Immersion Investment Partners, an investment management company, released its fourth quarter 2023 investor letter. A copy of the same can be downloaded here. The fund returned 34.69% in 2023 vs. 16.93% for the Russell 2000 Index. The fund returned 13.62% in the fourth quarter compared to 14.04% for the index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Immersion Investment Partners featured stocks such as Griffon Corporation (NYSE:GFF) in the fourth quarter 2023 investor letter. Headquartered in New York, New York, Griffon Corporation (NYSE:GFF) operates through consumer and professional, and home and building products segments. On February 16, 2024, Griffon Corporation (NYSE:GFF) stock closed at $68.04 per share. One-month return of Griffon Corporation (NYSE:GFF) was 15.81%, and its shares gained 73.44% of their value over the last 52 weeks. Griffon Corporation (NYSE:GFF) has a market capitalization of $3.466 billion.
Immersion Investment Partners stated the following regarding Griffon Corporation (NYSE:GFF) in its fourth quarter 2023 investor letter:
“We initially purchased Griffon Corporation (NYSE:GFF) as a Social Pariah. The business is high quality, but the stock suffered from poor investor perception due to lackluster governance and capital allocation. We also benefited from an ongoing strategic review process that could have resulted in a partial or full sale of the business. The process ended without the company taking any action and elected to increase its buyback authorization by $200mm and pay a $2.00/share special dividend. Regardless, we’ve wound up better off because few acquirers would have been willing to pay the current share price for the business a year ago. Since then, execution has been strong and capital allocation has improved (accelerated buybacks over M&A). Notably, there have been significant strides made on the corporate governance and executive compensation front. The board has been declassified and the percentage of voting power required to call a special meeting has been reduced to 25%. Further, since fiscal 2021, total executive compensation for its four named executive officers has declined 27%.
In our previous letter, we bemoaned the market’s unwillingness to assign the company a real valuation multiple, due to the widespread belief that the garage door segment (Homebuilding products – HBP) margins would mean revert. We noted that there have never been widespread price cuts amongst garage door manufacturers. Investors are coming around to our side after management guided HBP EBITDA margin for 2024 “to be in excess of 30%” on its fiscal fourth quarter (ending September 30th) call on November 15th . This was a surprise for many on both the buyside and sellside. Deutsche Bank, which initiated coverage of the stock just two weeks prior to the fourth quarter report, had estimated a 29% margin for the HBP segment in 2024, and, based on our conversations, we know many on the buyside had assumed a reversion to the high[1]teens/low-twenties. This strong guidance, coupled with some dovish federal reserve commentary (we don’t think repair and remodel spending vis-à-vis garage doors are “discretionary” so much as they are “necessary”, and thus effected by rates, but that’s a different topic) sent shares up 54% in the fourth quarter. Even after such a strong performance, we believe there is still further upside to results and the shares. The consumer products division (CPP) is undergoing restructuring and is significantly underearning (sub-5% margins vs. up to low-teens historically). And although HBP has been the star of the show, most of the improvements in operating results have been price and mix driven; volumes have declined for each of the past two years. Any volume recovery in the market should provide further upside to the business. Lastly, shares remain cheap, trading at roughly 10x EBITDA and 14x GAAP earnings, slightly under its own long[1]term averages and a discount to peers.”
A construction worker installing a garage door in a new residential home.
Griffon Corporation (NYSE:GFF) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Griffon Corporation (NYSE:GFF) was held by 33 hedge fund portfolios, up from 26 in the previous quarter, according to our database.
We discussed Griffon Corporation (NYSE:GFF) in another article and shared Immersion Investment Partners’ views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
