In this article, we present the list of the top 10 stock picks Angela Aldrich’s Bayberry Capital Partners at the end of the second quarter.
Bayberry Capital Partners is a New York-based hedge fund founded by Angela Aldrich and Brian Smith in 2019. Prior to starting Bayberry Capital Partners, both Ms. Aldrich and Mr. Smith worked at John Griffin’s Blue Ridge Capital, which shut down in 2017 after a glorious 21-year run during which it returned its investors an average return of 15.3% annually.
Ms. Aldrich graduated from Duke University with an economics degree, after which she got her MBA from Stanford University Graduate School of Business. Ms. Aldrich has previously worked at Goldman Sachs, BDT Capital Partners and the now-defunct Scout Capital Management. Mr. Smith graduated from Boston University’s Questrom School of Business with a Bachelor’s of Science in Business Administration degree specializing in accounting. He spent more than 18 years at Blue Ridge Capital. After Blue Ridge Capital closed down and before starting Bayberry Capital Partners in the interim period, Mr. Smith also co-produced Broadway shows. His show ‘Once on This Island’ won a Tony award in 2018.
Bayberry Capital Partners’ Portfolio
The aggregate value of the fund’s 13F portfolio at the end of June was only $320 million, a slight decline from the $313.075 million that it was worth at the end of March. The firm had a large concentration of stocks from the finance sector in its portfolio at the end of June, contributing roughly 65% of the portfolio’s value in aggregate. During the second quarter, the fund made additional purchases in six stocks and initiated a stake in five companies. Janus International Group, Inc. (NYSE:JBI), WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC), and Zurn Water Solutions Corporation (NYSE:ZWS), which were among the fund’s top five stock picks at the end of Q1, continued to remain among Bayberry Capital Partners’ top five stock picks at the end of June.
Photo by Nicholas Cappello on Unsplash
Our Methodology
At Insider Monkey, we cover the portfolios of 895 hedge funds, closely tracking the stocks they buy and sell. We selected the ten stocks discussed in this article based on the 13F regulatory filing submitted by Bayberry Capital Partners with the SEC for the quarter ending June 30.
Best Stocks to Buy According to Angela Aldrich’s Bayberry Capital Partners
10. Funko, Inc. (NASDAQ:FNKO)
Bayberry Capital Partners’ Stake Value: $13,950,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 4.36%
Number of Hedge Fund Holders: 18
Funko, Inc. (NASDAQ:FNKO) is a pop culture consumer products company based in Everett, Washington. It was founded in 1989 by Mike Becker, who is not involved with the company in any capacity anymore. Funko, Inc. (NASDAQ:FNKO) was acquired by ACON Investments in 2015 and became a public company after it filed for a $200 million IPO in late-2017. Since getting listed, Funko, Inc.’s (NASDAQ:FNKO) stock has more than tripled.
Earlier this year, the Chernin Group (TCG), a multi-stage investment firm, announced that a consortium led by TCG would be making a $263 million strategic investment in Funko, Inc. (NASDAQ:FNKO). As part of the deal, TCG and its investor consortium purchased 80% of ACON Investments’ stake in the company or 12,520,559 Funko Class A common stock, for $21 per share. Following the completion, TCG and its investor consortium, which includes eBay (NASDAQ:EBAY) and former Disney CEO Robert Iger, will own 25% of the company.
9. Cannae Holdings, Inc. (NYSE:CNNE)
Bayberry Capital Partners’ Stake Value: $14,989,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 4.68%
Number of Hedge Fund Holders: 19
Cannae Holdings, Inc. (NYSE:CNNE) is an investment company that primarily invests in financial services firms, technology-enabled healthcare services, and restaurant businesses. Cannae Holdings, Inc.’s (NYSE:CNNE) stock has lost more than half of its value since peaking above the $45 level in January last year. However, smart money investors had been fleeing the stock much earlier. Among funds covered by Insider Monkey, only 19 disclosed a stake in the company at the end of the second quarter, down from 43 during the same time two years ago.
For its most recent quarter, Cannae Holdings, Inc. (NYSE:CNNE) reported a GAAP per share loss of $3.15 on revenue of $174.5 million, missing analysts’ estimates by $3.22 and $52.73 million, respectively. Despite the earnings disappointment, a day later, on August 9, analysts at Stephens reiterated their ‘Overweight’ rating on the stock while upping their price target to $42 from $41, representing a potential upside of close to 100% from the stock’s last closing price.
