5 Stocks Hedge Funds Are Investing In

3. Spectrum Brands Holdings, Inc. (NYSE:SPB)

Number of Hedge fund holdings at the end of Q3: 31

2024 Return: 7.2%

Spectrum Brands Holdings, Inc. (NYSE:SPB), incorporated in 2009, is a branded consumer products company with a variety of leading brands including Black & Decker, Russell Hobbs, George Foreman, Toastmaster, Juiceman, Farberware, Breadman, Remington and LumaBella brands. Hedge funds favor this stock for its focused growth, strong brands, and global presence. Spectrum Brands Holdings, Inc. (NYSE:SPB) is headquartered in Middleton, Wisconsin, and has a market capitalization of $2.769 billion.

Heartland Mid Cap Value Fund made the following comment about Spectrum Brands Holdings, Inc. (NYSE:SPB) in its Q3 2023 investor letter:

“Consumer Staples. During the quarter, we initiated a new position in Spectrum Brands Holdings, Inc. (NYSE:SPB), another deep value company with multiple self-help catalysts.

After several divestitures in recent years, Spectrum is mostly a pureplay Consumer Staples company focusing on pet care and home and garden supplies, including recognizable brands such as Spectracide lawn and garden products and SmartBone dog treats.

SPB is in the process of transforming itself from an acquisition-oriented holding company into an integrated operating company with sharper focus. As part of that process, the company recently divested its Hardware and Home Improvement segment, selling it to the Swedish conglomerate Assa Abloy for $4.3 billion in cash. We owned Spectrum when this divestiture was originally announced but exited our position when the Department of Justice (DOJ) sued to block the sale. That action threatened to derail SPB’s efforts to improve its balance sheet and shed a highly discretionary segment that was noncore to the company’s strategy.

We recently got clarity on this overhang, when the DOJ reached a settlement with Assa Abloy, allowing the sale to go through. This gives SPB ample capacity to repurchase shares at a steep discount to intrinsic value while setting the stage for operational improvements. Meanwhile, the stock trades at just 7X next year’s EBITDA and 5X to 5.5X normalized EBITDA.”

SPB has gone nowhere over the last 10 years. Is this finally the best time to invest in this “turnaround” stock? You need to read its latest earnings call transcript to answer this question. It’s been aggressively buying back shares and now reduced its net debt to zero (it is actually better than zero because its cash position earns more interest than its debt position costs in interest payments).