10 Best Stocks to Buy According to Peter Lewis’ LFL Advisers

In this article, we discuss the 10 Best Stocks to Buy According to Peter Lewis’ LFL Advisers.

Peter Lewis is Manager and Chief Compliance officer at LFL Advisers, an investment advisory based in Evanston, Illinois. Overseeing the hedge fund since 2005, Peter Lewis manages approximately $214 million in assets for LFL Advisers, and owns a 75% stake in the fund. Investments by Peter Lewis are diversified across 5 sectors, with Technology accounting for 38.9% of the fund’s overall portfolio. Moreover, 45.5% of the fund’s holdings are in companies based in the United States, showing a keen focus on investments in the United States.

With sizeable investments in Alphabet Inc (NASDAQ: GOOG), Berkshire Hathaway Inc (NYSE: BRK.A) and Autoliv Inc (NYSE: ALV), Peter Lewis’ LFL Advisers holds stakes in some of the most exciting companies.

But why should we pay attention to what hedge funds are buying and selling? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

With this context in mind, we picked the 10 best stocks to buy according to Peter Lewis’ LFL Advisers, based on 13F holdings data for the second quarter of 2021.

10 Best Stocks to Buy According to Peter Lewis’ LFL Advisers

10. Alphabet, Inc. (NASDAQ:GOOG) 

Lewis’ Stake Value: $ 4,920,000

Percentage of Peter Lewis’ 13F portfolio: 2.29%

Number of Hedge Fund Holders: 190

Alphabet Inc ranks 10th on Peter Lewis’ list of top stocks to invest in. Headquartered in California, Alphabet Inc is the parent company of Google and its related platforms. According to the latest filings, LFL Advisers owns 1,963 shares in the company by end of Q2 2021 worth $4.92 million, representing 2.29% of the fund’s portfolio.

On 28th July, analyst firm BMO Capital maintained its ‘Outperform’ rating on Alphabet Inc stock, setting a price target of $3000.

“Over the past six years of owning Google, one of our minor annoyances as shareholders has been the company’s occasional lack of focus and cost control. It’s hard to tell from the outside with any certainty how “well spent” their ever-increasing costs were. Revenue would reliably increase 20% annually, but in recent years, costs would often increase more than that, leading to shrinking margins and earnings growth that trailed revenue growth. As a long-term investor, we absolutely want the company to be investing back into the business, paying its employees well, creating new products, spending on research, etc., etc. If that results in lower earnings that year, that’s fine. But we often had a nagging feeling that at least some of the rapid spending increases—and side projects— weren’t all that well thought out. Again, it’s hard to tell from the outside, and the core business was so good that the extra spending didn’t really affect our evaluation of the company.

Then something interesting happened in the aftermath of the pandemic. Like a lot of companies, Google cut back as the world went into lockdown. Advertisers reeled in campaigns. As advertising came back in a major way this year, Google’s spending was still restrained, resulting in revenue increasing 32% in the first quarter, while pretax earnings doubled. In the fourth quarter last year, we saw the same thing: revenue increased 23% while pretax earnings went up 69%. Spending will come back—as it should—but seeing how much revenue was able to increase with minimal cost increases gives us more assurance that Google is a great business. Not all companies can do that. Their stock rose 21% in the second quarter, contributing 2.1% to performance.”

9. Berkshire Hathaway Inc. (NYSE:BRK.A) 

Lewis’ Stake Value: $ 7,459,000

Percentage of Peter Lewis’ 13F portfolio: 3.48%

Number of Hedge Fund Holders: 116

Berkshire Hathaway Inc. ranks 9th on Peter Lewis’ list of top stocks to invest in. Owned and chaired by Warren Buffett, Berkshire Hathaway Inc is a multinational conglomerate holding company that operates through its subsidiaries in energy, transportation, utilities, insurance, food and retail. Founded in Omaha, Nebraska in 1837, Berkshire Hathaway Inc is one of the largest publicly traded companies in the world, with a market cap of $619.88 billion.

