Hedge Funds Are Overweight Packaging Stocks

One of the industries that saw increased interest from elite hedge funds during the first quarter of 2016 was Packaging & Containers. Analysts at Goldman Sachs have recently initiated coverage of the industry, offering ‘Buy’ ratings left and right. Brian Maguire has an attractive view on the sector, noting the strong cash flows, solid margins and M&A opportunities as key indicators. So let’s have a look at the top five packaging and containers stocks that hedge funds from our database piled in during the quarter.

While there are many metrics that investors can assess in the investment process, hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

#5. WestRock

Hedge fund interest in WestRock Co (NYSE:WRK) cooled down a bit during the first three months of 2016, as the number of long positions fell to 32 from 35 registered at the end of December. Together, these funds held just 6% of the company’s common stock. Analysts at Credit Suisse and Jefferies Group have recently reiterated their ‘Buy’ rating on WestRock Co (NYSE:WRK), having placed price targets of $52 and $50 per share respectively. Activist investor Jeffrey Smith is bullish on WestRock, having shared his views on the stock at the recent Sohn Conference. His fund, Starboard Value initially took a stake in MeadWestvaco, which merged with Rock-Tenn in 2015 to create WestRock. In his presentation, Smith dismissed worries that WestRock Co (NYSE:WRK)’s business is in secular decline, claiming that containerboard prices would have to drop by more than 16% to justify the value of the company. Smith also said he finds WestRock’s dividend yield of 3.85% attractive and safe, and is confident that the business has ample room for growth. According to its latest 13F filing, Starboard held 4.56 million shares worth $178 million at the end of the first quarter.

#4. Ball Corporation

Hedge funds rushed in to benefit from Ball Corporation (NYSE:BLL)‘s merger with the British beverage can maker Rexam PLC. The number of long positions reached 40 at the end of the first quarter, up from 32 positions registered a quarter before. Senator Investment Group, run by Doug Silverman and Alexander Klabin, had its stake in Ball Corporation (NYSE:BLL) boosted by 34% during the quarter to 5.15 million shares worth $367 million. Bain Capital’s subsidiary Brookside Capital established a fresh position, amassing 1.35 million shares by the end of March. Ball Corporation (NYSE:BLL) reached a deal to buy Rexam for GBP4.43 billion ($6.35 billion) as it seeks to employ economies of scale to reduce costs and improve efficiency. Together, the two companies account for 74% of beverage can supply in Brazil, 69% in Europe and 60% in North America. As a result, the companies were forced to divest some assets in order to meet regulatory requirements. Ball and Rexam have reached an agreement to sell $3.42 billion worth of assets to Ardagh, the Luxembourg-based packaging group, in order to receive clearance from US, European and Brazilian regulators.

The three most popular packaging stocks are discussed on the next page.

#3. Graphic Packaging Holding Company

At the end of the first quarter, roughly 27% of Graphic Packaging Holding Company (NYSE:GPK) common stock was held by 41 hedge funds or 5.4% of the funds tracked by Insider Monkey. John Lykouretzos and his team chose to play it safe and reduced their fund’s exposure to the stock by 4%. As reported in its latest 13F filing, Hoplite Capital Management holds 10.2 million shares of Graphic Packaging Holding Company (NYSE:GPK) worth $131 million. The company’s presented mixed first quarter results sent the stock tumbling at the end of April. Revenues rose by 2.5% year-over-year to $1.03 billion, but failed to meet analysts’ projections of $1.05 billion. The company also posted adjusted earnings of $0.20 per share, above the consensus of $0.18 per share. Graphic Packaging Holding Company (NYSE:GPK) has recently announced the acquisition of Metro Packaging & Imaging, Inc as it seeks to further develop its supply chain. “Metro Packaging is strategically situated near key northeast customers and supports our vertically-integrated model,” said Michael Doss, President and Chief Executive Officer of Graphic Packaging.

#2. Sealed Air

Sealed Air Corp (NYSE:SEE) could be found in the portfolio of 47 elite hedge funds at the end of March, up from 46 a quarter earlier. The total value of their investments rose to $2.16 billion and amounted 23% of the company’s outstanding stock. David Cohen and Harold Levy‘s Iridian Asset Management holds the largest stake in Sealed Air Corp (NYSE:SEE) among the funds in our database. According to its latest 13F filing, Iridian’s holding went up by 1% to 12.4 million shares valued at $596 million. After a strong rally that saw Sealed Air shares go up by as much as 20%, the company’s mixed first quarter results reduced it to just 7% given yesterday’s closing price of $46.72 per share. Sealed Air Corp (NYSE:SEE) reported $1.59 billion in revenue, down by approximately 9% year-over-year, and adjusted earnings of $0.50 per share. Analysts had projected $1.61 billion in revenue and a profit of $0.48 per share. “As we anticipated, adjusted EBITDA was negatively impacted by currency headwinds, divestitures and product rationalization efforts, and formula pricing in our food care division,” commented Jerome Peribere, CEO of Sealed Air.

#1. Berry Plastics Group

Although the number of hedge funds invested in Berry Plastics Group Inc (NYSE:BERY) inched down during the first quarter to 49, the value of their investment rose by 7.5% to $1.27 billion. Joshua Friedman and Mitchell Julis, the managers of Canyon Capital Advisors, are bullish on Berry Plastics, having increased their investment by 21% to 3.36 million shares reportedly worth $121 million. On May 10 Berry Plastics Group Inc (NYSE:BERY) reported fiscal second quarter financial results that topped analysts’ estimates. The company posted a profit of $59 million or $0.58 per share when adjusted for one-time gains and costs, above the consensus of $0.49 per share. Revenues surged by 32% year-over-year to $1.61 billion, while analysts were looking for $1.65 billion. After a 22% drop in the beginning of the year, Berry Plastics Group Inc (NYSE:BERY) entered a strong uptrend and finished yesterday’s trading session at $40 per share, up by 12.6% for the year.

Disclosure: none.