In this piece, we will take a look at the Top 10 Holdings of Engaged Capital.
Engaged Capital was one of the hedge funds that roared back to life as activist investors enjoyed one of the best runs in the market. With the S&P 500 rallying by 24% in 2023, the hedge fund found itself in one of the best spots owing to savvy stock picking. A 29% gain by the hedge was much better than the average 16% loss registered by most hedge funds in 2022 as the market came under pressure amid heightened inflation.
Founded in 2012 by veteran investor Glenn W. Welling, Engaged Capital is one of the most revered activist hedge funds that push for strategic changes in companies. Having launched with an initial capital of $85 million, it has become one of the biggest, controlling a portfolio worth $617.1 million. It has grown to become an experienced small-cap hedge fund that makes investments with a two to five-year investment horizon.
Welling is best known for his stock picking skills, having accrued significant skills on starting his career at the renowned activist fund Relational Investors led by Ralph V Whitworth in 2008. He was the principal and managing director at the hedge fund responsible for consumer, healthcare, and utility group investments.
While the top 10 holdings of Engaged Capital are public equities with a market cap of $300 million to $8 billion, they are usually spread in specific industries. For instance, it is not fond of investment opportunities in commodity sectors such as utilities, energy, and financials. The hedge fund also avoids companies with two share classes and those with more than 20% insider ownership, as it makes pushing for successful activist campaigns challenging.
Engaged Capital primarily focuses on companies that excel in their industries, show strong profitability, produce solid cash inflows, and maintain a low debt ratio. The activist hedge fund investigates further to uncover the causes of the stock’s poor performance. It also examines the financial data to pinpoint areas needing improvement to alter how the market views the company and then discusses the company’s management structure to gauge the feelings of the shareholders, indicating if there’s interest among other investors in making changes.
As part of its activist campaigns, Engaged Capital always pushes for operational improvements, including cutting costs to generate optimum shareholder value. In some cases, it advocates for strategic reviews that include selling non-core assets or the entire business if it’s the only option left to generate value. Board refreshment, including pushing for seats on the board, is also part of the strategy that the hedge fund deploys to try and advocate for change and influence a company’s direction to unlock any hidden value.
Source: pexels
Engaged Capital is not the only hedge fund pushing for changes in corporations in a bid to unlock shareholders in 2024. With activist investors generating an average return of 20.2% in 2023, there has been an inflow of Capital into various equities. Investors look for ways to unlock additional value when the equity market continues making higher highs amid the high interest rates environment.
Engaged Capital and other activists are expected to continue advocating for strategic changes as the high interest rate environment dampens expansion while affecting certain businesses. According to lawyers, bankers, and hedge fund executives, investors are expected to demand more from companies for transformation.
Some investors have expressed their readiness to invest additional funds as activists believe returns will continue to be strong with an increase in merger and acquisition activity. In the previous year, a record 77 first-time activists launched campaigns, a significant rise from 55 the previous year, according to Lazard data.
Our Methodology
Activist investment has roared back to life after the double-digit percentage gains in 2023 as the equity markets rallied to record highs. In this article, we have compiled the top 10 holdings of Engaged Capital, a hedge fund that is making a mark through activist investment. After analyzing Insider Monkey Database we have compiled Engaged Capital’s top ten holdings and ranked them based on the hedge fund’s equity stakes.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Top Holdings of Engaged Capital
10. Nevro Corp. (NYSE:NVRO)
Engaged Capital’s Equity Stakes: $27.23 Million
Number of Hedge Fund Holders: 29
Nevro Corp. (NYSE:NVRO) ranks among the top 10 holdings of Engaged Capital as one of the investments played in the healthcare sector. It operates as a medical device company focused on providing products for patients suffering from chronic pain.
According to the Insider Monkey database, 29 hedge fund portfolios held Nevro Corp. (NYSE: NVRO) at the end of the first quarter of 2024, up from 21 in the previous quarter. Armistice Capital is the most significant shareholder of the company, with shares worth $52.33 million.
