Steel City Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. Steel City Capital, LP (the “Partnership”) was essentially flat in the first quarter of 2022, net of fees and expenses. The Partnership declined 1.4% in April, bringing YTD’22 results to a negative 1.5%. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Steel City Capital mentioned Service Corporation International (NYSE:SCI) and explained its insights for the company. Founded in 1962, Service Corporation International (NYSE:SCI) is a Houston, Texas-based funeral goods and services provider with an $11.5 billion market capitalization. Service Corporation International (NYSE:SCI) delivered a 1.01% return since the beginning of the year, while its 12-month returns are up by 29.02%. The stock closed at $71.71 per share on May 04, 2022.
Here is what Steel City Capital has to say about Service Corporation International (NYSE:SCI) in its Q1 2022 investor letter:
“Another humbling example where I whiffed on the question of “What makes the stock go up or down?” was Service Corporation International (NYSE:SCI), in which the Partnership held a short position in the early days of the pandemic. SCI is the largest provider of funeral, cremation, and cemetery services in North America. The original thesis was as follows: SCI generates a meaningful portion of their earnings from “pre-need” sales of funeral services and cemetery plots. Such sales are often driven by face-to-face sales calls and “death dinners.” I expected pandemicrelated restrictions on in-person meetings (and funeral services) would cut into this important sales channel. Interesting thesis, but wildly off base. “What makes the stock go up and down?” This is a death-care provider, so more deaths equals more business. And what could be better for business than a deadly pandemic? (No shit, Sherlock.) It took a couple quarters, but I scrapped the original thesis and let sleeping dogs lie for a while.
As with CVNA, I have reestablished a short position in SCI, hopefully with the right thesis in place this time. As the pandemic wanes, SCI shouldn’t be any more immune to a “pull-forward” effect than the Pelotons and Zooms of the world. I also expect lucrative “pre-need” sales to eventually come down as well. Many such sales are made at the time of a relative’s death (“How would you like to secure this beautiful plot right next to your loved one?”) and have probably benefitted from a consumer flush with stimulus cash. They are also costly outlays of cash for something that hopefully won’t be consumed any time in the near future and I would expect an increasingly strained consumer to hold off on making such a purchase (it would be quite morbid to call this delayed “gratification”).”
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Our calculations show that Service Corporation International (NYSE:SCI) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Service Corporation International (NYSE:SCI) was in 32 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 25 funds in the previous quarter. Service Corporation International (NYSE:SCI) delivered a 15.12% return in the past 3 months. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
