We recently compiled a list of the 10 Best Stocks to Buy According to Eminence Capital’s Ricky Sandler. In this article, we are going to take a look at where Louisiana-Pacific Corporation (NYSE:LPX) stands against the other stocks.
Investing prowess runs in Ricky Sandler’s family. The manager of prominent hedge fund Eminence Capital had a 13F portfolio worth more than $7 billion at the end of the first quarter of 2024. His father was a research analyst at Goldman Sachs, one of the premier investment banks in the world, and later went on to manage a hedge fund. Sandler has had a somewhat similar career trajectory, beginning as a research associate for Mark Asset Management before making his name as a hedge fund manager at Fusion Capital Management. In 1999, Sandler founded Eminence Capital, growing the small fund into a multi-billion dollar investment firm over the course of two decades. The fund focuses on uncovering value in the market through fundamental research, an art that seems to be dying on Wall Street as fast money schemes become more popular.
The investing philosophy of Sandler has been influenced by his work at Mark Asset Management and Fusion Capital Management. At the former, Sandler learned the importance of focusing on a bottom-up research strategy aimed at picking great businesses. At the latter, Sandler learned that investing in good businesses was not enough. In order to create wealth, money managers had a duty to invest in great businesses at value prices, thereby creating room for future growth. Sandler calls this the “quality value” approach to investing. He made these comments in an appearance on the Equity Mates podcast last year. Sandler, in remarks made during the podcast, stressed that investors should not only buy at good prices but should also not stay invested in equities when they become too expensive. Young investors would do well to pick up on this simple yet effective tip.
At Eminence Capital, Sandler has developed a long-short equity strategy that has paid huge dividends for clients. Per the hedge fund manager, the Asian debt crisis in the late 1990s was one of the formative events in his life that led him to understand the value of an effective shorting strategy. During the crisis, the International Monetary Fund had to pump in more than $40 billion into large economies in East Asia to contain the spread of the meltdown to the world economy. The company Sandler was a part of at the time owned stakes in many mid-cap Asian firms that were hit particularly hard by the crisis, leading to huge losses for his fund. Sandler now makes sure that his stock pickers spend at least half of their time developing individual stock shorts, a strategy that aims to build up the defenses of his fund should the market take a turn for the worst.
Sandler believes that in the present economic environment, only investors that have valuation discipline and short selling skills will be able to keep pace with the changing dynamics of the stock market. However, he also underlines that long bets remain equally important. The New York-based manager outlines his long investing philosophy as owning mispriced stocks that have the potential to take a turn for the better in the coming two or three years. Sandler emphasizes the importance of investing in ownable companies — businesses that he describes are well-positioned competitively, sound structurally with trusted management teams, and able to generate solid cash flows. Sandler urges money managers to invest only in firms that they would be comfortable investing in for their family portfolio. A look at the top picks in his latest 13F portfolio illustrates this strategy in action.
Our Methodology
For this article, we scanned the stock portfolio of Eminence Capital according to the 13F filings submitted at the end of the first quarter of 2024. We selected the top 10 stocks from this portfolio. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A construction worker standing on a rooftop with a toolbelt in hand, looking out at a new home development in the background.
Louisiana-Pacific Corporation (NYSE:LPX)
Number of Hedge Fund Holders: 48
Eminence Capital’s Stake: $177,034,744
Louisiana-Pacific Corporation (NYSE:LPX) provides building solutions primarily for use in new home construction, repair and remodeling, and outdoor structure markets. The stock has performed well over the past year, jumping close to 20% in value on the back of strong revenue growth, improved profitability, and effective capital management. For Q1 2024, the firm reported revenue of $724 million, a 24% increase compared to the same quarter last year. This beat analyst estimates of $686 million, showcasing robust top-line growth. The EPS over the period was $1.53, significantly exceeding the consensus estimate of $1.13. This also marked an improvement from the EPS of the same period in the prior year, indicating enhanced profitability.
Other financial metrics also highlight the strong position of Louisiana-Pacific Corporation (NYSE:LPX) in the present market. The adjusted EBITDA for the firm in the first quarter of 2024 was $182 million, up from $66 million in the first quarter of 2023. This substantial increase underscored the improved operational efficiency and cost management of the firm. The firm also demonstrated the ability to convert revenue into profit more effectively, as the net income for Q1 2024 was $137 million, compared to $37 million in Q1 2023. The firm also paid out $57 million in dividends in the first quarter of the year, returning value to shareholders.
In its Q1 2024 investor letter, Cooper Investors, an asset management firm, highlighted a few stocks and Louisiana-Pacific Corporation (NYSE:LPX) was one of them. Here is what the fund said:
“Highlights are often the private site tours we undertake with portfolio companies, two worth discussing on this trip were with Louisiana-Pacific Corporation (NYSE:LPX) and Eurofins Scientific (Eurofins). LP is a business we invested in mid-2023 and represents a Low-Risk Turnaround where the proposition is a commodity-to-specialty transformation story. The company is a leading manufacturer of wood-based building materials produced from its 24 mills and finishing plants, comprising ~4bn sq. ft of Oriented Strand Board (OSB) capacity and ~2bn sq. ft of siding capacity. Historically, OSB was the core output of LP but is a commoditised product in which LP is a price-taker. Group profits and losses swung around and led to highly volatile earnings over the years for a business at the whim of the underlying OSB price.
Siding on the other hand is a genuinely differentiated product that gives LP pricing power and generates consistent incremental margins of 25-30%. Made in the same mills as OSB using engineered wood flake and embossed with a grain finish (a processing marvel we’ve witnessed first-hand at a Source: Company Disclosures, Redburn Atlantic mill in Upper Michigan), LP ‘Smartside’ is a sustainable way to wrap homes in an attractive durable substrate that is gaining popularity among small and medium builders…” (Click here to read the full text)
Overall LPX ranks 8th on our list of the best stocks to buy according to Eminence Capital’s Ricky Sandler. You can visit 10 Best Stocks to Buy According to Eminence Capital’s Ricky Sandler to see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of LPX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LPX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.