Peter Lewis’ LFL Advisers owns 26,838 shares in the company, amounting to a $7.45 million value that represents 3.48% of the fund’s holdings.

Driven by increasing profits on its railroad, utilities and energy divisions, the company gained 30.97% in the last year, and 20.33% in the year to date.

During the second quarter of 2021, 116 hedge funds out of the 873 tracked by Insider Monkey held stakes in Berkshire Hathaway Inc worth $22.4 billion, compared to 111 hedge funds in the previous quarter.

GoodHaven Funds, an investment advisory, mentioned Berkshire Hathaway Inc in its investor letter for the second quarter of 2021. Here’s what they said:

“Berkshire Hathaway remains our largest holding, was close behind Alphabet for our biggest dollar winner, and remains undervalued. We have articulated our Berkshire thesis in recent letters. It’s ironic that despite Berkshire’s storied past, our stance was a contrary one as many long-time Berkshire investors and pundits had grown critical and displeased with the company’s recent strategy and performance. Berkshire’s 2020 annual report detailed a material increase in their share repurchases and improved operating results, all things consistent with our thesis. Berkshire owns fixed assets (PP&E) that are, on a GAAP basis, the largest of any domestic company and continues to generate attractive returns on invested capital. In 2020, Berkshire’s repurchase activity meant a shareholder increased their ownership of the company by 5% without having to do anything. Previously, Berkshire rarely repurchased shares in a material way, but 2020 was the largest repurchase on record and the company plans to continue repurchasing if the stock remains undervalued relative to other capital allocation opportunities. Just recently Berkshire purchased more than $6bn of its shares since the beginning of the second quarter of 2021.”

8. Progressive Corp. (NYSE:PGR) 

Lewis’ Stake Value: $ 10,785,000

Percentage of Peter Lewis’ 13F portfolio: 5.03%

Number of Hedge Fund Holders: 44

Progressive Corp (NYSE: PGR) ranks 8th on Peter Lewis’ list of top stocks to invest in. The company is headquartered in Mayfield Village, Ohio, and is an insurance holding firm that provides insurance and related services through its three segments: Personal Lines, Commercial Lines and Property.

As of the second quarter of 2021, Peter Lewis’ LFL Advisers owns 109,819 shares in the company worth $10.78 million, which amounts to 5.03% of the fund’s total holdings.

On 17th August, research firm Evercore ISI Group maintained its rating of ‘In-Line’ for Progressive Corp stock, setting a price target of $90.

During the second quarter of 2021, Progressive Corp posted an EPS of $0.71, missing estimates by -$0.34. The company’s revenue for the quarter stood at $11.48 billion, beating forecasts by $81.13 million.

As of Q2 2021, 44 hedge funds out of 873 tracked by Insider Monkey held stakes in the Progressive Corp worth $1.33 billion, compared to 45 hedge funds holding $1.21 billion worth of positions in the company in the previous quarter.

Investment management firm Madison Funds mentioned Progressive Corp in its 2021 Q2 investor letter. Here’s what they had to say:

“Progressive Corporation is the third largest automotive insurer in the country, and one of the fastest growing. The company has long been known as the savviest underwriter in the industry, marrying excellent risk selection with best-in-class marketing analytics.

Many auto insurers have good margins or good growth, but virtually none have both. Progressive has both. The reason that most competitors don’t have both is simple – automotive insurance is a relatively commoditized product, so if a company is pricing its product to generate good revenue growth, it’s probably sacrificing margins.

The reason Progressive is an exception is twofold. It sells many of its policies directly to customers, without agents. This means it doesn’t have to pay commissions, which means it has lower costs than competitors that use agents. Thus, it can slightly underprice competitors, and still garner higher margins than those competitors. The second reason is that it has built up the best expertise and database in terms of predicting the propensity of a driver to have an accident. Thus, it can offer lower prices to safer drivers more accurately than the competition. With the years of proprietary data and experience it has accumulated, it will be very difficult for new companies to outdo it on proper risk pricing. Because of this combination of lower costs and better analytics, Progressive has been outpacing industry growth by several points for the past few years, even while maintaining much higher margins than the industry. We expect this outperformance to continue for many years.

