In this article, we discuss the top 5 stock picks of Mason Morfit’s ValueAct Capital. If you want our detailed analysis of these stocks, go directly to the Top 10 Stock Picks of Mason Morfit‘s ValueAct Capital.
5. Citigroup Inc. (NYSE:C)
ValueAct Capital’s Stake Value: $971,720,000
Percentage of ValueAct Capital’s 13F Portfolio: 11.25%
Number of Hedge Fund Holders: 79
Citigroup Inc. (NYSE:C) is one of the Big Four American banking institutions and a multinational financial services corporation, offering asset management, retail banking, commodities, equities trading, insurance, investment management, mortgage loans, mutual funds, private equity, risk management, and wealth management.
ValueAct Capital owns 13.8 million Citigroup Inc. (NYSE:C) shares as of September 2021, worth $971.7 million, representing 11.25% of the fund’s total 13F securities.
Credit Suisse analyst Susan Roth Katzke on December 10 lowered the price target on Citigroup Inc. (NYSE:C) to $76 from $82 and kept an Outperform rating on the shares. The analyst slashed the price target to reflect the impact of the wind down of Citigroup Inc. (NYSE:C)’s consumer banking operations in Korea, suspended share buybacks in Q4 2021 with less capital return capacity, and a more conservative assessment of PPNR growth prospects.
In the third quarter of 2021, 79 hedge funds monitored by Insider Monkey were long Citigroup Inc. (NYSE:C), down from 87 funds in the prior quarter. One of the leading Citigroup Inc. (NYSE:C) stakeholders as of Q3 is Eagle Capital Management, with 19.8 million shares worth $1.39 billion.
Here is what Artisan Value Fund has to say about Citigroup Inc. (NYSE:C) in their Q4 2020 investor letter:
“We fully exited the position in Citigroup. Global financial services company Citigroup made a $900 million clerical error and received a public reprimand from federal regulators. This, after a decade focused on process control, information technology and risk systems, makes the error substantially more costly than just the $900 million mistake. Regulators believe the company’s risk management improvements have fallen short of expectations. To rectify the situation, a process and technology spending surge could negatively affect 2021-2022 profits by 10% to 20%. Trust and confidence are important in large financial institutions, and this incident combined with the CEO’s sudden retirement shook ours.”
4. LKQ Corporation (NASDAQ:LKQ)
ValueAct Capital’s Stake Value: $1,084,417,000
Percentage of ValueAct Capital’s 13F Portfolio: 12.56%
Number of Hedge Fund Holders: 38
LKQ Corporation (NASDAQ:LKQ) is a Chicago-based provider of automobile components and auto repair parts, operating in North America, Taiwan, and Europe. ValueAct Capital owns 21.5 million LKQ Corporation (NASDAQ:LKQ) shares, worth $1.08 billion, accounting for 12.56% of the firm’s total Q3 investments.
Publishing its third quarter financial results on October 28, LKQ Corporation (NASDAQ:LKQ) posted earnings per share of $1.02, beating estimates by $0.16. Revenue over the period increased 8.28% year-over-year to $3.30 billion, exceeding estimates by $30.45 million.
Barrington analyst Gary Prestopino on October 29 raised the price target on LKQ Corporation (NASDAQ:LKQ) to $65-$70 from $60 and kept an Outperform rating on the shares following the “solid” Q3 beat. LKQ Corporation (NASDAQ:LKQ)’s salvage business and major mechanical product groups exhibited strong growth due to increased quote conversion rates on salvage products versus aftermarket products, according to the analyst.
In Q3 2021, 38 hedge funds in the database of Insider Monkey reported owning stakes worth $1.69 billion in LKQ Corporation (NASDAQ:LKQ). Arrowstreet Capital is one of the leading company stakeholders, increasing its stake in the company by 16% in the third quarter, holding almost 5 million shares worth $248.9 million.
Here is what Bonsai Partners has to say about LKQ Corporation (NASDAQ:LKQ) in their Q1 2021 investor letter:
“LKQ is the largest provider of alternative collision and mechanical automotive parts in the United States. In Europe, they are the leading distributor of general automotive maintenance parts and supplies. Its shares appreciated 20.1% during the quarter.
During the quarter, LKQ shared its fourth-quarter results: showing a slight revenue decline and a nearly 30% increase in quarterly profit Vs. the same period last year. COVID has proved a surprising catalyst for my investment thesis which revolves around optimizing their recent large acquisitions that were never efficiently integrated.
