In this article we present the list of Anchor Capital Management’s Top 9 Stock Picks and Former Holdings in 2024. To skip our bio of Anchor Capital Management and some of its lower conviction stock picks, click to jump straight to Anchor Capital Management’s Top 5 Stock Picks in 2024.
Iridium Communications Inc. (NASDAQ:IRDM), Patrick Industries, Inc. (NASDAQ:PATK), and Air Transport Services Group, Inc. (NASDAQ:ATSG) are three of the top small-cap stock picks of Anchor Capital Management in 2024.
Anchor Capital Management Background and Investment Philosophy
Clarence (Clay) Dunnagan’s Anchor Capital Management is a Raleigh, North Carolina-based hedge fund manager and venture capital firm that was founded in the third quarter of 2008 by Dunnagan, a former financial advisor and investment banker who completed more than 100 transactions valued at more than $1 billion while serving as the Managing Director for Dunnegan Acquisitions.
Mr. Dunnagan later worked for several other companies in the finance and technology spaces, including Fletcher Spaght, Inc., Ingram Digital, and Vital Source Technologies, Inc., where he served as the Vice President of Development. Dunnagan received undergraduate degrees from Brevard College and North Carolina State University, and a Masters in Business Administration from Kenen-Flagler Business School.
Anchor Capital Management utilizes a long-only alternative investment approach that targets a small number of high conviction stock picks in the small-cap space. An older version of the fund’s website revealed its investment philosophy, stating:
“We believe that by “cherry picking” great companies at undervalued prices based upon careful selection and then apply an active management style, we can continually produce exceptional results through concentrated investing.”
The fund launched the Anchor Special Opportunity Fund X in 2015 after raising $19 million in funding, with the new, single-purpose sidecar fund focused on the significant valuation discount in a specific, undisclosed stock.
Anchor Capital Management made its first 13F filing in the fourth quarter of 2023 and has $83 million in 13F assets under management as of March 31, 2024.
Anchor Capital Management’s Q1 2024 13F Portfolio Construction
The fund’s 13F portfolio consists of just 9 long positions as of March 31, one of which has since been taken off the market (more on that below). Its 13F portfolio held $83.1 million in assets on March 31, down from $105.3 million on December 31, 2023. The fund completely sold out of two stocks during the quarter (one of which was also taken off the market via acquisition), and added one new holding to its portfolio.
Anchor Capital Management is primarily invested in a few key sectors, namely the industrial, transportation, and telecommunications spaces. The fund’s top three holdings account for more than 50% of its 13F assets and it raised its stake in all three companies during the first quarter.
Anchor Capital Management’s Former Holding Daseke Inc (NASDAQ:DSKE) Acquired by TFI International Inc. (NYSE:TFII) on April 1
Anchor Capital Management held a $6.26 million position in Daseke Inc (NASDAQ:DSKE) on March 31, the day before the transportation solutions provider’s acquisition by Canadian transportation and logistics company TFI International Inc. (NYSE:TFII) for $8.30 per share was closed.
The purchase price represented a considerable 69% premium to the value of DSKE shares just before the December 22 announcement of the acquisition.
Just six days prior to that announcement, we identified Daseke Inc (NASDAQ:DSKE) as one of the 11 Best Fundamentally Strong Penny Stocks To Invest In given its cheap sticker price, solid long-term revenue and earnings growth, and positive sentiment among analysts. Be sure to check out that article for ten other fundamentally strong penny stocks to consider for your portfolio.
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Photo by josekarlo01 on Unsplash
Our Methodology
The following data is gathered from Anchor Capital Management’s latest 13F filing with the SEC, which disclosed the fund’s equity holdings as of March 30, 2024. We follow hedge funds like Anchor Capital Management because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
Insider Monkey’s monthly newsletter and portfolio that focuses on activist hedge funds, insider trading and stock picks from hedge fund investor newsletters and conferences returned 199.2% between March 2017 and March 12, 2024, outperforming the S&P 500 ETF’s 144.9% gain by more than 54 percentage points. That’s why you should pay close attention to this important indicator.
Note: The overall hedge fund holdings data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q4 2023 reporting period.
Anchor Capital Management’s Top 9 Stock Picks and Former Holdings in 2024
9. McGrath RentCorp (NASDAQ:MGRC)
Value of Anchor Capital Management’s 13F Position (3/31/2024): $0
Number of Hedge Fund Shareholders (12/31/2023): 16
McGrath RentCorp (NASDAQ:MGRC) was the third-largest holding in Anchor Capital Management’s 13F portfolio heading into 2024, as it held a $13.2 million position in the company on December 31, 2023. However, unlike Air Transport Services Group, Inc. (NASDAQ:ATSG), Iridium Communications Inc. (NASDAQ:IRDM), and Patrick Industries, Inc. (NASDAQ:PATK), which the fund has continued to buy shares of in 2024, it decided to unload its entire stake in MGRC during the first quarter, the only stock it sold out of during the period.
McGrath RentCorp (NASDAQ:MGRC), a B2B rental company that provides portable storage options and modular office space, grew revenue by 14.7% in the first quarter to $188 million. Basic earnings per share and net income fell considerably from Q1 2023, but the former nearly doubled year-over-year on a continuing operations basis, to $0.93.
Anchor Capital Management’s sale of the stock is likely related to the pending acquisition of McGrath RentCorp (NASDAQ:MGRC) by larger competitor WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) in a cash-and-stock deal valued at $3.8 billion at the time of its announcement.
It appears the fund was wise to sell off its shares prior to the transaction closing. That deal was announced in late January and sent MGRC shares up by more than 16% over the following two weeks. They’ve since fallen below their value just prior to the announcement, as WSC shares have sunk by 27.6% since February 12, dragging down the value of the acquisition price.
