In this piece, we will take a look at the top 5 stock picks of Michael O’ Keefe’s 12th Street Asset Management. If you want to learn about Mr. O’ Keefe, his firm’s background, and more stocks in his portfolio, then head on over to 15 Stock Picks of Michael O Keefe’s 12th Street Asset Management.
5. Dollar General Corporation (NYSE:DG)
12th Street Asset Management’s Stake Value: $32.6 million
Percentage of 12th Street Asset Management’s 13F Portfolio: 7.21%
Number of hedge fund holdings: 46
Dollar General Corporation (NYSE:DG) is an American retailer renowned for its discounted merchandise which covers hundreds of different products. The company was founded in 1939 and is headquartered in Tennessee.
Mr. O’Keefe’s 12th Street holds 154,057 Dollar General Corporation (NYSE:DG) shares as of the third quarter of 2021. These are worth $32.6 million and represent 7.2% of the firm’s portfolio. Out of the 867 hedge funds surveyed by Insider Monkey at Q3 2021 end, 46 held a stake in the company.
Dollar General Corporation (NYSE:DG) reported $8.6 billion in revenue and $2.69 in GAAP EPS for its second quarter, beating analyst estimates on both counts. In an October 2021 analyst note, B. Riley lowered the company’s price target to $56, outlining that the retailer stands to positively benefit from its partnership with an activist investor.
In its Q1 2021 investor letter, Polen Capital mentioned Dollar General Corporation (NYSE:DG). It outlined that:
“We have eliminated Dollar General to fund the purchase of Amazon, which we consider a superior investment opportunity. We feel Dollar General has been an excellent “Safety” holding for us, especially in 2020. Since our initial purchase in July 2016, Dollar General shares have more than doubled, beating the S&P 500 and slightly underperforming the Index (our actual returns were higher, as we had added to the position on a drawdown soon after our initial purchase).
During the COVID drawdown in early 2020, Dollar General declined 10% versus 25% for the Index and 29% for the S&P 500. We had expected the company to grow its store footage 5% per year with same-store sales increasing 2-3% and yielding revenue growth of 7-8% over the long term. Slight margin expansion would lead to 10%+ EPS growth, according to our research.
2020 could have pulled forward more than three years of revenue and earnings growth into a single year. The pandemic and quarantining led people to stock up on everyday consumables, and stimulus checks and extended and elevated unemployment benefits have allowed Dollar General customers to spend more. In fact, the company recently reported full-year 2020 results in which revenue grew 22% and EPS grew 60%. These results included over 200 basis points of margin expansion off a low base of 8.3% operating margins in 2019. This compares to margin expansion of tens of basis points in typical market environments. Dollar General now has over 17,000 stores. There could be more than three years of approximately 5% annual square-footage growth left before maturing at over 20,000 stores. Same-store sales growth could be in the 3-4% range for some time, and we think the company remains extremely well run. We simply believe our investment in Amazon is a superior alternative.”
4. Clean Harbors, Inc. (NYSE:CLH)
12th Street Asset Management’s Stake Value: $33 million
Percentage of 12th Street Asset Management’s 13F Portfolio: 7.3%
Number of hedge fund holdings: 24
Clean Harbors, Inc. (NYSE:CLH) is a collector and disposer of hazardous and non-hazardous waste in the United States. It also provides industrial equipment.
At the end of its third quarter, Clean Harbors, Inc. (NYSE:CLH) reported $951 million in revenue and $1.20 in GAAP EPS, beating analyst estimates for both. BMO Capital increased the company’s price target to $124 in an October 2021 analyst note, indicating that two new deals will add revenue and that Clean Harbors, Inc. (NYSE:CLH) is set to benefit from growth in industrial production.
Mr. O’Keefe’s 12th Street held 318,438 Clean Harbors, Inc. (NYSE:CLH) shares by the end of the third quarter of 2021. These are worth $33 million and represent 7.3% of the firm’s portfolio. By Q3 2021 end, 24 of the 867 hedge funds surveyed by Insider Monkey held a stake in the company.
3. Graphic Packaging Holding Company (NYSE:GPK)
12th Street Asset Management’s Stake Value: $34.4 million
Percentage of 12th Street Asset Management’s 13F Portfolio: 7.6%
Number of hedge fund holdings: 28
Graphic Packaging Holding Company (NYSE:GPK) provides packaging solutions to food, beverages, and other consumer product firms. It is headquartered in Atlanta, Georgia, United States, and was founded in 2007.