Admittedly, in addition to LKQ’s quarterly performance, thematically, there has been broad enthusiasm for “re-opening” trades, of which, LKQ has been a beneficiary. Most importantly, the prior overhang related to LKQ’s debt burden is now all but behind us. Their net debt to EBITDA ratio now sits below 2x, a stark change from the near 3x leverage ratio before the pandemic. At that time, LKQ’s leverage had the potential to spiral upward to nearly 4-5x if the business experienced a prolonged shutdown. It’s good to be past this issue.”
3. Fiserv, Inc. (NASDAQ:FISV)
ValueAct Capital’s Stake Value: $1,186,469,000
Percentage of ValueAct Capital’s 13F Portfolio: 13.74%
Number of Hedge Fund Holders: 65
Fiserv, Inc. (NASDAQ:FISV), a financial technology company offering point of sale payment terminals, is one of the top stock picks of ValueAct Capital. The hedge fund owns roughly 11 million Fiserv, Inc. (NASDAQ:FISV) shares as of Q3 2021, worth $1.18 billion, representing 13.74% of the total 13F portfolio.
The Q3 earnings report was published by Fiserv, Inc. (NASDAQ:FISV) on October 27. The company posted an EPS of $1.47, exceeding estimates by $0.02. Revenue over the period jumped 9.96% year-over-year to $4.16 billion, outperforming estimates by $59.26 million.
Wedbush analyst Moshe Katri lowered the price target on Fiserv, Inc. (NASDAQ:FISV) to $130 from $138 and kept an Outperform rating on the shares on December 20. The analyst cites ongoing indications of choppy consumer spending, renewed pandemic-driven B&M shutdowns/travel slowdown, and reduced spending on non-discretionary items because of inflationary pricing pressure on staple goods.
Harris Associates is the largest Fiserv, Inc. (NASDAQ:FISV) stakeholder as of Q3 2021, increasing its position in the company by 35%, holding 16.2 million shares worth $1.76 billion.
Here is what Madison Investors Fund has to say about Fiserv, Inc. (NASDAQ:FISV) in its Q1 2021 investor letter:
“This quarter we researched several new stock ideas, but because of high prices, acted on only one. Thus, a new portfolio name is Fiserv, with corporate headquarters in Brookfield, WI, just down I-94 from us. Fiserv is a technology company serving financial institutions (“FIs”) and retail merchants. It has two main business lines. In the first, it’s a market leader in outsourced IT solutions for banks and credit unions, online and mobile banking technology, digital money movement solutions, and card issuing services. Fiserv’s second core business is merchant acquiring and processing, where it’s a leader in providing a variety of solutions to help all types of merchants accept digital payments. They entered this business through the acquisition of First Data in 2019.
Within the first business, Fiserv’s software is critical to the daily operations of FI clients. Their solutions not only provide the vital central processing systems, but also enable services such as electronic bill pay and digital money transfers at both large institutions and local banks and credit unions alike. As such, it is an incredibly sticky business that is resilient through economic cycles. On the merchant acquiring side of Fiserv, they process trillions of dollars annually for millions of merchant clients. Their solutions cater to all types of merchants and optimize for seamless acceptance and high authorization rates while also limiting fraud. Similar to the IT outsourcing business, Fiserv’s merchant solutions are critical to their customers’ daily operations. Furthermore, we are especially encouraged by their investments in new solutions, particularly Clover and Carat. Clover is a small and midsize business merchant acquiring platform and Carat is an e-commerce acquiring platform. Both these products hit the bullseye in terms of the way people are interacting with the retail industry, and both are growing at above market rates, which we believe will sustain into the future.
In addition to Fiserv’s favorable business characteristics and competitive positioning, the management team, led by CEO Frank Bisignano, has a track record of successfully investing for growth, improving profitability, and intelligently allocating excess capital. We believe these value-creating activities will continue going forward.
Financial institutions are increasingly making investments to digitize their customer facing products and digital payments are increasingly taking share from cash as a form of payment. As a result, demand for Fiserv’s solutions should continue to grow nicely in the coming years. In our view, Fiserv offers a nice combination of above average growth, high profitability, business resiliency, and shareholder-friendly management. We do not believe these characteristics were fully reflected in Fiserv’s share price when we made our investment during the quarter at a discount to the market’s 2021 price-to-earnings (P/E) multiple, a valuation level well below Fiserv’s historical premium.