Last year was an unusual year for Progressive. With a dramatic drop in the number of miles driven by customers because of Covid related shutdowns, there were many fewer accidents than typical. While Progressive gave back a material amount of this benefit to its policyholders, it still reported abnormally high profits. With miles driven recovering quickly so far in 2021 as the economy has re-opened, the frequency of accidents has almost returned to normal. In addition, the severity of the accidents has actually picked up from historical levels; we’re not sure exactly what is causing this, although there’s strong evidence that drivers are driving faster and with more abandon than they did pre-Covid.

Thus, insurers, including Progressive, are seeing losses from claims pick up, crimping margins, at least compared to the past year. We believe that the loss trends will either normalise as drivers resume previous driving patterns, or the industry will raise prices to account for the higher losses. Thus, we expect Progressive’s margins to remain at adequate, if not strong, levels. Its stock trades at a meaningful discount to the overall stock market, despite its stellar track record and top-notch management.”

7. Charles Schwab Corp. (NYSE:SCHW) 

Lewis’ Stake Value: $ 13,108,000

Percentage of Peter Lewis’ 13F portfolio: 6.12%

Number of Hedge Fund Holders: 72

Charles Schwab Corp (NYSE: SCHW) ranks 7th on Peter Lewis’ list of top stocks to invest in. The company provides banking, wealth management and other financial services through its two segments: Investor Services and Advisor Services.

As of Q2 2021, Peter Lewis’ LFL Advisers owns 180,024 shares in the company worth $13.10 million, which amounts to 6.12% of the fund’s overall portfolio.

On September 29, analyst Beersheba Research assessed that Charles Schwab Corp was primed to continue long-term growth in its wealth management assets. It was also noted that industry consolidation would result a greater pricing discipline for the insurance company.

Charles Schwab Corp posted an EPS of $0.70 for Q2 2021, missing estimates by $0.02. The company’s revenue for the last quarter stood at $4.53 billion, beating forecasts by $67.24 million as the company gained 110.90% in the last year.

During Q2 2021, 72 out of 873 hedge funds tracked by Insider Monkey held stakes worth $4.85 billion in Charles Schwab Corp, compared to $4.90 billion worth of positions in the company held by 76 hedge funds in the previous quarter.

Investment management firm Lakehouse Capital published its Q2 2021 investor letter, in which it mentioned Charles Schwab Corp. Here’s what they had to say:

“Charles Schwab is not a household name in Australia but it is in the US where it is the largest discount broker with more than 32 million brokerage accounts, 2 million corporate retirement plans, and total client assets of US$7.4 trillion. Schwab’s shares performed extremely well during the year thanks to a confluence of factors including a strong stock market with the S&P 500 up 39% year-on-year, the company’s recent merger with industry heavyweight TD Ameritrade, and expectations that interest rate income would grow as the US economy gained steam.

Two other important contributors to Schwab’s year, which were a mix of cyclical and structural, were an increase in net new accounts and increased trading activity. We view these as cyclical in the sense that markets are performing very well and that retail investors have been bored and emboldened during the American lockdowns, however, also structural because Schwab’s shift to $0 commissions on equity trades has permanently reduced a barrier to trading for investors with smaller accounts. We also note that, while brokerage activity is cyclical, the average brokerage account itself is very sticky — we estimate normalised annual retention rates for accounts of better than 93% — and that the average client assets per account grow over time thanks to asset growth and clients collectively being net savers.

Schwab makes for an excellent natural hedge for the Fund as Schwab tends to perform well when interest rates increase, which is generally negative for the rest of the portfolio. And the position did its job for us by increasing during a rising interest rate environment, enabling us to harvest much of our gains from Schwab and redeploy them to shares of other growth companies that had gotten cheaper in response to higher rates. We’re mindful of the run in the shares and the cyclical nature of the business but comfortable keeping a small position for now given Schwab’s natural hedging dynamics, extremely loyal customers, and an industry-leading position in a growing market.”