8. Berry Global Group, Inc. (NYSE:BERY)
Bayberry Capital Partners’ Stake Value: $17,102,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 5.34%
Number of Hedge Fund Holders: 37
Berry Global Group, Inc. (NYSE:BERY) has been a part of Bayberry Capital Partners’ portfolio since the first quarter of 2020. However, the fund has been consistently reducing its stake in the metals and glass container company for the past three quarters. During the second quarter, the fund lowered its stake further by 19% to 313,000 shares. Apart from Bayberry Capital Partners, billionaire Steve Cohen’s Point72 Asset Management and Ricky Sandler’s Eminence Capital also lowered their holdings in the company by 36% to 350,200 shares and by 9% to 2.33 million shares during the second quarter, respectively.
Berry Global Group, Inc.’s (NYSE:BERY) expects to generate $750 million in free cash flow this year and is currently trading at a forward price-to-earnings multiple of only 6.33. In its second-quarter letter to investors, Bonhoeffer Capital Management, an investment management firm, had this to say about Berry Global Group, Inc. (NYSE:BERY):
“As described in previous letters, our investment universe has been extended beyond value-oriented special situations to include growth-oriented firms using a value framework. This includes companies that generate growth through transition and consolidation. There have been modest changes within the portfolio in the last quarter in line with our low historical turnover rates. We sold some of our slowergrowing names and invested some of our cash into Thryv (described in the case study below) and Berry Global Group, as well as to fund the Millicom rights offering and oversubscription. There are also some interesting developments in the US digital marketing market that I discuss below.
One example of public LBO firms you have in your portfolio is Berry Global (Berry). Berry is a plastic and engineering materials packaging firm that provides packaging solutions to health, hygiene products, and consumer products firms in the United State and Europe. Berry’s growth model focuses on plastic and engineered materials continuing to take more shares of packaging from other materials, specifically in the health, hygiene, and consumer products realm where the growth is the strongest which provides 2- 3% annual growth. Synergistic M&A is adding an additional 3-4% per year to growth. These sources of growth are enhanced by opportunistic operational leverage from scale and share repurchases (5% annual growth). Over the past eight years, Berry’s net income margins doubled, with a 3x increase in revenues. These factors should lead to 10-12% EPS growth going forward. Berry has had 18% and 28% EPS growth over the past five and 10 years, respectively. Part of Berry’s strategy is to lever up to purchase a geographically expanding or complementary product packaging firm and pay the debt down with cash flows post acquisition, similar to private equity funds. Berry has done this three times since its IPO in 2011. Once debt is paid down a reasonable level, Berry has been repurchasing stock if another reasonably priced acquisition cannot be found. This strategy is similar to that of Asbury, described in previous letters. Compared to other packaging firms, Berry has amongst the highest inventory turns and margins. This has resulted in 25% to 40% returns on equity over the past five years. Berry currently trades for a FCF multiple of about 7.6x and a free cash flow yield of 13%. Berry’s BBBrated debt (with an EBITA coverage ratio of 6.2x) is currently yielding 6.2%, for a FCF-debt yield of 6.8%, which is high compared to the current market equity risk premium of about 5% and the projected growth in excess of the market. Given the projected EPS growth of 10% per year, Berry should trade at 29x earnings using Grahams’ formula of 8.5 + 2 * growth rate. Even at half this multiple—15x—Berry would trade at two times its current price.”
7. Ferguson plc (NYSE:FERG)
Bayberry Capital Partners’ Stake Value: $17,714,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 5.54%
Number of Hedge Fund Holders: 32
Ferguson plc (NYSE:FERG) was the only stock among Bayberry Capital Partners’ top ten stock picks at the end of Q2 in which the fund initiated a stake during the second quarter itself. Though Ferguson plc’s (NYSE:FERG) stock has fallen close to 40% this year, its popularity among smart money investors has been soaring. The number of funds, among those tracked by Insider Monkey that disclosed a stake in the plumbing and heating giant, climbed to 32 at the end of Q2 from just 18 at the end of Q1.
Like Berry Global Group, Inc. (NYSE:BERY), Ferguson plc’s (NYSE:FERG) stock is also trading at a low forward price-to-earnings multiple of only 9.27, which could be one of the reasons why hedge funds are so enthusiastic about the stock and its future prospects. On September 27, Ferguson plc (NYSE:FERG) reported its fourth quarter and fiscal 2022 full-year numbers. During FY 2022, the company’s net sales grew by 25.3%, while its adjusted operating profit increased by 41.1%. It also made 17 acquisitions in the last fiscal year.
6. Arthur J. Gallagher & Co. (NYSE:AJG)
Bayberry Capital Partners’ Stake Value: $26,576,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 8.31%
Number of Hedge Fund Holders: 31
Bayberry Capital Partners initiated its stake in Arthur J. Gallagher & Co. (NYSE:AJG) during the last quarter of 2021 and proceeded to boost it by 43% and 4% in the subsequent two quarters. Shares of Arthur J. Gallagher & Co. (NYSE:AJG) have been resilient amidst a broader stock market rout this year as they currently trade up by around 5% year-to-date. However, despite the outperformance of the stock, several hedge funds have been reducing their holdings in the insurance broking company. This list includes names like James Parsons’ Junto Capital Management which lowered its stake by 23% to 523,479 shares, and Daniel Johnson’s Gillson Capital which trimmed its holdings by 17% to 420,046 shares.