An offsetting trade was the sale of Cognizant Technology Solutions, which was sold around the time Fiserv was added to the portfolio. Cognizant had been held since 2018, and we had expected it to perform similarly to another portfolio holding in the same industry, Accenture. Alas, multiple years of below industry growth challenged the investment, and despite our belief that CEO Brian Humphries could materially improve operations, recent metrics regarding elevated employee turnover and still below-average revenue growth led us to conclude that there was more heavy lifting required at the company. We decided that our investors would be better served by being invested in Fiserv rather than Cognizant.”
2. Seagate Technology Holdings plc (NASDAQ:STX)
ValueAct Capital’s Stake Value: $1,433,956,000
Percentage of ValueAct Capital’s 13F Portfolio: 16.60%
Number of Hedge Fund Holders: 27
Seagate Technology Holdings plc (NASDAQ:STX), an American data storage company, represents 16.60% of ValueAct Capital’s total Q3 investments, with the hedge fund holding 17.3 million shares of the company worth $1.43 billion. Seagate Technology Holdings plc (NASDAQ:STX) is one of the best stocks to buy according to ValueAct Capital.
Posting its Q3 results on October 22, Seagate Technology Holdings plc (NASDAQ:STX) reported earnings per share of $2.35, exceeding estimates by $0.14. The quarterly revenue jumped 34.62% from the prior-year quarter, reaching $3.12 billion, surpassing estimates by $10.28 million.
Fox Advisors analyst Steven Fox on December 6 downgraded Seagate Technology Holdings plc (NASDAQ:STX) to Equal Weight from Overweight with no price target as he sees more limited upside following the stock’s 70% rise since the end of 2020.
Jacob Mitchell’s Antipodes Partners recently acquired a position in Seagate Technology Holdings plc (NASDAQ:STX), buying 717,129 shares of the company in Q3, worth $59.1 million. Overall, 27 hedge funds were bullish on Seagate Technology Holdings plc (NASDAQ:STX) as of September end, down from 31 funds in the previous quarter.
Here is what ClearBridge Investments has to say about Seagate Technology Holdings plc (NASDAQ:STX) in its Q1 2021 investor letter:
“Our high active share approach made the most difference in IT, where the portfolio’s holdings gained 4.5% compared to a loss for the benchmark. Results were led by our more cyclical positions in digital storage provider Seagate Technology.”
1. KKR & Co. Inc. (NYSE:KKR)
ValueAct Capital’s Stake Value: $1,464,490,000
Percentage of ValueAct Capital’s 13F Portfolio: 16.96%
Number of Hedge Fund Holders: 56
KKR & Co. Inc. (NYSE:KKR), a global investment company dealing in private equity, energy, infrastructure, real estate, and credit, is the top stock pick of ValueAct Capital as of Q3 2021. KKR & Co. Inc. (NYSE:KKR) stock represents 16.96% of ValueAct Capital’s total investments, with the fund holding a $1.46 billion position in the company.
JMP Securities analyst Devin Ryan on December 22 kept his Outperform rating and $92 price target on KKR & Co. Inc. (NYSE:KKR) after the company announced “record” intra-quarter realizations of over $1.15 billion so far in Q4, setting up a “strong finish” to 2021.
KKR & Co. Inc. (NYSE:KKR), on November 2, posted its Q3 results. EPS in the quarter totaled $1.05, topping estimates by $0.10. The revenue gained 42.65% year-over-year, reaching $818.58 million, surpassing estimates by $108.92 million.
Of the 56 hedge funds that were bullish on KKR & Co. Inc. (NYSE:KKR) in the third quarter, Akre Capital Management is one of the leading company stakeholders, with an $896.7 million position.
Here is what Greenhaven Road Capital has to say about KKR & Co. Inc. (NYSE:KKR) in its Q3 2021 investor letter:
“KKR (KKR) – This remains an extremely resilient business with an A+ team enjoying the secular tailwinds of the migration of investable dollars toward alternative assets, where large allocators like the returns and love the muted volatility.”
You can also take a look 10 Tech Stocks to Buy According to Billionaire Philippe Laffont and 10 High Dividend Stocks to Buy According to Billionaire Lee Cooperman.
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The article was corrected at 4:10 PM ET on January 5, 2022, to reflect that ValueAct is led by Mason Morfit.