Here is what Alger Weatherbie Specialized Growth Fund said about Nevro Corp. (NYSE:NVRO) in its first quarter 2024 investor letter:
“Nevro Corp. (NYSE:NVRO) provides spinal cord stimulation (SCS) devices in the U.S. and internationally for patients suffering from chronic pain. The global SCS market exceeds $2 billion and has been growing due to increased investment by the industry. During the quarter, the company preannounced fiscal fourth quarter results where revenues beat consensus estimates. Moreover, the company noted that while staffing issues and payer pressures continue to linger, the actual impact to procedure volumes appears to be declining. However, management noted that they remain cautious on the core SCS market, which still has a ways to go to get back to pre-pandemic levels. As such, shares detracted from performance.”
9. Portillos Inc (NASDAQ:PTLO)
Engaged Capital’s Equity Stakes: $28.22 Million
Number of Hedge Fund Holders: 21
Portillos Inc. (NASDAQ:PTLO) is the latest addition to Engaged Capital’s Portfolio, which operates as a quick-service dining franchise in the Chicago region. It is famous for authentic Chicago-style dishes such as hot dogs, Maxwell Street Polish, and Italian beef.
Engaged Capital acquired stakes in Portillos Inc. (NASDAQ:PTLO), shedding more than 50% in market value, making it a discounted investment play. The hedge fund acquired 1.99 million share valued at about $28.22 million, accounting for 4.57% of the portfolio. A total of 21 hedge funds in Insider Monkey’s database of 920 funds had stakes in Portillos Inc. (NASDAQ:PTLO), up from 19 in the preceding quarter.
8. PRA Group, Inc. (NASDAQ:PRAA)
Engaged Capital’s Equity Stakes: $48.33 Million
Number of Hedge Fund Holders: 7
PRA Group, Inc. (NASDAQ:PRAA) is a financial and business services company that purchases, collects, and manages non-performing loans worldwide. It remains one of the top 10 holdings of Engaged Capital, offering investment exposure in the financial service sector.
Engaged Capital amassed a 5% stake in the debt collection company last year and made clear its plans to push for operational improvement. The hedge fund instigated an activist campaign pushing for cost cuts and adding new experiences in the senior leadership.
Engaged has been advocating for selecting a president or chief operating officer who could assist in managing transformations, including a stricter business strategy. This involves enhancing its collection methods by increasing automation, technology use, and outsourcing. Given a possible rise in loan defaults, as interest rates stay high following central banks’ forceful increases, Engaged believes that enhancing the PRA Group, Inc. (NASDAQ:PRAA)’s operations now would enable it to take advantage of favorable market conditions, the sources noted.
Among the 920 hedge funds tracked by Insider Monkey’s database, seven had acquired and held PRA Group, Inc. (NASDAQ:PRAA) shares.
7. NCR Atleos Corporation (NASDAQ:NATL)
Engaged Capital’s Equity Stakes: $49.56 Million
Number of Hedge Fund Holders: 34
NCR Atleos Corporation (NASDAQ:NATL) is a financial technology company with three segments: Self-Service Banking, Network, and Telecommunications & Technology (T&T). It is one of the top 10 holdings of Engaged Capital and one of the best performing, having rallied by more than 40% in the first half of 2024.
The outperformance concerns NCR Atleos Corporation (NASDAQ:NATL)’s strong start, with first-quarter results above the high end of guidance. Revenues jumped 6% yearly by $1.05 billion as gross profit increased 21% to $221 million.
Engaged Capital held stakes worth $49.56 million as of the end of Q1 2024. On the other hand, 34 out of 920 hedge funds in the Insider Monkey database held stakes in NCR Atleos Corporation (NASDAQ:NATL) as of the end of Q1 2024.
6. BRC Inc. (NYSE:BRCC)
Engaged Capital’s Equity Stakes: $55 Million
Number of Hedge Fund Holders: 10
BRC Inc. (NYSE:BRCC) is one of the top 10 holdings of Engaged Capital and one of the best-performing stocks in 2024, going by the 50% plus rally. The consumer defensive stock has been in fine form owing to solid demand for its products, including coffee accessories cut as brewing equipment.
BRC Inc. (NYSE:BRCC) delivered a 14.9% increase in revenues in Q1 2024 to $98.4 million and jumped to a profit of $1.9 million from a net income loss of $17.3 million last year in the same quarter. Engaged Capital held stakes worth $55 million as of the first quarter. On the other hand, a total of 10 hedge funds out of 920 tracked by Insider Money held stakes in the company as of Q1 2024, up from 7 as of the end of last year.
5. Upbound Group, Inc. (NASDAQ:UPBD)
Engaged Capital’s Equity Stakes: $58.65 Million
Number of Hedge Fund Holders: 21
Upbound Group, Inc. (NASDAQ:UPBD) is one of the top 10 holdings of Engaged Capital in the Technology sector. The company operates a technology platform offering products, brands, and innovative solutions for millions of customers worldwide.
Engaged Capital reduced its stake in Upbound Group, Inc. (NASDAQ:UPBD) by 31% in Q1 2024. Multiple other investment groups and large-scale investors have also adjusted their stakes in Upbound Group, Inc. (NASDAQ:UPBD).
Allspring Global Investments Holdings LLC expanded its Upbound Group, Inc. (NASDAQ:UPBD) ownership by 232.0% throughout the initial quarter. Similarly, 21 hedge funds out of 920 tracked by Insider Monkey held stakes in the company as of the end of Q1 2024, up from 17 in Q4 2023.
4. NCR Voyix Corporation (NYSE:VYX)
Engaged Capital’s Equity Stakes: $73.71 Million
Number of Hedge Fund Holders: 41
NCR Voyix Corporation (NYSE:VYX) is Engaged Capital’s biggest holding in the technology sector, offering exposure to the provision of various software and services. The company provides software services, hardware, and digital banking solutions for financial institutions.
NCR Voyix Corporation (NYSE:VYX) delivered solid Q1 2024 financial results, with earnings per share at $0.13 against the $0.03 a share that analysts expected. Revenues topped $862 million, above the $856.55 million expected.
A total of 41 hedge funds tracked by Insider Monkey held stakes in NCR Voyix Corporation (NYSE:VYX) in Q1 2024, up from 40 as of Q4 2023.
ClearBridge Mid Cap Strategy stated the following regarding NCR Voyix Corporation (NYSE:VYX) in its first quarter 2024 investor letter:
“Stock selection in the IT sector also weighed on performance. Investor excitement for AI has driven outperformance in Hypergrowth companies but weighed on several of our holdings with more conservative outlooks, which are typically appropriate this early in the year. This included NCR Voyix Corporation (NYSE:VYX), which provides software, consulting and technology services for digital commerce and automatic teller machines (ATMs). Under new direction since the spinoff of NCR Atleos in the fourth quarter of 2023, the stock is still looking for solidification of its investor base. However, we are encouraged by the company’s focus on recurring revenue streams, which should allow it to grow at an attractive pace. Additionally, we believe that NCR Voyix’s current valuation is approximately equivalent to the value of its digital banking segment alone, which should merit further upward price movement.”
3. Shake Shack Inc. (NYSE:SHAK)
Engaged Capital’s Equity Stakes: $80.60 Million
Number of Hedge Fund Holders: 34
Following the acquisition of a 6.6% stake in the first half of 2023, Shake Shack Inc. (NYSE:SHAK) became one of the top 10 holdings of Engaged Capital, emerging as it is the biggest holding in the Consumer Cyclical sector. Following the acquisition, the stock ended up doubling in value.
The rally came as Engaged Capital embarked on a proxy fight that involved pushing for three board seats and other changes to boost the stock price. At the start of 2024, Shake Shack Inc. (NYSE:SHAK) was up by more than 130% over the past 12 months, attributed to investors reacting to a return to profitability and sales growth. Shake Shack Inc. (NYSE:SHAK) delivered a profit of $16.2 million in 2023, an improvement from a net loss between 2020 and 2022, hurt by the pandemic slowdown.
