Glenhill Advisors’ Top Consumer Stocks For This Quarter

Founded by Glenn J. Krevlin in 2001, Glenhill Advisors is a New York-based long/short equity hedge fund that’s known for placing most of its bets in the small-cap space. According to the fund’s last submitted 13F filing, its long US equity portfolio at the end of June was worth $1.38 billion, 17.8% less than the $1.64  billion that it was worth at the end of March.

According to its last 13F filing, during the second quarter, the fund initiated a stake in six stocks, reduced its holding in 12 stocks, made additional purchases in 14 stocks and sold its entire stake in 15 stocks. The filing also revealed that at the end of second quarter, stocks from the consumer sector (consumer discretionary + consumer staples) accounted for the largest chunk of the fund’s portfolio, amassing 33% of its value. Considering that the fund had the highest exposure towards the consumer sector while heading into the third quarter, in this post, we will take a look at its five largest holdings from that space and will analyze how those stocks have performed this year.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points in our backtests that covered the period between 1999 and 2012 (see the details here).

#5 Smart & Final Stores Inc (NYSE:SFS)

– Shares Owned by Glenhill Advisors (as of June 30): 3.35 Million

– Value of Holding (as of June 30): $49.85 Million

Though its stock declined by 8% during the second quarter, Smart & Final Stores Inc (NYSE:SFS) jumped three spots in Glenhill Advisors’ equity portfolio during that period and became its ninth largest equity holding by the end of it owing to a 6% increase that the fund made to its stake in the company during the April-June period. Smart & Final Stores Inc (NYSE:SFS)’s stock has been on a gradual decline since the start of this year, losing 31% of its value so far in 2016. After the company came out with lower-than-expected numbers for its second quarter recently and lower its full year earnings guidance, several analysts who track the stock lowered their rating and price target on the stock. This list included analysts at Morgan Stanley, who on August 18, downgraded the stock to ‘Underweight’ from ‘Equal-Weight’ and also lowered their price target on it to $13 from $16.50. Hedge funds covered by Insider Monkey were also less bullish on the company going into the third quarter as the ownership of Smart & Final Stores Inc among them declined by five to eight during the April-June period.

#4 Media General Inc (NYSE:MEG)

– Shares Owned by Glenhill Advisors (as of June 30): 3.83 Million

– Value of Holding (as of June 30): $65.85 Million

After having initiated a stake in Media General Inc (NYSE:MEG) during the first quarter, Glenhill Advisors proceeded to increase it by 7% during the second quarter. In January, Media General Inc (NYSE:MEG) announced that it had entered into a definitive merger agreement with Nexstar Broadcasting Group, Inc. (NASDAQ:NXST) whereby Nexstar will acquire all outstanding shares of Media General for $10.55 per share in cash and 0.1249 of a share of Nexstar Class A common stock for each Media General share. Since this announcement, shares of Media General Inc (NYSE:MEG) have appreciated by over 10%. Earlier this month, the U.S. Department of Justice (DoJ) approved this merger on the condition that Nexstar must divest seven stations (in six markets) to upfront buyers that the department has approved. Though the Federal Communications Commission(FCC)’s approval concerning this merger is still pending, most analysts believe that the FCC is most likely to approve the merger now that the DoJ has settled its antitrust concerns with the broadcasters. At the end of second quarter, there were 34 hedge funds covered in our database that were long Media General Inc (NYSE:MEG) with the aggregate value of their holdings in it amounting to $634.63 million.

#3 SUPERVALU INC. (NYSE:SVU)

– Shares Owned by Glenhill Advisors (as of June 30): 16.68 Million

– Value of Holding (as of June 30): $78.73 Million

Moving on, SUPERVALU INC. (NYSE:SVU) was another consumer stock in which Glenhill Advisors increased its stake during the second quarter by 17%. Other hedge funds that also increased their stakes in the company during that period included Terence Hogan‘s Addison Clark Management and Conan Laughlin’s North Tide Capital. The wholesale grocery distributor has lost over 60% of its market capitalization since its shares peaked in April last year and currently trades down 30.58% year-to-date. According to a regulatory filing submitted by the company last month, it is planning to spin-off its grocery business Save-A-Lot. Following this spin-off SUPERVALU INC. (NYSE:SVU)’s shareholders will own 60% of the outstanding shares of Save-A-Lot and SUPERVALU INC. will own the remaining 40%, which it plans to bring down to 20% in the 24 months following the completion of the spin-off. SUPERVALU’s stock spike over 10% on August 15 after the company revealed that it has signed a new supply agreement with gourmet supermarket chain The Fresh Store. However, the stock has given up all of those gains this month amid a meltdown in food prices. The ownership of SUPERVALU INC. (NYSE:SVU) among funds covered by us remained unchanged during the second quarter, but the aggregate value of their holdings in it slid by 13% during that time.

#2 Dicks Sporting Goods Inc (NYSE:DKS)

– Shares Owned by Glenhill Advisors (as of June 30): 1.92 Million

– Value of Holding (as of June 30): $86.47 Million

Dicks Sporting Goods Inc (NYSE:DKS) was the only stock among Glenhill Advisors’s top five consumer picks in which the fund reduced its stake during the second quarter, by 44%.  Considering that Dicks Sporting Goods Inc (NYSE:DKS)’s stock ended second quarter in the red and has seen a meteoric rise in the current quarter, one can say that the fund won’t be too pleased with that decision. Shares of the sporting goods retailer have appreciated by over 65% this year with most of those gains coming in the last two months. A large part of the gain that the company has seen this year have come on back of its largest competitor The Sports Authority declaring bankruptcy and Dicks Sporting Goods Inc purchasing the brand name and other intellectual property of the former in a bankruptcy auction. Though most analysts who track the stock have positive views on it currently, they are advising clients to wait for a pullback in it before entering. During the second quarter, the ownership of Dicks Sporting Goods Inc among funds covered by us increased by nine to 45 and the aggregate value of their holdings in it jumped by 52% to $772.3 million.

#1 Houghton Mifflin Harcourt Co (NASDAQ:HMHC)

– Shares Owned by Glenhill Advisors (as of June 30): 7.86 Million

– Value of Holding (as of June 30): $122.95 Million

Houghton Mifflin Harcourt Co (NASDAQ:HMHC) was Glenhill Advisors top consumer stock pick at the end of second quarter with the fund having inched up its stake in the company by 3% during that quarter. Shares of the education solutions company have been on a downward spiral since the beginning of second-half of 2015 and have lost 30% of their value so far in 2016. For its most recent quarter, the company reported a per share loss of $0.23, much higher than the per share loss of $0.02 expected by analysts, and revenue of $392 million, which was $39.25 million lower than analysts’ estimate. For the same quarter of the previous financial year, Houghton Mifflin Harcourt Co (NASDAQ:HMHC) had reported a per share loss of $0.06 on revenue of $379.90 million. Following the earnings release, on August 5, analysts at BMO Capital Markets downgraded the stock to ‘Market Perform’ from ‘Overweight’ and also reduced their price target on it to $17 from $22. The number of hedge funds covered by us who had long positions in Houghton Mifflin Harcourt Co (NASDAQ:HMHC) rose by two to 24 during the second quarter, but the aggregate value of their holdings in it came down by 15.7% to $718.82 million during that time.

Disclosure: None