In this article, we will discuss Top 10 Stock Picks of Michael Bilger’s 59 North Capital. You can skip our detailed analysis of 59 North Capital’s strategy and our outlook of the current U.S equity market and go directly to 5 Stock Picks of Michael Bilger’s 59 North Capital.
Michael Bilger is a managing partner at 59 North Capital. Bilger earned his bachelor’s in Commerce and Economics from the University of Virginia and later got an MBA from Harvard Business School. In 2018, Bilger established 59 North Capital, which is a hedge fund based in New York.
North Capital Management is a hedge fund managing funds of 3 clients. As per the fund’s last reported filing for Q2 2022, the fund held had $349 million in its 13F portfolio. The overall fund size could be much bigger as several assets, including cash, investments in fixed income, etc., are not publicly disclosed.
The majority of the hedge funds’ investments are in large-cap stocks such as D.R. Horton, Inc. (NYSE:DHI), American Homes 4 Rent (NYSE:AMH), NortonLifeLock Inc. (NASDAQ:NLOK), and American Homes 4 Rent (NYSE:AMH) while small caps make a relatively smaller portion of the fund’s portfolio.
59 North Capital currently holds 12 companies across 7 sectors. The fund is more heavily invested in Services as of its last reported filing, followed by Financial and Industrial Goods.
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Our Methodology
We picked top 10 stocks from 59 North Capital’s portfolio as of its Q2 2022 filing.
Top 10 Stock Picks of Michael Bilger’s 59 North Capital
10. NortonLifeLock Inc. (NASDAQ:NLOK)
59 North Capital Stake: $19,736,000
Percentage of 59 North Capital’s Portfolio: 5.65%
Number of Hedge Fund Holders: 43
NortonLifeLock Inc. (NASDAQ:NLOK) is a cybersecurity firm that provides security solutions to its customers. The company offers its products through its two recognizable brands: Norton and LifeLock. 59 North Capital decreased its stake in NortonLifeLock Inc. (NASDAQ:NLOK) by 43% during Q2 2022 and currently has a $19.7 million stake in the company. NortonLifeLock Inc. (NASDAQ:NLOK) constituted 5.65% of the fund’s 13F portfolio at the end of Q2 2022. NortonLifeLock Inc. (NASDAQ:NLOK) is currently trading at a forward P/E of 14x compared to the sector median of 16.85x, which makes the shares of the company appealing to value investors.
NortonLifeLock Inc. (NASDAQ:NLOK) performed well in fiscal Q1 2023, reporting revenue of $708 million, up 2.50% YoY. The company reported normalized EPS of $0.45, beating the market consensus estimate by $0.02 as the company continued to diversify its client base and make inroads in the overseas market.
Here is what ClearBridge Investments had to say about NortonLifeLock Inc. (NASDAQ:NLOK) in its Q4 2021 investor letter:
“However, not every example has a cyclical dynamic. Consumer cybersecurity company NortonLifeLock undoubtedly benefited from the COVID-19 pandemic lockdowns as sales of personal computers and time spent online skyrocketed, as did subscriptions to the company’s security products. The market has lumped Norton into the “COVID winners” bucket and embedded a substantial reduction in subscriptions going forward as the company laps its strong results from the depths of the pandemic. While these concerns are reasonable for many within the COVID winner cohort, it is not the case for Norton. Company-specific improvements in marketing and product development have been just as powerful tailwinds to subscriber growth and would have continued to carry the company’s growth through the most difficult comparisons from 2020 even without the pandemic effect. The market’s concern about tailwinds turning to headwinds is overwrought, and contrary to the decline currently embedded in the stock price, we are confident that Norton’s earnings will continue to compound. Similar to EQT and OneMain, NortonLifeLock has been actively putting its ample cash flow generation to work to crystalize upside for shareholders. In addition to strong dividends and share repurchase activity, last year Norton announced the acquisition of “freemium” competitor Avast. Already attractive from a pricing standpoint, the acquisition creates the potential to generate immense cost and revenue synergies as well as providing Norton a strong foothold outside the North American market and a broader customer acquisition funnel. Once the transaction closes in 2022, Norton will have growing free cash flow generation of $1.5 billion and a clear path to an EPS of $5, yet a resulting valuation of just 5x earnings power. Given the high-single-digit revenue growth that Avast brings to the table, we believe the continuation of a valuation this depressed for Norton is highly unlikely.”
As per Insider’s Monkey database, 43 hedge funds owned stakes in NortonLifeLock Inc. (NASDAQ:NLOK) at the end of June quarter, while Starboard Value LP remained the leading hedge fund with the biggest holding in the stock. The fund owned 19,204,454 shares of the company at the end of Q2 2022.
In addition to NortonLifeLock Inc. (NASDAQ:NLOK), 59 North Capital had investments in Brookdale Senior Living Inc. (NYSE:BKD), Deckers Outdoor Corporation (NYSE:DECK) and News Corporation (NASDAQ:NWS).
9. Viad Corp (NYSE:VVI)
59 North Capital Stake: $22,282,000
Percentage of 59 North Capital’s Portfolio: 6.38%
Number of Hedge Fund Holders: 10
Viad Corp (NYSE:VVI) is a marketing corporation established in the United States. GES and Pursuit are two primary segments of the company. Michael Bilger increased his stake in Viad Corp (NYSE:VVI) by 17% and currently has 807,021 shares of the company in its portfolio. The company represents 6.38% of 59 North Capital’s portfolio at the end of Q2 2022.