6. Aon Plc. (NYSE:AON) 

Lewis’ Stake Value: $ 18,623,000

Percentage of Peter Lewis’ 13F portfolio: 8.69%

Number of Hedge Fund Holders: 68

Aon Plc (NYSE: AON) ranks 6th on Peter Lewis’ list of top stocks to invest in. It is a global professional services firm which provides a range of financial risk-mitigation and insurance products. Headquartered in London, the company has around 50,000 employees in 120 countries around the world.

After the second quarter of 2021, Peter Lewis’ LFL Advisers owns 78,000 shares worth $18.62 million in Aon Plc, representing 8.69% of the fund’s overall holdings.

On 16th August, analyst firm Morgan Stanley maintained its ‘Equal-weight’ rating for Aon Plc stock, setting a price target of $274.

During the second quarter of 2021, Aon Plc posted an EPS of $2.29, beating estimates by $0.44.

As of Q2 2021, 68 hedge funds out of 873 tracked by Insider Monkey held stakes in Aon Plc worth $8.12 billion, in comparison to $7.76 billion worth of stakes in the company held by 72 hedge funds in the previous quarter.

Polen Capital, an investment management firm, published its insights on Aon Plc in its investor letter for Q2 2021. Here’s what they had to say:

“In the case of Aon, we purchased a small initial position in June. Within days of our initial purchase, the U.S. Department of Justice challenged Aon’s pending merger with Willis Towers Watson, and the stock fell as a result. Outside this event, Aon’s business continues to be well-positioned and operating exceptionally well, in our opinion. We  detail our investment case for the business in the Portfolio Activity section. Importantly, while we remain confident that Aon can find a path forward with the U.S. Department of Justice, the consummation of the merger is not required for our investment case.”

5. Bank of New York Mellon Corp. (NYSE:BK) 

Lewis’ Stake Value: $ 20,050,000

Percentage of Peter Lewis’ 13F portfolio: 9.36%

Number of Hedge Fund Holders: 52

Bank of New York Mellon Corp (NYSE: BK) ranks 5th on Peter Lewis’ list of top stocks to invest in. It is a bank holding company that deals in the provision of financial services through its two segments: Investment Services, and Investment and Wealth Management.

On 16th September, research firm Citigroup maintained its ‘Buy’ rating, setting a price target at $60.

During Q2 2021, Bank of New York Mellon Corp earned a revenue of $3.96 billion, exceeding forecasts by $98.43 million. It posted an EPS value of $1.13, beating estimates by a margin of $0.13.

4. Lamar Advertising Co. (NASDAQ:LAMR) 

Lewis’ Stake Value: $ 27,689,000

Percentage of Peter Lewis’ 13F portfolio: 12.93%

Number of Hedge Fund Holders: 32

Lamar Advertising Co (NASDAQ: LAMR) ranks 4th on Peter Lewis’ list of top stocks to invest in. Headquartered in Baton Rouge, Los Angeles, the company provides advertising services throughout the United States, and was founded in 1902.

By the end of the second quarter of 2021, 32 hedge funds out of 873 in Insider Monkey’s database held stakes worth $387 million in Lamar Advertising Co., compared to 35 hedge funds holding $427 million worth of positions in the company in the previous quarter.

3. Autoliv Inc. (NYSE:ALV) 

Lewis’ Stake Value: $ 30,570,000

Percentage of Peter Lewis’ 13F portfolio: 14.27%

Number of Hedge Fund Holders: 23

Autoliv Inc ranks 3rd on Peter Lewis’ list of top stocks to invest in. An automotive safety systems innovator and manufacturer, Autoliv Inc is headquartered in Stockholm, Sweden.

As of Q2 2021, Peter Lewis’ LFL Advisers held 312,700 shares of the company worth $30.57 million in Autoliv Inc, accounting for 14.27% of the fund’s holdings.