The ClearBridge Small Cap Growth Strategy was bullish on McGrath RentCorp (NASDAQ:MGRC)’s growth potential, as detailed in its Q3 2023 investor letter:
“New addition McGrath RentCorp (NASDAQ:MGRC) is a scaled operator in the attractive modular office and portable storage market. The company can follow industry leader Willscot Mobile Mini’s strategies in price leadership, value-added products/services, delivery/installation profitability improvements and accretive capital allocation in rolling up smaller players. McGrath generates about 70% of operating earnings from modular space rental and 30% from its electronic test equipment rental portfolio.”
8. Vital Farms, Inc. (NASDAQ:VITL)
Value of Anchor Capital Management’s 13F Position (3/31/2024): $2.33 million
Number of Hedge Fund Shareholders (12/31/2023): 18
First up among Anchor Capital Management’s top stock picks for 2024 is Vital Farms, Inc. (NASDAQ:VITL), which also happens to be the newest addition to the fund’s 13F portfolio. The fund built a new position in the company during Q1, buying an even 100,000 VITL shares. Hedge fund ownership of Vital Farms has ticked up in each of the past four quarters.
Vital Farms, Inc. (NASDAQ:VITL), which we ranked as one of the 5 Best Small Cap Agriculture Stocks To Buy last summer, derives the bulk of its revenue (93.7%) from eggs and egg products, which it sources from more than 300 family farms across the U.S.
The company’s emphasis on sustainable and ethical food production should make it a compelling stock for socially conscious investors and hasn’t hurt the Austin, Texas-based company’s bottom line in the slightest.
Vital Farms, Inc. (NASDAQ:VITL) hit record revenue of $471 million in its 2023 fiscal year, up 30.3% year-over-year. Its margins also improved considerably in 2023, which resulted in adjusted EBIDTA more than doubling year-over-year to $13.9 million. Sales growth is expected to slow down moderately this year however, with the company predicting a 17% revenue boost in 2024.
7. Energy Recovery, Inc. (NASDAQ:ERII)
Value of Anchor Capital Management’s 13F Position (3/31/2024): $5.61 million
Number of Hedge Fund Shareholders (12/31/2023): 18
Anchor Capital Management raised its stake in Energy Recovery, Inc. (NASDAQ:ERII) by 40% during Q1 to 355,500 shares. Several other funds were building stakes in the water treatment company towards the end of 2023, including Steve Cohen’s Point72 Asset Management, Greg Eisner’s Engineer Gate Manager, and Kenneth Tropin’s Graham Capital Management.
Energy Recovery, Inc. (NASDAQ:ERII) will undergo two major leadership changes in the span of less than a year, which has weighed on shares. Former CEO Bob Mao was replaced by David Moon in October 2023, with the company’s board citing the need for new leadership as it seeks to scale its commercialization opportunities in wastewater treatment and refrigeration. CFO Joshua Ballard is set to follow Mr. Mao out the door, as he announced his resignation in February, effective June 2024.
That commercialization push weighed on expenses in Q1, which rose by 11% to $18.1 million, in turn dragging gross margin down to 59% from 60.9% a year earlier. Expenses were 50% higher than revenue during the quarter, which came in at $12.1 million, widely missing the $13.5 million figure estimated by analysts.
Commenting on the results, CEO Moon said revenue fell within the expected range and that full-year guidance remains unchanged, with secured contracts already accounting for 60% of the mid-point of that 2024 revenue guidance.
The Diamond Hill Small Cap Fund noted the uncertainty around the company following the replacement of Energy Recovery, Inc. (NASDAQ:ERII)’s CEO in late 2023, but remains bullish on the company’s fundamentals, as noted in its Q4 2023 investor letter:
“Other bottom contributors included Concrete Pumping Holdings, Energy Recovery, Inc. (NASDAQ:ERII) and Allient. Energy Recovery manufactures energy recovery devices used in industrial processes involving high-pressure fluids or gases pumping. Shares declined in Q4 as the company’s board abruptly replaced the CEO, creating uncertainty. However, we believe our thesis and the company’s fundamentals remain intact.”
6. Unisys Corporation (NYSE:UIS)
Value of Anchor Capital Management’s 13F Position (3/31/2024): $7.01 million
Number of Hedge Fund Shareholders (12/31/2023): 22
Closing out the first part of our list of Anchor Capital Management’s top stock picks for 2024 is diversified tech company Unisys Corporation (NYSE:UIS). Anchor Capital Management trimmed its stake in Unisys by 20% during the first quarter to 1.43 million shares following a rough quarter for the stock, as it lost 13.9% of its value.
Unisys Corporation (NYSE:UIS) shares sank by 33% on February 22 following the release of the company’s fourth quarter 2023 financial results. The company swung back to revenue growth during the quarter (up 3.3% to $557 million) and was also slightly more profitable year-over-year (GAAP operating profits of $50 million, up from $44 million), but hedge funds and investors were concerned about the uncertainty surrounding the company’s future revenue outlook and pension obligations.
Unisys Corporation (NYSE:UIS) was also removed from the S&P SmallCap 600 during the quarter given its long-term struggles (shares are down by more than 80% since 2021) and swooning market cap, which has tumbled to just $350 million.
On the other hand, Unisys has been growing its margins in recent quarters and boasts top flight contract renewal rates of over 96% on contracts valued at over $1 million, which has likely offered enough upside potential for Anchor Capital Management to stick with the stock despite its ongoing struggles, albeit in a slightly less exposed fashion.
Click to continue reading and see Anchor Capital Management’s Top 5 Stock Picks in 2024.
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Disclosure: None. Anchor Capital Management’s Top 9 Stock Picks and Former Holdings in 2024 is originally published at Insider Monkey.
