Value Holdings Likes These 5 Industrials Stocks

Value Holdings L.P. is a New York-based hedge fund vehicle founded by Timothy Curro in 1995. The little-known asset manager predominantly seeks to invest in small-cap companies with strong fundamentals and huge piles of cash. Interestingly enough, one of the ways that Mr. Curro finds possible investment candidates is by comparing a company’s current market value to what the company might obtain in a leveraged buyout, assuming the acquirer seeks to repay the debt from the deal with only the free cash flow from the acquired company.

Although there is hardly any information about the performance of Mr. Curro’s Manhattan-based asset manager over the past several years, the relatively unknown firm generated an annual net-of-fees return of 19.5% in the first nine years of its existence, more than double the 8% annual return delivered by the S&P 500 Index over the same period. The fund’s quarterly 13F filing for the April-to-June period shows that Value Holdings L.P. oversees an equity portfolio worth $155.75 million as of June 30. As Industrials is one of the sectors that Value Holdings targets, let’s have a look at five stocks from the sector that are favored by Mr. Curro and his team.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

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#5. Emcor Group Inc. (NYSE:EME)

 – Shares Owned by Value Holdings L.P. (as of June 30): 157,100

 – Value of Value Holdings L.P.’s Holding (as of June 30): $7.74 Million

Value Holdings L.P. did not make any alterations to its 157,100-share position in Emcor Group Inc. (NYSE:EME) during the three-month period ended June 30, with the position being valued at $7.74 million on June 30. The U.S. electrical and mechanical construction and facilities services firm has seen the value of its stock advance by 15% since the beginning of 2016, as the company’s second quarter top- and bottom-line figures set new company records. Emcor Group reported revenue of $1.93 billion for the quarter, up from $1.65 billion posted a year prior, thanks to revenue increasing within all reportable segments, save for the United Kingdom building services segment, which was impacted by the depreciation of the British pound against the greenback. Emcor Group’s Board recently approved a quarterly dividend payment of $0.08 per share, which equates to an annual dividend yield of 0.58%. Royce & Associates, founded by Chuck Royce, was the owner of 1.17 million shares of Emcor Group Inc. (NYSE:EME) at the end of March.

#4. Insperity Inc. (NYSE:NSP)

 – Shares Owned by Value Holdings L.P. (as of June 30): 129,959

 – Value of Value Holdings L.P.’s Holding (as of June 30): $10.04 Million

The Manhattan-based hedge fund firm trimmed its position in Insperity Inc. (NYSE:NSP) by 10% during the second quarter, to 129,959 shares. The reduced position was worth $10.04 million at the end of the quarter and made up 6.4% of the value of the fund’s portfolio. Insperity, which provides human resources and other services to businesses, has seen its market capitalization increase by 39% since the start of the year. In mid-May, the company reached an agreement with Jeffrey Smith’s Starboard Value to add the activist investor’s nominee to its Board of Directors and begin a search for a new Independent Director. Soon thereafter, Insperity also hiked its quarterly dividend payment by $0.03, to $0.25 per share, as well as authorized an expansion of its stock repurchase program by an additional one million shares to 1.5 million shares. The human resources and business solutions company’s second quarter revenue was $707.33 million, up by 13.7% year-over-year, but meaningfully below the $720.85 million-figure anticipated by analysts. Starboard Value had 3.34 million shares of Insperity Inc. (NYSE:NSP) in its portfolio at the end of the first quarter.

The second page of this article will discuss three other industrials stocks favored by Value Holdings.

#3. Rollins Inc. (NYSE:ROL)

 – Shares Owned by Value Holdings L.P. (as of June 30): 349,685

 – Value of Value Holdings L.P.’s Holding (as of June 30): $10.24 Million

The hedge fund vehicle founded by Timothy Curro left its position in Rollins Inc. (NYSE:ROL) unchanged during the June quarter at 349,685 shares. The untouched position was valued at $10.24 million on June 30 and constituted 6.6% of the value of the hedge fund’s equity portfolio. The provider of essential pest control services and protection against termite damage, rodents, and insects, which owns famous pest control company Orkin, has seen its market value increase by 6% in 2016. Rollins has improved its bottom- and top-line figures for 41 consecutive quarters, a rather remarkable achievement given the recent economic uncertainty around the world. The company’s revenue for the second quarter grew by 4.8% year-over-year to $411.1 million. The depreciation of the Canadian and Australian dollars against the greenback hit the company’s second quarter top-line by approximately $9 million. Net income increased to $47.8 million from $45.1 million recorded a year earlier. Jim Simons’ Renaissance Technologies LLC owned 1.28 million shares of Rollins Inc. (NYSE:ROL) on March 31.

#2. Westinghouse Air Brake Technologies Corp (NYSE:WAB)

 – Shares Owned by Value Holdings L.P. (as of June 30): 149,600

 – Value of Value Holdings L.P.’s Holding (as of June 30): $10.51 Million

The small-cap-focused hedge fund firm owned 149,600 shares of Westinghouse Air Brake Technologies Corp (NYSE:WAB) at the end of June, exactly 7,000 shares less than it did at the end of March. The reduced stake was worth $10.51 million on June 30. In late-July of last year, Wabtec (as the company is colloquially known), one of the largest providers of products and services for the global rail industry, announced plans to acquire French rival Faiveley Transport S.A. to create an even larger public rail equipment company. Wabtec recently offered concessions to alleviate EU antitrust concerns about the $1.8 billion proposed offer to acquire Faiveley. The European Commission, which is anticipated to rule on the deal by the end of October, is likely to seek feedback from third parties before deciding on whether to accept the concessions, demand more concessions, or even block the acquisition. Wabtec shares are down by a little less than 1% since the start of 2016. Adam Usdan’s Trellus Management Company acquired a new stake of 7,759 shares of Westinghouse Air Brake Technologies Corp (NYSE:WAB) during the second quarter.

#1. MKS Instruments Inc. (NASDAQ:MKSI)

 – Shares Owned by Value Holdings L.P. (as of June 30): 265,921

 – Value of Value Holdings L.P.’s Holding (as of June 30): $11.45 Million

MKS Instruments Inc. (NASDAQ:MKSI) was the third-largest equity position in Value Holdings’ equity portfolio at the end of the June quarter, accounting for 7.4% of its value, and its top Industrials pick. The shares of the provider of instruments, subsystems and process solutions for manufacturing processes are 27% in the green so far this year. In late-April, MKS Instruments completed the acquisition of Newport Corporation, a supplier of advanced-technology products and systems to various end-markets. Newport shareholders received $23.00 in cash for each share of Newport. The acquirer paid an aggregate consideration of $905 million, as well as repaid roughly $93 million of Newport’s indebtedness. MKS Instruments funded the acquisition with cash on hand of approximately $240 million and a $780 million-secured term loan. Ken Fisher’s Fisher Asset Management owns 699,271 shares of MKS Instruments Inc. (NASDAQ:MKSI) as of the end of the second quarter.

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