By the end of Q2 2021, 23 hedge funds out of 873 in Insider Monkey’s database held stakes worth $860 million in Autoliv Inc, in contrast to 20 hedge funds owning stocks worth $813 million the previous quarter.

2. TE Connectivity Ltd. (NYSE:TEL) 

Lewis’ Stake Value: $ 30,590,000

Percentage of Peter Lewis’ 13F portfolio: 14.28%

Number of Hedge Fund Holders: 39

TE Connectivity Ltd (NYSE: TEL) ranks 2nd on Peter Lewis’ list of top stocks to invest in. Dealing in the development and manufacture of connectivity and sensor solutions, the company operates through its three segments: Industrial Solutions, Transportation Solutions, and Communications Solutions.

Investment management firm ClearBridge Investments released its Q2 2021 investor letter, in which it mentioned TE Connectivity Ltd. Here’s what it had to say:

“The portfolio’s quality bias and valuation discipline have generated compelling returns over time with typically strong relative results in more challenging environments as it did through the first three quarters of 2020. However, that same quality bias tends to create a more challenging relative performance environment for the Strategy during periods of sharp economic acceleration, which tend to benefit stocks that are more commodity linked or of lower quality. This has been the case during the vaccine- and stimulus-driven rally experienced late last year and during the most recent quarter. Sectors that lagged in the quarter included information technology (IT), where TE Connectivity performed well but trailed the sector in the first quarter after a strong 2020.”

1. CDW Corp (NASDAQ:CDW) 

Lewis’ Stake Value: $ 47,755,000

Percentage of Peter Lewis’ 13F portfolio: 22.3%

Number of Hedge Fund Holders: 27

CDW Corp (NASDAQ: CDW) ranks 1st on Peter Lewis’ list of top stocks to invest in. The company is headquartered in Lincolnshire, Illinois, and provides information technology solutions to a range of entities through its three segments: Corporate, Small Business and Public.

As of the second quarter of 2021, Peter Lewis’ LFL Advisers hold 273,430 shares in CDW Corp worth $47.75 million, covering 22.3% of the fund’s total holdings.

On 29th September, analyst firm JP Morgan upgraded its outlook on CDW Corp to ‘Neutral’, setting a price target at $200.

In the second quarter of 2021, 27 hedge funds out of 873 tracked by Insider Monkey held stakes worth $1.76 billion in CDW Corp.

Investment advisory firm Wedgewood Partners shared its insights on CDW Corp in its investor letter for Q2 2021. Here’s what they had to say:

“We have owned CDW stock for nearly two years now, and we have been quite pleased to see our thesis playing out as expected – even with the completely unexpected trauma of the pandemic fireworks during our holding period. These are the key components of our investment thesis, in simplistic form: First, the IT distribution and consulting industry is an attractive place to invest, with secular growth above that of the broad economy. Second, we expect the Company to continue to take share within the IT distribution and consulting industry, growing faster than the industry while continuing to improve margins and returns. The pandemic emerged shortly after our purchase, but even that did not alter the favorable dynamics underlying our thesis, as you can see below.

So, even in a negative year for total economic growth, IT spending in the U.S. came in better than the broad economy. The Company outperformed the industry and with improved profitability – which always be stills our hearts. Additionally, consulting the chart below, you can see that the gap between its growth and the industry’s growth continues to widen over time, and that spread continued to expand during the abnormal conditions in 2020 as well. All of this gives us even greater comfort in our initial thesis…” (Click here to see the full text)

You can also take a peek at the 10 Best Biotech Stocks To Buy For 2021 and 10 Most Profitable Cash-Only Businesses To Avoid Taxes.

Follow Insider Monkey on Twitter
 

Suggested articles:

• 10 Best High Dividend Stocks to Buy
• 15 Best Technology Stocks to Buy Now
• 10 Best Large-Cap Stocks to Buy Now

This article is originally published at Insider Monkey.