Benchmark Electronics Inc. (BHE), Restoration Hardware Holdings Inc. (RH) Among the Stocks Being Targeted by Hedgies This Week

According to database provider BarclayHedge, the hedge fund industry has $2.80 trillion in assets under management as of the end of the fourth quarter. The value of assets overseen by hedge funds has been gradually shrinking each year since 2011, which could be partly explained by these funds’ disappointing performance over the past several years. Although the hedge fund industry as a whole has not generated above-market returns over the past few years, one might anticipate the industry to outperform broader market benchmarks given the current “slow-growth” environment that is more conducive to hedged portfolios. Individual investors should monitor and track the moves of top hedge funds like those tracked by Insider Monkey, as part of a broader stock selection and analysis process, regardless of how these investment vehicles have performed overall, as their long stock picks tend to outperform the market. At the end of the day, better informed individuals tend to make better and more accurate investment decisions. Having said that, the following article will digest four SEC filings recently submitted by several hedge funds tracked by Insider Monkey.

At Insider Monkey, we track over 800 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

In a Schedule 13G filing, Ricky C. Sandler’s Eminence Capital LP reported owning 1.25 million shares of Restoration Hardware Holdings Inc. (NYSE:RH), which account for 3.1% of the company’s outstanding common stock. Eminence Capital did not own any shares of the luxury home furnishings retailer at the end of December 2015, as revealed by the fund’s 13F for the fourth quarter. At the end of February 2016, Restoration Hardware Holdings pre-announced its financial results for the fourth quarter of fiscal year 2015 that ended January 31, which has put significant pressure on the stock; the shares of Restoration Hardware are down by 60% over the past 52 weeks, after having dropped by a whopping 53% year-to-date.

Getting back to those financial results, the company reported preliminary adjusted diluted earnings per share of $0.99 on revenue of $647.21 million, while analysts’ estimates stood at diluted EPS of $1.35 on revenue of $707.73 million. Restoration Hardware Holdings Inc. (NYSE:RH) experienced some shipping delays related to the freshly-launched RH Modern collection during the fourth quarter, but the majority of demand/written orders will land on the company’s top-line figure during the first half of fiscal year 2016. Just recently, analysts at Raymond James upgraded the stock to ‘Strong Buy’ from ‘Outperform’, saying that the recent selloff was caused by macroeconomic uncertainty and firm-specific near-term challenges, and it would appear that Mr. Sandler agrees.

The shares of Restoration Hardware are currently trading at 10.39-times expected earnings, significantly below the forward P/E multiple of 16.70 for the Consumer Discretionary sector. The number of hedge funds in our system with stakes in Restoration dropped to 33 from 39 during the December quarter. Steven Cohen’s Point72 Asset Management owns 1.13 million shares of Restoration Hardware Holdings Inc. (NYSE:RH) as of December 31.

The next pages of this article discuss three other SEC filings submitted by several hedge fund vehicles monitored by our team.

According to a freshly-amended 13D filing, MSD Capital Management LLC, co-founded by Glenn Fuhrman and John Phelan, currently owns 727,356 shares of DineEquity Inc. (NYSE:DIN), which represent 3.9% of the company’s total outstanding shares. This denotes a decrease of 1.00 million shares from the stake disclosed in MSD’s 13F filing for the December quarter. The restaurant operator has seen its shares advance by nearly 10% since the beginning of 2016, after releasing a stronger-than-expected fourth-quarter earnings report, which may have prompted MSD to cash out of some of its holdings.

DineEquity Inc. (NYSE:DIN) owns and franchises the Applebee’s Neighborhood Grill & Bar and the International House of Pancakes (IHOP) brands. The company posted total revenue of $681.1 million for 2015, an increase from the $655.0 million in sales that it achieved in 2014. At the same time, its net income reached $104.9 million in 2015, a big jump over the $36.5 million in income that it reported for 2014. It should be noted that the restaurant operator has sold the majority of its company-owned restaurants to franchisees, a strategy aimed at generating steady revenue streams without being affected by shifts in consumer spending. The company’s management anticipates Applebee’s domestic same-restaurant sales to grow in the range of negative 2% to positive 2% in 2016, while IHOP’s domestic same-restaurant sales are anticipated to grow in the range of 1% to 4%.The shares of DineEquity trade at a forward P/E multiple of 13.88, substantially below the ratio of 24.10 for the Restaurants industry. There were 13 hedge funds in our database invested in the company at the end of December, amassing 12.50% of the company’s shares. Joel Greenblatt’s Gotham Asset Management trimmed its stake in DineEquity Inc. (NYSE:DIN) by 15% during the October-to-December period, to 147,552 shares.

In a Schedule 13G, Iridian Asset Management LLC, founded by David Cohen and Harold Levy, disclosed a new stake of 7.22 million shares in GCP Applied Technologies Inc. (NYSE:GCP), which constitute 10.2% of the company’s outstanding common stock. On February 3, 2016, GCP completed its separation from Columbia-based W. R. Grace & Co (NYSE:GRA) and announced its launch as a new publicly-traded company. In February 2015, W. R. Grace announced its plans to separate into two independent, publicly-traded companies, in an attempt to improve its strategic focus and simplify its operating structure. The newly-emerged company operates Grace’s Construction Products operating segment and its packaging technologies business. The separation was completed by means of a pro rata distribution to Grace shareholders of all shares of GCP. GCP Applied Technologies Inc. (NYSE:GCP)’s shares have advanced by 6% since the beginning of February, when they began trading on the New York Stock Exchange under the symbol “GCP”. Analysts at Goldman and Jefferies recently initiated coverage on the stock with ‘Neutral’ and “Buy’ ratings, respectively. Iridian Asset Management owned 5.96 million shares of W. R. Grace & Co (NYSE:GRA) at the end of December 2015. According to a separate 13G filing, Adage Capital Management, founded by Phill Gross and Robert Atchinson, owns 4.05 million shares of GCP Applied Technologies Inc. (NYSE:GCP).

As revealed by a recently-submitted SEC filing, Glenn W. Welling’s Engaged Capital LLC recently nominated Herbert K. Parker for election to Benchmark Electronics Inc. (NYSE:BHE)’s Board of Directors, to be held at its upcoming 2016 Annual Meeting of Stockholders. The nominee replaces Lisa M. Kelley, who recently withdrew as one of Engaged Capital’s four nominees. Engaged Capital believes that Benchmark Electronics “contacted Ms. Kelley’s employer to pressure her to withdraw”, in an attempt to block Engaged Capital’s efforts of overhauling the Board. It should be mentioned that Ms. Kelley serves as a Chief Audit Executive at Avnet Inc., a long-term supplier to Benchmark. Benchmark’s officials commented on Engaged Capital’s statement, saying that “it would be a conflict of interest for a member of management team at a significant supplier of Benchmark to serve on the Benchmark Board of Directors”.

The investment firm holds a 4.8% stake in the provider of integrated manufacturing, design and engineering services and product life cycle solutions. Benchmark Electronics Inc. (NYSE:BHE)’s sales for 2015 totaled $2.5 billion, down by 9% year-over-year. The decrease was mainly attributable to a decrease in Telecommunications revenue mainly due to product life cycle transitions at one of the company’s top customers. The shares of Benchmark Electronics are nearly 6% in the green year-to-date. Royce & Associates, founded by Chuck Royce, reported owning 2.43 million shares of Benchmark Electronics Inc. (NYSE:BHE) through the latest round of 13F filings.

Disclosure: None