In this article, we shall discuss how value investor David Abrams is holding onto these 5 stocks in 2022. To read our detailed analysis of Abrams’ history, his investment strategy, and hedge fund performance, go directly and see Value Investor David Abrams is Holding Onto These 10 Stocks in 2022.
5. TransDigm Group Inc. (NYSE:TDG)
Abrams Capital Management’s Stake Value: $289.4M
Percentage of Abrams Capital Management’s 13F Portfolio: 7.77%
Number of Hedge Fund Holdings: 66
Headquartered in Cleveland, Ohio, TransDigm Group Inc. (NYSE:TDG) is a publicly traded, aerospace manufacturing company which specializes in the development and manufacture of engineered aerospace components. As of the second quarter of 2022, investor interest in the stock is at an all time high, with 66 hedge funds featuring TransDigm Group Inc. (NYSE:TDG) in their 13F investment portfolios. As of Q2 2022, Stockbridge Partners is the largest stakeholder in the company, owning more than 1.6 million shares worth at around $860 million.
On August 17, JPMorgan analyst Seth Seifman raised the firm’s price target on TransDigm Group Inc. (NYSE:TDG) to $705 from $685, maintaining the Neutral rating on the shares.
Here is what Vulcan Value Partners had to say about TransDigm Group Inc. (NYSE:TDG) in their Q2 2021 investor letter:
“TransDigm Group Inc.(NYSE:TDG), another material contributor during the quarter, is an aerospace manufacturer providing highly engineered, niche components for use on commercial and military aircraft. The vast majority of the company’s profits come from aftermarket sales. Its business was impacted by the global pandemic; however, the company has been able to maintain margins despite strong revenue headwinds, and it continues to generate strong free cash flow.”
4. Alphabet Inc. (NASDAQ:GOOG)
Abrams Capital Management’s Stake Value: $319.1M
Percentage of Abrams Capital Management’s 13F Portfolio: 8.57%
Number of Hedge Fund Holdings: 191
Hedge fund sentiment around Alphabet Inc. (NASDAQ:GOOG) has decreased significantly in Q2 2022, with 191 funds long the stock, down from 205 funds in the preceding quarter.
On August 3, Tigress Financial analyst Ivan Feinseth raised the firm’s price target on Alphabet Inc. (NASDAQ:GOOG) to $186 from $183, keeping a Strong Buy rating on the shares.
Horos Asset Management, an investment management firm, shed light upon their decision of investing again in Alphabet Inc. (NASDAQ:GOOG) in their Q2 2022 investor letter. This is what they had to say:
“As we pointed out in the previous quarterly letter, high inflation and, more specifically, the consequent interest rate hikes by the vast majority of central banks, led to companies with high growth and future cash flow generation expectations being the most severely hit in this year’s market downturn. This category also includes technology companies with high quality businesses, but which traded at demanding valuations. This is the case of Alphabet Inc. (NASDAQ:GOOG), a company in which we are investing again two and a half years after our exit.
As a reminder, the U.S. technology platform owns arguably the ecosystem of products with the greatest network effect that exists in the world. Specifically, Alphabet (NASDAQ:GOOG) has products as well known and used in our daily lives, such as the Google search engine, the operating system for Android mobile devices, the YouTube video platform, the Gmail email, the Google Maps navigation service, the Google Play mobile app store, the Google Drive file storage platform and the Google Photos app. All of them with more than one billion active users (in fact, Android has more than three billion monthly active devices). This rich ecosystem allows the network effects of each product to feed off each other, further strengthening the advertising business, the company’s main source of revenue.
On the other hand, Alphabet (NASDAQ:GOOG) made a strong bet a few years ago on the cloud infrastructure and data services business (Google Cloud), and today ranks third in market share, behind Amazon (Amazon Web Services) and Microsoft (Microsoft Azure). In addition, the company has what may be the most advanced autonomous vehicle project in the West (Baidu is the undisputed leader in China), as well as a host of emerging projects, not to mention its huge capabilities in the field of artificial intelligence. All this, combined with the decline in the stock price that reflects a significant slowdown in Alphabet’s (NASDAQ:GOOG) growth over the next few years, as well as the uncertainty associated with the regulatory pressure that the company has been facing for some time, led us to invest again in this excellent company.”
