Heartland Advisors, an investment management firm, published its “Heartland Value Plus Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 3.35% was recorded by the fund’s Institutional Class for the second quarter of 2021, trailing the Russell 2000® Value Index that delivered a 4.56% return for the same period. You can view 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 Avanos Medical, Inc. (NYSE: AVNS) and discussed its stance on the firm. Avanos Medical, Inc. is an Alpharetta, Georgia-based medical technology company with a $1.6 billion market capitalization. AVNS delivered a -26.21% return since the beginning of the year, while its 12-month returns are up by 5.76%. The stock closed at $33.70 per share on August 17, 2021.
Here is what Heartland Advisors has to say about Avanos Medical, Inc. in its Q2 2021 investor letter:
“The portfolio’s Health Care names were up on a relative and absolute basis but also contained a key detractor, Avanos Medical Inc. (AVNS).
Avanos, a medical device company that focuses on the pain management and chronic care markets, saw its shares weaken after its gross profit margins shrank due to a combination of short-term supply chain issues and a sales mix for the most recent period that was light on some of its high-margin products.We remain constructive on Avanos and believe the issues with its supply chain are temporary and that management has a sound plan for driving margins back up to the 60% level the business previously enjoyed. Additionally, the improved outlook for elective procedures should drive a resumption of demand for Avanos products.While the outlook remains positive for the company, shares trade at 2.5x estimates of 2022 enterprise value/sales—well below the 4x multiple commanded by its medical device peers.”
uzhursky/Shutterstock.com
Based on our calculations, Avanos Medical, Inc. (NYSE: AVNS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. AVNS was in 16 hedge fund portfolios at the end of the 1st half of 2021, compared to 13 funds in the previous quarter. Avanos Medical, Inc. (NYSE: AVNS) delivered a -13.56% 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
