Heartland Advisors, an investment management firm, published its “Heartland Value Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, Heartland mentioned that the fund was up double digits for the first half of the year, and its 10 Principles of Value Investing™ continues to lead them to well-managed businesses that are financially strong. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Heartland Advisors, the fund mentioned Patterson Companies, Inc. (NASDAQ: PDCO) and discussed its stance on the firm. Patterson Companies, Inc. is a Saint Paul, Minnesota-based medical supplies conglomerate with a $2.9 billion market capitalization. PDCO delivered a 1.49% return since the beginning of the year, while its 12-month returns are up by 15.21%. The stock closed at $29.90 per share on August 17, 2021.
Here is what Heartland Advisors has to say about Patterson Companies, Inc. in its Q2 2021 investor letter:
“Patterson Companies Inc. (PDCO) is a leading distributor of dental and animal health products. Sales have been on the rise and the company reported a record $6.1 billion in revenue for the year ending in April. Shares of the business are up double digits through the first half of the year, and the holding has been a solid contributor to performance.
Management at Patterson has done an impressive job of expanding operating margins and making strategic acquisitions that have fit with the business’ core competencies since coming aboard in 2017. However, shares set back late in the quarter, after the company reported better than expected earnings but issued guidance that was more conservative than Wall Street expectations. Due to the ongoing unwinding of pent-up demand in dental services and the strength of Patterson’s animal health line, we believe recent earnings guidance will prove to be overly cautious.
We view recent softness in shares of Patterson as an overreaction and remain constructive on this industry leader that is priced at just .5X sales.”
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Based on our calculations, Patterson Companies, Inc. (NASDAQ: PDCO) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PDCO was in 23 hedge fund portfolios at the end of the 1st half of 2021, compared to 20 funds in the previous quarter. Patterson Companies, Inc. (NASDAQ: PDCO) delivered a -16.03% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
