One of the industries that saw increased interest from elite hedge funds during the first quarter of 2016 was Packaging & Containers. Analysts at Goldman Sachs have recently initiated coverage of the industry, offering ‘Buy’ ratings left and right. Brian Maguire has an attractive view on the sector, noting the strong cash flows, solid margins and M&A opportunities as key indicators. So let’s have a look at the top five packaging and containers stocks that hedge funds from our database piled in during the quarter.
While there are many metrics that investors can assess in the investment process, hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).
Hedge fund interest in WestRock Co (NYSE:WRK) cooled down a bit during the first three months of 2016, as the number of long positions fell to 32 from 35 registered at the end of December. Together, these funds held just 6% of the company’s common stock. Analysts at Credit Suisse and Jefferies Group have recently reiterated their ‘Buy’ rating on WestRock Co (NYSE:WRK), having placed price targets of $52 and $50 per share respectively. Activist investor Jeffrey Smith is bullish on WestRock, having shared his views on the stock at the recent Sohn Conference. His fund, Starboard Value initially took a stake in MeadWestvaco, which merged with Rock-Tenn in 2015 to create WestRock. In his presentation, Smith dismissed worries that WestRock Co (NYSE:WRK)’s business is in secular decline, claiming that containerboard prices would have to drop by more than 16% to justify the value of the company. Smith also said he finds WestRock’s dividend yield of 3.85% attractive and safe, and is confident that the business has ample room for growth. According to its latest 13F filing, Starboard held 4.56 million shares worth $178 million at the end of the first quarter.
#4. Ball Corporation
Hedge funds rushed in to benefit from Ball Corporation (NYSE:BLL)‘s merger with the British beverage can maker Rexam PLC. The number of long positions reached 40 at the end of the first quarter, up from 32 positions registered a quarter before. Senator Investment Group, run by Doug Silverman and Alexander Klabin, had its stake in Ball Corporation (NYSE:BLL) boosted by 34% during the quarter to 5.15 million shares worth $367 million. Bain Capital’s subsidiary Brookside Capital established a fresh position, amassing 1.35 million shares by the end of March. Ball Corporation (NYSE:BLL) reached a deal to buy Rexam for GBP4.43 billion ($6.35 billion) as it seeks to employ economies of scale to reduce costs and improve efficiency. Together, the two companies account for 74% of beverage can supply in Brazil, 69% in Europe and 60% in North America. As a result, the companies were forced to divest some assets in order to meet regulatory requirements. Ball and Rexam have reached an agreement to sell $3.42 billion worth of assets to Ardagh, the Luxembourg-based packaging group, in order to receive clearance from US, European and Brazilian regulators.
The three most popular packaging stocks are discussed on the next page.