3. Asbury Automotive Group Inc. (NYSE:ABG)
Abrams Capital Management’s Stake Value: $358.7M
Percentage of Abrams Capital Management’s 13F Portfolio: 9.64%
Number of Hedge Fund Holdings: 27
Based in Duluth, Georgia, Asbury Automotive Group Inc. (NYSE:ABG) is an American company which operates automobile dealerships in various parts of the United States. It was ranked at #360 on the 2022 Fortune 500 list, and with over 145 dealerships and 198 franchises, it is the sixth largest automotive retailer in the U.S. as of August 2022. As of the second quarter of 2022, Abrams Capital Management is the second largest stakeholder in Asbury Automotive Group Inc. (NYSE:ABG), owning more than 2.1 million shares worth $358.7 million. This means that the stock makes up for 9.64% of Abrams’ 13F portfolio for the quarter.
On August 1, JPMorgan analyst Rajat Gupta raised the firm’s price target on Asbury Automotive Group Inc. (NYSE:ABG) to $205 from $195, maintaining a Neutral rating on the stock.
LRT Capital Management, an investment management firm, mentioned Automotive Group Inc. (NYSE:ABG) in their Q2 2022 investor letter. This is what they had to say:
“Asbury Automotive Group (NYSE:ABG) is one of the largest automotive retailers in the United States. It operates 90 dealerships consisting of 112 franchises and 25 collision repair centers. The company’s stores offer new and used vehicles, parts, and service, as well as finance and insurance (F&I) products. Franchise agreements controlled by automotive manufactures and state laws create an environment of tightly controlled market entry and restricted competition.
The dealership industry is highly fragmented with 93.5% of dealers having only between 1-5 locations according to data from 2020. In fact, dealers with over 50 locations account for only 0.1% of the industry – a testament to the huge opportunity for consolidation that lies ahead. Industry dynamics, including the rising complexity of automobiles and the need for omnichannel distribution are favoring better capitalized and larger dealer groups. We believe Asbury Automotive Group (NYSE:ABG) has several distinct advantages, particularly its highly profitable parts and service business, its overexposure to the luxury vehicle business, which carriers the best margins, and its Clicklane omnichannel strategy. Asbury’s (NYSE:ABG) management has also been acting in the best interests of its shareholders by allocating capital towards acquiring dealerships to aggressively expand its business, and occasionally repurchasing stock when attractive acquisitions targets could not be found.
ABG (NYSE:ABG) is not a fast-growing SaaS business, but when paying a valuation of ¼ of the overall stock market, one does not need to make heroic assumptions about the future to enjoy strong returns as shareholders. We believe that over the next several years, Asbury (NYSE:ABG) will continue to acquire dealerships, occasionally buy back stock and invest to improve its digital shopping experience. We wrote about Asbury in detail in our August 2021 Investor Letter.”
2. Change Healthcare Inc. (NASDAQ:CHNG)
Abrams Capital Management’s Stake Value: $391.5M
Percentage of Abrams Capital Management’s 13F Portfolio: 10.52%
Number of Hedge Fund Holdings: 53
Based in Nashville, Tennessee, Change Healthcare (NASDAQ:CHNG) is a provider of revenue and payment cycle management that connects payers, providers, and patients in the U.S. healthcare system. The company operates the largest financial and administrative information exchange in the United States. Hedge fund sentiment around the stock has risen slightly in Q2 2022, with 53 hedge funds long the stock, compared to 50 in the preceding quarter. As of Q2 2022, Abrams Capital Management is the largest shareholder in the company, owning almost 17 million shares worth $391.5 million. Change Healthcare (NASDAQ:CHNG) makes up for 10.52% of Abrams Capital’s 13F portfolio. Other prominent hedge funds long the stock include Canyon Capital Advisors and Glenview Capital.
1. Lithia Motors Inc.(NYSE:LAD)
Abrams Capital Management’s Stake Value: $646.1M
Percentage of Abrams Capital Management’s 13F Portfolio: 17.36%
Number of Hedge Fund Holdings: 40
Based in Medford, Oregon, Lithia Motors Inc. (NYSE:LAD) is an American nationwide automotive dealership group, which operates over 267 stores in 24 U.S. states, and 14 stores in Canada.
On July 14, Morgan Stanley analyst Adam Jonas lowered the firm’s price target on Lithia Motors Inc. (NYSE:LAD) to $220 from $260, conferring an Underweight rating on the shares. The analyst, in a research note, shared mobility coverage particularly for FY23, to reflect slowing growth and credit headwinds. He noted that his top line and EBITDA estimate cuts leave his forecasts 5%-10% or more below consensus expectations.
This is what Oakmark Funds, an investment management firm, had to say about Lithia Motors Inc. (NYSE:LAD) in their Q1 2022 investor letter, a copy of which can be obtained here:
“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”
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