Viad Corp (NYSE:VVI) reported a stellar result for Q2 2022 as it reported revenue of $319.2 million, up 421.29%. The company posted normalized EPS of $0.74 for the quarter beating the market consensus estimate by $0.57.
The management, while talking to analysts on the earnings call, highlighted GES’s faster-than-expected recovery from the pandemic as the primary growth driver during Q2 2022.
At the end of Q2 2022, 10 hedge funds in Insider Monkey’s database were long on Viad Corp (NYSE:VVI), and Blue Grotto Capital came out to be the leading stakeholder in the company, with a total holding worth $27 million in the company.
8. D.R. Horton, Inc. (NYSE:DHI)
59 North Capital Stake: $25,238,000
Percentage of 59 North Capital’s Portfolio: 7.23%
Number of Hedge Fund Holders: 44
D.R. Horton, Inc. is one of the biggest homebuilders in the United States. Headquartered in Arlington, Texas, the company has operations in 98 markets across 31 states. 59 North Capital doubled down on its investment in D.R. Horton, Inc., increasing its stake in the company by 218% during Q2 2022. The hedge fund now owns D.R. Horton, Inc. shares worth $25.2 million, which constitutes 7.23% of the total portfolio of the hedge fund’s portfolio at the end of Q2 2022.
D.R. Horton, Inc. performance in fiscal Q3 2022 remained underwhelming as the company reported revenue of $8.79 billion missing the market consensus estimate of $8.91 billion. The slowdown in the housing market with high mortgage rates is reflected in the company’s result as home deals slowed down in the quarter.
Palm Valley Capital Management mentioned the company in its Q2 2022 investor letter. Here is what the fund said:
“Vidler Water was acquired by homebuilder D.R. Horton (NYSE:DHI) during the second quarter for $15.75 per share, a modest 19% premium to the 90-day volume weighted average price. D.R. Horton can use Vidler’s water rights to satisfy government requirements to have water resources available before it breaks ground on new housing developments in Nevada. The takeover price was below our valuation, but D.R. Horton was the only real buyer who stepped up to the plate for Vidler’s assets. The deal appears to have leaked early, since the stock surged in the weeks before the announcement.”
On September 19th, KeyBanc’s analyst Kenneth Zener upgraded his rating on several housing sector stocks including D.R. Horton, Inc. The analyst believes that the sector has been under pressure during this year and has underperformed as compared with market indexes. He believes that at the current levels, there is limited downside left and hence has now given a buy rating on the stocks. The analyst has a target price of $84 on D.R. Horton, Inc.
7. MSC Industrial Direct Co., Inc. (NYSE:MSM)
59 North Capital Stake: $31,268,000
Percentage of 59 North Capital’s Portfolio: 8.96%
Number of Hedge Fund Holders: 27
Headquartered in New York, the United States, MSC Industrial Direct Co., Inc. (NYSE:MSM) is one of the major industrial distributors specializing in metalworking repair and services. 59 North Capital increased its stake in MSC Industrial Direct Co., Inc. (NYSE:MSM) by 54% in the second quarter, taking the total stake of the hedge fund in the company to $31.2 million. The fund held 416,291 shares of the company at the end of Q2 2022.
MSC Industrial Direct Co., Inc. (NYSE:MSM) recently reported fiscal Q3 2022 results with revenue of $958.6 million, up 10.7% YoY from $866.3 million in Q3 2021, driven by price and growth incentives taken by the management. The company reported a normalized EPS of $1.82, beating the market consensus estimate by $0.08.
The company has been making some changes in its management structure and earlier this month appointed Martina McIsaac as a chief operating officer of the company. Martina McIsaac previously served as the CEO of Hilti Corporation.
6. American Homes 4 Rent (NYSE:AMH)
59 North Capital Stake: $31,484,000
Percentage of 59 North Capital’s Portfolio: 9.02%
Number of Hedge Fund Holders: 29
American Houses 4 Rent (NYSE:AMH) is a real estate investment trust that focuses on investments in single-family homes. 59 North Capital reduced its position in American Homes 4 Rent (NYSE:AMH) during Q2 2022 by 10%. The fund now owns 888,362 shares of the company, amounting to a total value of approximately $31 million.
American Homes 4 Rent (NYSE:AMH) recently reported Q2 2022 results with revenue of $361.88 million, up 15.37% YoY. The company reported a normalized EPS of $0.16, beating the market consensus estimate by $0.05.
Here is what Baron Real Estate Income Fund has to say about American Homes 4 Rent (NYSE:AMH) in its Q2 2022 investor letter:
“Single-Family Rental REITs (7.8%): We are bullish about the Fund’s investments in single-family rental REIT American Homes 4 Rent (NYSE:AMH). Demand conditions for rental homes are attractive due to a decline in home purchase affordability, the propensity to rent, and the strong desire by households to rent homes in suburbs rather than rent apartments in cities. Regarding new construction activity, there is a limited supply of single-family rental homes in the U.S. housing market, increasingly constrained by rising construction costs. Limited inventory combined with strong demand is leading to robust rent growth. American Homes 4 Rent has an opportunity to partially offset inflation given that in-place annual leases are significantly below market rents. Valuations are compelling at less than $400,000 per home and at 5% capitalization rates.
On September 19, Steve Sakwa, an analyst at Evercore ISI, reduced his target price on the company to $38 from the previously stated $39. The analyst is concerned about the company’s growth prospects and has become more conservative in a rising interest rate environment which will lead to higher interest expenses for American Houses 4 Rent.
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Disclosure: None. Top 10 Stock Picks of Michael Bilger’s 59 North Capital. is originally published on Insider Monkey.