On September 29, Arthur J. Gallagher & Co. (NYSE:AJG) announced that it would be acquiring Buffalo, New York-based M&T Insurance Agency, which is a unit of M&T Bank Corporation (NYSE:MTB). The transaction is expected to close during the fourth quarter, and Arthur J. Gallagher & Co. (NYSE:AJG) is all set to become M&T Bank Corporation’s (NYSE:MTB) preferred insurance broking partner. On October 7, analysts at Jefferies Financial Group boosted their price target on Arthur J. Gallagher & Co.’s (NYSE:AJG) stock to $215 from $208, representing a potential upside of over 20% from the stock’s current trading price.
5. Hillman Solutions Corp. (NASDAQ:HLMN)
Bayberry Capital Partners’ Stake Value: $27,086,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 8.47%
Number of Hedge Fund Holders: 18
Hillman Solutions Corp. (NASDAQ:HLMN) became an independently traded public company in July 2021 following its merger with Landcadia III, a SPAC led by Tilman Fertitta. Founded in 1964, Hillman Solutions Corp. (NASDAQ:HLMN) is a leading supplier of hardware-related products in North America. Funds tracked by Insider Monkey that initiated a stake in the company during the second quarter included Greg Eisner’s Engineers Gate Manager, Kenneth Tropin’s Graham Capital Management, and billionaire Louis Bacon’s Moore Global Investments.
On August 4, following the company’s second-quarter result announcement, analysts at Raymond James reiterated their ‘Outperform’ rating on the stock while lowering their price target to $12 from $13, which still represents a potential upside of over 66% from the stock’s current trading levels. In its fourth quarter 2021 “Small Cap Value Strategy” investor letter, ClearBridge Investments, an investment management firm, had this to say about Hillman Solutions Corp. (NASDAQ:HLMN):
“We completely agree with Ben Graham’s alleged assessment: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” In 2021 we observed votes being cast against companies based solely on how and when they raised capital, as if the choice of financing vehicle overrides the longterm value creation of the underlying business. The Initial Public Offerings Class of 2021 and companies that raised capital by merging with Special-Purpose Acquisition Companies (SPACs) were two such areas that detracted from the Strategy’s performance. Over time we trust that the value of each of the businesses underlying these holdings will be reflected as the “weighting machine” resumes operation. Of course, many IPOs and SPAC acquisitions were immature businesses — often just concepts — that shouldn’t be public, but with so many deals done, there are sure to be babies in that bathwater.
One such example is Hillman Solutions, which concluded the process of merging with Landcadia Holdings III (a SPAC) in mid2021. Hillman is a hardware distributor and provider of automation tools (for example, key making and knife sharpening) to retailers in the U.S. In the short term, supply chain issues have impacted the business while the treatment of SPAC-related warrants appears to have been a focus for bearish investors. In the long-term, Hillman is well-positioned to continue growing given the quality and labor alternative provided by its services. Despite a recent decline, Hillman’s fill rates (i.e., in-stock inventory) remain the highest in the industry, which should lead to market share gains and likely entry into additional product categories. Hillman’s business model, which includes taking over inventory, distribution and floor staffing, as well as solutions such as automated self-service kiosks, helps to address one of the main pressure points in its customers’ business: labor. Meanwhile the expectations for future growth and profitability discounted in Hillman’s current stock price are extremely modest relative to its potential.”
4. Zurn Water Solutions Corporation (NYSE:ZWS)
Bayberry Capital Partners’ Stake Value: $34,867,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 10.9%
Number of Hedge Fund Holders: 29
Founded in 2006, Zurn Water Solutions Corporation (NYSE:ZWS) is a Milwaukee, Wisconsin-based designer and manufacturer of water system solutions that help in enhancing water quality, safety, flow control, and conservation in and around non-residential buildings. Zurn Water Solutions Corporation’s (NYSE:ZWS) stock went nowhere between 2014 and early-2020, but after suffering a massive decline during the broader market carnage in March 2020, it has appreciated significantly and is currently trading up close to 100% over the previous five years.
ClearBridge Investments also had a take on Zurn Water Solutions Corporation (NYSE:ZWS), which it shared in its “SMID Cap Growth Strategy” first quarter 2022 investor letter. Here is what the firm said about the company:
“The Strategy also established a starter position in Zurn Water Solutions (NYSE:ZWS). Zurn is a pure-play water business that came out of Rexnord and is looking to double earnings over the next three to five years. The company has invested heavily in new product and recently acquired Elkay, a manufacturer of sinks and commercial water products.”
