.3 billion in cash. We owned Spectrum when this divestiture was originally announced but exited our position when the Department of Justice (DOJ) sued to block the sale. That action threatened to derail SPB’s efforts to improve its balance sheet and shed a highly discretionary segment that was noncore to the company’s strategy.
We recently got clarity on this overhang, when the DOJ reached a settlement with Assa Abloy, allowing the sale to go through. This gives SPB ample capacity to repurchase shares at a steep discount to intrinsic value while setting the stage for operational improvements. Meanwhile, the stock trades at just 7X next year’s EBITDA and 5X to 5.5X normalized EBITDA.”
SPB has gone nowhere over the last 10 years. Is this finally the best time to invest in this “turnaround” stock? You need to read its latest earnings call transcript to answer this question. It’s been aggressively buying back shares and now reduced its net debt to zero (it is actually better than zero because its cash position earns more interest than its debt position costs in interest payments).
2. Carter’s, Inc. (NYSE:CRI)
Number of hedge fund holdings at the end of Q3: 28
2024 Return: 11.3%
Carter’s, Inc. (NYSE:CRI) founded in 1865, is an America-based marketer of branded childrenswear. Carter’s, Inc. (NYSE:CRI) is appealing to investors due to its efficient management, strong growth track record, and global presence. Carter’s, Inc. (NYSE:CRI) is headquartered in Atlanta, Georgia and has a market capitalization of $2.586 billion.
Heartland Value Plus Fund made the following comment about Carter’s, Inc. (NYSE:CRI) in its Q3 2023 investor letter:
“We’ve seen a fair amount of insider buying in our holdings, an encouraging sign that gives us confidence to hold tight. One such company is Carter’s Inc. (NYSE:CRI), which sells apparel for babies and children under the Carter’s and OshKosh B’gosh brands. So far in 2023, CRI has returned $96.6 million to shareholders in the form of share repurchases and cash dividends. That brings the repurchase and dividend totals to roughly $3 billion over the past 15 years.
Like all retailers, Carter’s has been undertaking inventory reduction in the aftermath of the pandemic. CRI, however, was 6 to 12 months ahead of other retailers in managing its inventories, a focal point of Carter’s self-help strategy. Since there is limited fashion risk in baby and infant apparel, the company recently packed a portion of its inventory in storage to be brought back later, thereby avoiding the need for steep discounts to work down backlogs. Management has also done a good job de-risking its supply chain in China and globally. For example, Carter’s was early to recognize that low water levels in the Panama Canal threatened delays through that waterway and moved to reduce the amount of its merchandise going through that route.
Meanwhile, CRI has an enviable balance sheet, very little debt, and very strong free cash flow. Yet, the stock trades at less than 12X earnings and less than 7X enterprise value to EBITDA.”
This isn’t a bad stock, trading at 13 times forward earnings and offering a 3.7% dividend. Nevertheless, it operates in an ultra competitive industry and the stock’s performance over the last 5 years is a testament to that. There are better and cheaper stocks that you can invest in. We shared an AI company that is trading at a cheaper multiple and delivering much higher growth rates than CRI below this article. Check that out.
1. Ferguson plc (NYSE:FERG)
Number of hedge fund holdings at the end of Q3: 46
2024 Return: 12.8%
Ferguson plc (NYSE:FERG), founded in 1953, is a leading plumbing and heating products distributing company. Strong fundamentals, an efficient supply chain, a wide range of customers and future growth prospects give it popularity among investors. Ferguson plc (NYSE:FERG) is headquartered in Wokingham, the United Kingdom, and has a market capitalization of $34.164 billion.
Right Tail Capital made the following comment about Ferguson plc (NYSE:FERG) in its Q3 2023 investor letter:
“Ferguson plc (NYSE:FERG) is a leading US-focused distributor ($33B mkt cap) of plumbing and HVAC supplies that is split between non-residential (48%) and residential (52%) as well as repair/remodel (60%) and new construction (40%). Like other high-quality distributors, Ferguson benefits from a prime spot in its value chain. It has many suppliers (over 30,000), customers (~1 million), and small competitors. By providing great service and parts availability, Ferguson guides its customers to the parts they want in a timely fashion.
I think last year the market was worried that Ferguson had over-earned due to rising prices and excess demand during covid. Furthermore, the company had removed its primary listing in the United Kingdom that caused some force selling among European index holders. Right Tail had the key insight that…” (Click here to read the full text)
Ferguson is a secular growth company that has been posting double digit topline growth rates since 2020 and is currently trading at a forward PE of only 20. This is the type of stock Warren Buffett buys. We need to take a much closer look at Ferguson over the next couple of weeks. Please subscribe to receive a free email alert when we publish our deep-dive Ferguson article:
