In this article, we will be discussing the top 10 stock picks of Charles Paquelet’s Skylands Capital. If you want to skip our detailed analysis of Paquelet’s history, investment philosophy, and hedge fund performance, go directly to the Top 5 Stock Picks of Charles Paquelet’s Skylands Capital.
Charles A. Paquelet is the founder, portfolio manager and research analyst of the Wisconsin-based long/short equity investment management firm, Skylands Capital. A veteran in the world of finance, Charles Paquelet earned his B.S degree from Case Western Reserve University’s Weatherhead School of Business in 1987. He later entered Indiana University’s M.B.A program which he completed in 1989 with a specialization in finance. Prior to founding Skylands Capital in 2004, Paquelet served as a financial analyst at B.F. Goodrich & Company. He left the firm to join Strong Capital Management in 1989.
Specializing in U.S. equities, Skylands Capital manages four long-biased long/short portfolios as well as long-only assets. Managing more than $809.5 million in its investment portfolio as of the third quarter of 2021, Skylands Capital’s portfolio is diversified across 12 sectors, with the Consumer Discretionary sector making up the bulk of it.
As of the third quarter of 2021, Skylands Capital has stakes in several major companies, including Apple Inc. (NASDAQ:AAPL), General Motors Company (NYSE:GM), and Visa, Inc. (NYSE:V), among others discussed in more detail below.
Our Methodology
With this context in mind, let us now analyze the top 10 stock picks of Charles Paquelet’s Skylands Capital. We made use of Skylands Capital’s 13F portfolio for the third quarter for this analysis, ranking the stocks based on the fund’s stake values.
Top 10 Stock Picks of Charles Paquelet’s Skylands Capital
10. Norfolk Southern Corporation (NYSE:NSC)
Skylands Capital’s Stake Value: $16 million
Percentage of Skylands Capital’s 13F Portfolio: 1.98%
Number of Hedge Fund Holders: 58
One of the premier transportation companies in the United States, Norfolk Southern Corporation (NYSE:NSC) is a holding company that engages in the rail transportation of raw materials and finished goods across the nation.
On October 28, TD Securities analyst Cherilyn Radbourne raised the price target on Norfolk Southern Corporation (NYSE:NSC) to $330 from $315, and kept a Buy rating on the shares of the company.
Charles Paquelet’s Skylands Capital currently holds 67,205 shares of Norfolk Southern Corporation (NYSE:NSC), worth approximately $16 million, accounting for 1.98% of the fund’s portfolio value.
Of the 873 elite funds tracked by Insider Monkey, 58 were long Norfolk Southern Corporation (NYSE:NSC) at the end of June, up from 46 in the first quarter of 2021. Ken Fisher of Fisher Asset Management is among the leading stakeholders of the company.
In addition to Apple Inc. (NASDAQ:AAPL), General Motors Company (NYSE:GM), and Visa, Inc. (NYSE:V), Norfolk Southern Corporation (NYSE:NSC) is a notable stock to invest in.
9. Beacon Roofing Supply, Inc. (NASDAQ:BECN)
Skylands Capital’s Stake Value: $21.54 million
Percentage of Skylands Capital’s 13F Portfolio: 2.66%
Number of Hedge Fund Holders: 20
Beacon Roofing Supply, Inc. (NASDAQ:BECN) is a Virginia-based distributor of commercial and residential roofing products, as well as related building products in North America.
On October 18, RBC Capital analyst Mike Dahl upgraded Beacon Roofing Supply, Inc. (NASDAQ:BECN) to Outperform from Sector Perform, with an unchanged price target of $63 on its shares.
At the end of the third quarter, Charles Paquelet held 451,010 shares of Beacon Roofing Supply, Inc. (NASDAQ:BECN), amounting to more than $21.54 million in worth and representing 2.66% of his hedge fund’s portfolio value.
Connecticut-based investment firm Iridian Asset Management is one of the biggest stakeholders of Beacon Roofing Supply, Inc. (NASDAQ:BECN) as of the end of the second quarter, according to the data tracked by Insider Monkey. Overall, 20 funds were bullish on Beacon Roofing Supply, Inc. (NASDAQ:BECN) by the end of the June quarter, compared to 21 in the previous quarter.
Fiduciary Management, in its Q3 2021 investor letter, mentioned Beacon Roofing Supply, Inc. (NASDAQ:BECN). Here is what the fund said:
“Beacon is the largest publicly traded (#2 overall) distributor of roofing materials and complementary building products in the U.S. and Canada. Beacon serves greater than 90,000 customers and offers 140,000 SKUs from over 400 branches throughout all 50 states (97% of sales) and 6 Canadian provinces (3% of sales). Beacon makes 1.7 million annual deliveries (within a two-hour radius) using its fleet of specialized trucks. Since the sale of the non-core Interiors division (2021), their run-rate sales have been 53% Residential Roofing; 25% Commercial Roofing; and 22% Complementary Building Products (siding, windows, specialty exterior building products, insulation, and waterproofing systems).
Good Business
• Manufacturers and distributors operate in a rational and consolidated market, with the top three distributors accounting for 54% of a $28 billion industry (almost two times what they had ten years ago).
• The industry is led by ABC Supply Co. Inc. (24% share), Beacon Roofing (20% share), and SRS (10% share), with the remaining 46% held by 1,500 smaller distributors.
• It is estimated that roughly 80% of roofing sales are replacement, and that the U.S. housing stock is now over 40 years old on average. Ninety-four percent of U.S. re-roofing demand is thought to be non-discretionary.
• With management’s focus on organic growth and maintaining discipline, rising returns should follow.
• Aided by the Interiors divestiture, the fiscal third quarter 2021 net debt-to-EBITDA ratio dropped to 2.4 times, providing financial flexibility and likely the ability to buy back stock and issue dividends.
• Beacon is a simple scale business, and roofing distribution is unlikely to undergo major change.Valuation
• Despite newfound financial health and flexibility, and strong fundamentals, Beacon’s shares have receded from $60 in May to $50 in August (-17%), and the stock trades at a discount to its 10-year average for the next twelve months P/E (11 times), enterprise value-to-EBITDA (9 times), and enterprise value-to-sales (0.85 times). With steady execution, we think there is scope for Beacon to trade at a premium to 10-year averages and north of 1 times EV/Sales.
• If Beacon were to grow 4.5% and reach the low end of their EBITDA margin target by fiscal year 2026 (9%-11%) and were ascribed a 15 P/E ratio, the compound return would be approximately 15%.Management
• New CEO Julian Francis has refocused the company on its core Roofing/Exteriors business (divesting Interiors and substantially de-risking the balance sheet), and inward on branch productivity, margin improvement, organic growth, and realizing the benefits of scale.
• Frank Lonegro, CFO, recently joined Beacon from CSX Corporation, where he was the CFO and Executive VP.Investment Thesis
Beacon is a simple business driven by largely non-cyclical, non-discretionary demand. While Beacon has achieved scale in an industry that has consolidated substantially over the last decade, under prior management they were saddled with (1) a challenging and costly integration (2) substantial debt and interest costs, and (3) a separate Interiors business. Under their new CEO they sold Interiors, and are progressing on strategic initiatives. Strong industry fundamentals have led to rapid restoration of financial flexibility and Beacon’s future now looks solid. While expecting a sequential slowdown in growth (in part due to lower y/y storm activity) and a decline in margin, we think enhanced focus on organic growth and structural margin improvement should help reaccelerate future earnings, particularly as replacement demand will likely benefit from the strong build period from 2000-2006.”
8. Oshkosh Corporation (NYSE:OSK)
Skylands Capital’s Stake Value: $21.8 million
Percentage of Skylands Capital’s 13F Portfolio: 2.69%
Number of Hedge Fund Holders: 28
Headquartered in Oshkosh, Wisconsin, Oshkosh Corporation (NYSE:OSK) is a leading manufacturer and marketer of specialty vehicles and truck bodies for the primary markets of defense, concrete placement, refuse hauling, access equipment and fire & emergency.
According to the 13F filings for the third quarter of 2021, Skylands Capital holds 213, 145 shares of Oshkosh Corporation (NYSE:OSK). These shares are valued at over $21.8 million and account for 2.69% of the investment firm’s total portfolio value.
As of the end of the second quarter, 28 hedge funds tracked by Insider Monkey reported owning stakes in Oshkosh Corporation (NYSE:OSK). The total worth of these stakes is $360.4 million. This is compared to 26 funds that had stakes in the company in the previous quarter, with a total worth of $416.4 million.
Out of the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm AQR Capital Management is a leading shareholder in Oshkosh Corporation (NYSE: OSK) with 755,940 shares worth more than $92 million.
On October 28, Baird analyst Mircea Dobre maintained an Outperform rating and a $131 price target on Oshkosh Corporation (NYSE:OSK) following the company’s Q4 earnings beat.
Just like Apple Inc. (NASDAQ:AAPL), General Motors Company (NYSE:GM), and Visa, Inc. (NYSE:V), Oshkosh Corporation (NYSE:OSK) is a stock investors are interested in.
7. FMC Corporation (NYSE:FMC)
Skylands Capital’s Stake Value: $24.54 million
Percentage of Skylands Capital’s 13F Portfolio: 3.03%
Number of Hedge Fund Holders: 33
FMC Corporation (NYSE:FMC) is a Pennsylvania-based chemical manufacturing company that engages in the discovery, development, and production of agricultural chemicals for crop protection and plant health. Originally a producer of insecticides, the company has expanded to multiple fields of agricultural sciences.
On November 4, Citi analyst P.J. Juvekar raised the price target on FMC Corporation (NYSE:FMC) to $110 from $101, and kept a Neutral rating on the shares of the company.
Based on our Q3 data, Charles Paquelet’s hedge fund holds 268,075 shares of FMC Corporation (NYSE:FMC), worth more than $24.54 million, representing 3.03% of his fund’s investment portfolio. Of the 873 elite funds tracked by Insider Monkey, 33 reported holding stakes in FMC Corporation (NYSE:FMC) at the end of the second quarter, up from 32 in the previous quarter.
Out of the hedge funds being tracked by Insider Monkey, Scotland-based Aubrey Capital Management is a leading stakeholder in FMC Corporation (NYSE: FMC) with 2,620 shares worth more than $283.4 million.
6. The Joint Corp. (NASDAQ:JYNT)
Skylands Capital’s Stake Value: $32.44 million
Percentage of Skylands Capital’s 13F Portfolio: 4%
Number of Hedge Fund Holders: 22
The Joint Corp. (NASDAQ:JYNT) is a national operator, manager, and franchisor of chiropractic clinics across the United States. Based in Arizona, the company operates on a non-insurance, cash-based model.
On October 8, Roth Capital analyst George Kelly reiterated a Buy rating on The Joint Corp. (NASDAQ:JYNT) with a $105 price target on its shares.
Based on the 13F securities for the third quarter of 2021, Charles Paquelet’s Skylands Capital holds 331,040 shares of The Joint Corp. (NASDAQ:JYNT). These shares amount to more than $32.44 million and represent 4% of the fund’s total portfolio value.
There were 22 hedge funds in our database that held stakes in The Joint Corp. (NASDAQ: JYNT) in the second quarter of 2021. Of these funds, New York-based Bandera Partners is the leading shareholder in the company.
In the Q2 2021 investor letter of Artko Capital, the fund mentioned The Joint Corp. (NASDAQ:JYNT). Here is what the fund had to say:
“Two poignant examples in recent years have been our investments, one is in Joint Chiropractic (JYNT). Both of the investments have worked out fantastically for our partners with 300% plus return for each, however, our experience and our risk process where we take off at least 5% of portfolio gains when a position reaches 15% of the portfolio has limited our potential, as has limiting our vision for potential gains in 100s of percent instead of a 1000+ (as been the case with JYNT). Additionally, following this risk management model has resulted in some minor tax inefficiencies for the partnership.”
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Disclosure. None. Top 10 Stock Picks of Charles Paquelet’s Skylands Capital is originally published on Insider Monkey.