An analysis of the Insider Monkey Database indicates that hedge funds have been building up stakes in Shake Shack Inc. (NYSE:SHAK). As of the end of the first quarter, 34 hedge funds out of 920 tracked held stakes in the company, an improvement from 28 as of the end of 2023.
Here is what Alger Small Cap Growth Fund said about Shake Shack Inc. (NYSE:SHAK) in its first quarter 2024 investor letter:
“Shake Shack Inc. (NYSE:SHAK) is an elevated take on classic American cuisine. The company uses high-quality ingredients to craft Angus beef burgers, crinkle-cut fries, crispy chicken, and hot dogs. The company serves a full complement of beverages including house- made lemonade, hand-spun milkshakes, beer, wine, and soft drinks. During the quarter, shares contributed to performance after the company reported strong fiscal fourth quarter results, where earnings beat analyst estimates due to increasing restaurant level operating margins and strong same store sales above consensus, driven by better price mix and increased traffic. Moreover, management gave initial 2024 guidance with revenues in-line with consensus but higher-than-expected earnings, underscoring the company’s recent focus on streamlining operations by leveraging technology investment. Separately, following their fiscal fourth quarter earnings report, Shake Shack announced Rob Lynch as the incoming CEO. effective May 2024, succeeding Randy Garutti upon his retirement. Lynch, the former CEO of Papa John’s, is credited with revitalizing the brand post-2018 and has held senior marketing positions at several other top restaurant chains. With management executing well on its expansion plan to add 80 new restaurants in 2024, many of which with newly implemented drive-through windows, we believe the company remains well positioned for long-term growth potential.”
2. V.F. Corporation (NYSE:VFC)
Engaged Capital’s Equity Stakes: $81.94 Million
Number of Hedge Fund Holders: 33
The owner of North Face, Vans, and Timberland brands, V.F. Corporation (NYSE:VFC), is one of the top 10 holdings of Engaged Capital. While the company has lost more than 30% of market value over the past 12 months, the hedge funds have embarked on an activist campaign as it seeks to reinvigorate V.F. Corporation (NYSE:VFC)’s fortunes.
Ever since it acquired stakes in V.F. Corporation (NYSE:VFC) in the fourth quarter of 2023, the hedge fund has pushed the company to cut costs to boost its margins and consider strategic alternatives such as selling non-core brands to try and unlock value. Engaged Capital has been pushing for $300 million in cost savings. By the time the activist investor acquired stakes, V.F. Corporation (NYSE:VFC) had plunged to a ten-year low, having shed more than 80% in market value.
33 hedge funds out of the 920 tracked by Insider Monkey held stakes in the company as of the end of the first quarter, an improvement from 30 as of the end of the fourth quarter of 2023.
1. Evolent Health, Inc. (NYSE:EVH)
Engaged Capital’s Equity Stakes: $106.94 Million
Number of Hedge Fund Holders: 28
Evolent Health, Inc. (NYSE:EVH) is the top holding of Engaged Capital, offering health information services in the Healthcare sector. The company provides specialty care management services in US oncology, cardiology, and musculoskeletal. While the stock was up by 22% in 2023, it has been a big disappointment in 2024, going down by about 40% in the first half of the year.
During the steep pullback, Engaged Capital held 3.26 million shares of Evolent Health, Inc. (NYSE:EVH), valued at approximately $106.94 million, accounting for 17.32% of its portfolio. As of the end of the first quarter, 28 hedge funds tracked by the Insider Monkey database held stakes in Evolent Health, Inc. (NYSE:EVH), down from 29 as of the end of 2023.
There are tremendous investment opportunities and value to unlock by focusing on small cap stocks spread across various sectors going by the top 10 holdings of Engaged Capital. However, given that the artificial intelligence arms race is just but starting, there are under-the-radar AI stocks trading at highly discounted valuations that hold greater promise for anyone looking to diversify their portfolio. If you are looking for an AI stock that is more promising than the top activist investment plays, check out our report about the cheapest AI stock.
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