3. Janus International Group, Inc. (NYSE:JBI)
Bayberry Capital Partners’ Stake Value: $41,222,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 12.89%
Number of Hedge Fund Holders: 11
Janus International Group, Inc. (NYSE:JBI) continued to remain Bayberry Capital Partners’ third most loved stock at the end of June, the same spot it commanded at the end of Q1. Though Bayberry Capital Partners upped its stake in the company by 12% during Q2, the popularity of Janus International Group, Inc. (NYSE:JBI) among funds tracked by Insider Monkey reduced by half during that period.
On August 16, Janus International Group, Inc. (NYSE:JBI) declared its second-quarter numbers. It reported non-GAAP EPS of $0.17 on revenue of $247.7 million for that period, beating analysts’ estimates by $0.04 and $21.4 million, respectively. Wasatch Global Investors, an investment management firm, released its first-quarter investor letter for its “Wasatch Small Cap Value Fund” earlier this year in which it had this to say about Janus International Group, Inc. (NYSE:JBI):
“Companies with international exposure in terms of both sourcing and customers were hurt by increased supply-chain disruptions. Fund holding felt some of these pressures in the first quarter, as did Janus International Group, Inc. (NYSE:JBI). We maintained holdings in the company on the view that it is well-positioned to grow once shorter-term issues have dissipated.”
2. Burford Capital Limited (NYSE:BUR)
Bayberry Capital Partners’ Stake Value: $42,580,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 13.31%
Number of Hedge Fund Holders: 12
With Bayberry Capital Partners increasing its stake by 43% and Burford Capital Limited’s (NYSE:BUR) stock appreciating close to 10%, the company jumped fourth spots and became the fund’s second most loved stock at the end of Q2. Burford Capital Limited (NYSE:BUR) is a specialized financial services company that is currently the world’s largest provider of arbitration and litigation finance.
Earlier this year, Burford Capital Limited (NYSE:BUR) issued several bonds, including a $350 million offering in April through which it raised more than $1 billion in a span of three months. In its second-quarter 2022 investor letter, Alphyn Capital Management, an investment management firm, had this to say about Burford Capital Limited (NYSE:BUR):
“The most significant event affecting Burford will be the outcome of its YPF case against Argentina. Should Burford win, it could receive net proceeds between $1.1bn and $5.6bn. These numbers are derived from a formula written in YPF’s prospectus and bylaws and depend on several assumptions, hence the wide range, but in any case, are significant when compared to Burford’s current market capitalization of approximately $3bn. In a recent lengthy interview, an Argentinian legal expert concluded that based on what we know, the case should be a home run for Burford, but “we don’t know 70% of what is said, we don’t know the private documents, we don’t know the private positions. We don’t know lots of things. Experts have testified in both sides; we don’t know what’s there.” Hardly conclusive.
Nevertheless, I believe Burford remains an attractive investment regardless of the outcome of this one case. To understand why it is helpful to consider how Burford’s litigation finance works. Each case Buford funds has one of three outcomes, a win, a loss, or a settlement. A loss typically results in Buford losing its entire investment. Which has, historically, occurred 10% of the time. Given this risk, Buford actively assesses a case’s merits and potential return. A high payout on wins, typically 5x, increases the expected payout of the whole portfolio. In this way, litigation financing somewhat resembles venture capital investing, where VCs expect only a handful of big wins to make up for lost investments and still provide a reasonable return on the overall portfolio…”
1. WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC)
Bayberry Capital Partners’ Stake Value: $51,386,000
Percentage of Bayberry Capital Partners’ 13F Portfolio: 16.07%
Number of Hedge Fund Holders: 61
WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) retained its top spot in Bayberry Capital Partners’ 13F portfolio at the end of Q2. The company was earlier known as WillScot Corporation and changed its name to WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) after its merger with Mobile Mini, Inc., which got completed in the second half of 2020.
During the second quarter, Bayberry Capital Partners upped its stake in the company by 24%, and it had ample reasons to do so. WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) has been one of the best-performing stocks in the fund’s portfolio, with the stock currently trading up by 6% year-to-date and very close to its lifetime high of $44.15. On October 5, the workspace and portable storage solutions provider, which currently operates 18 locations in Canada, announced that it has relocated to a new and enhanced facility in Lévis, Quebec.
You can also look at 10 Best Stocks to Buy According to Billionaire Chris Hohn and 10 Best Healthcare Stocks to Buy According to Billionaire Larry Robbins.
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Disclosure: None. 10 Best Stocks to Buy According to Angela Aldrich’s Bayberry Capital Partners is originally published on Insider Monkey.