Mr. O’Keefe’s investment firm held 1.8 million Graphic Packaging Holding Company (NYSE:GPK) shares by the end of the third quarter of 2021 which were worth $34.4 million and represent 7.6% of its portfolio. 28 of the 867 hedge funds surveyed by Insider Monkey held a stake in the company by Q3 2021 end.
Graphic Packaging Holding Company (NYSE:GPK) reported $1.78 billion in revenue and $0.24 in GAAP EPS for its Q3, missing analyst estimates for both. The company’s price target was increased to $25 by UBS in a November 2021 analyst note, which indicated that the company’s margins will improve next year.
In its Q3 2021 investor letter, L1 Capital mentioned the company and outlined that:
“We reinvested the proceeds from the partial sale of Eagle Materials by increasing the Fund’s position in Graphic Packaging. We expect the company to deliver strong earnings and cashflow over coming years, and the company remains undervalued at its current share price.”
2. LKQ Corporation (NASDAQ:LKQ)
12th Street Asset Management’s Stake Value: $38 million
Percentage of 12th Street Asset Management’s 13F Portfolio: 8.4%
Number of hedge fund holdings: 38
LKQ Corporation (NASDAQ:LKQ) is a distributor of automotive parts used to repair and refurbish vehicles. The company is headquartered in Chicago, Illinois and it was founded in 1998.
LKQ Corporation (NASDAQ:LKQ) reported $3 billion in revenue and $0.96 in GAAP EPS in its Q3, beating analyst estimates for both.
Mr. O’Keefe’s 12th Street held 756,953 LKQ Corporation (NASDAQ:LKQ) shares by the end of the third quarter of 2021. These are worth $38 million and represent 8.4% of the firm’s portfolio. 38 of the 867 hedge funds surveyed by Insider Monkey held a stake in the transportation company by the end of the third quarter of this year.
LKQ Corporation’s (NASDAQ:LKQ) largest shareholder is Jeffrey Ubben’s ValueAct Capital who holds 21 million shares worth $1 billion.
In its Q1 2021 investor letter, Bonsai Partners mentioned LKQ Corporation (NASDAQ:LKQ), stating that:
“LKQ is the largest provider of alternative collision and mechanical automotive parts in the United States. In Europe, they are the leading distributor of general automotive maintenance parts and supplies. Its shares appreciated 20.1% during the quarter.
During the quarter, LKQ shared its fourth-quarter results: showing a slight revenue decline and a nearly 30% increase in quarterly profit Vs. the same period last year. COVID has proved a surprising catalyst for my investment thesis which revolves around optimizing their recent large acquisitions that were never efficiently integrated.
Admittedly, in addition to LKQ’s quarterly performance, thematically, there has been broad enthusiasm for “re-opening” trades, of which, LKQ has been a beneficiary. Most importantly, the prior overhang related to LKQ’s debt burden is now all but behind us. Their net debt to EBITDA ratio now sits below 2x, a stark change from the near 3x leverage ratio before the pandemic. At that time, LKQ’s leverage had the potential to spiral upward to nearly 4-5x if the business experienced a prolonged shutdown. It’s good to be past this issue.”
1. Berry Global Group, Inc. (NYSE:BERY)
12th Street Asset Management’s Stake Value: $38.4 million
Percentage of 12th Street Asset Management’s 13F Portfolio: 8.48%
Number of hedge fund holdings: 39
Berry Global Group, Inc. (NYSE:BERY) is a global home improvement and equipment manufacturer and distributor.
Mr. O’Keefe’s 12th Street held 631,246 Berry Global Group, Inc. (NYSE:BERY) shares by the end of Q3 2021. These were worth $38.4 million and represented 8.48% of its portfolio. 39 of the 867 hedge funds surveyed by Insider Monkey held a stake in the company by Q3 2021 end.
Berry Global Group, Inc. (NYSE:BERY)’s largest shareholder is Ricky Sandler’s Eminence Capital which holds 4.2 million shares worth $256 million.
Berry Global Group, Inc. (NYSE:BERY) reported $3.6 billion in revenue and $1.64 in GAAP EPS for its Q4, beating analyst estimates for both. Citi raised the company’s price target to $89 in a November 2021 analyst note, highlighting that share repurchases and capital allocation will be positive stock price drivers next year.
You can also take a peek at the 11 Best Food Stocks To Buy Now and 15 Largest Fast Food Companies Is The World.
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