Given that the third quarter is in the rear view mirror, a number of elite funds have released their latest investor letters. Among the sea of information, Insider Monkey has put together some of the more noteworthy commentary, especially as it relates to Tyson Foods, Inc. (NYSE:TSN), Credit Acceptance Corp. (NASDAQ:CACC), Cimpress NV (NASDAQ:CMPR), Fiat Chrysler Automobiles NV (NYSE:FCAU), and MEI Pharma Inc (NASDAQ:MEIP).
Let’s dive in and for those of you interested in food related info, check out this interesting article on the 10 most` expensive countries to buy food and fruit in the world.
Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 745 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).
First up on our list is Blue Tower Asset Management, whose Blue Tower Global Value strategy has returned 28.44% gross of fees in the first nine months of 2016, according to its third-quarter letter to investors. The fund likes Tyson Foods, Inc. (NYSE:TSN), which due to its economies of scale and the fact that the company is moving up the value chain by making more packaged goods. By making more packaged goods, Tyson will not only have more pricing power, but also the company will have a vertical cost integration advantage versus prepared food competitors. As for the chicken price-fixing allegation lawsuit, the fund does not believe there is much merit to those allegations. In terms of a target price, Blue Tower has said it is willing to hold onto Tyson Foods, Inc. (NYSE:TSN) to a forward free cash flow yield of between four and five percent, which suggests a price between $86.40 and $107.99 per share.
Meanwhile, Hayden Capital, whose portfolio was up a net 6.09% between January and September, is still bullish on Credit Acceptance Corp. (NASDAQ:CACC), as the fund added to its position in the third quarter due to the “stubborn cheapness and lack of market enthusiasm for the name,” the fund said in a recent investor letter. Hayden likes Credit Acceptance Corp. (NASDAQ:CACC) because the founder owns around half of the business and thus has a strong incentive to deliver. The fund is also pleased that the company consistently earns a 15-17% return on invested capital and trades for a cheap valuation. Although some investors think Credit Acceptance is a ‘run-of-the-mill subprime auto lender’ in an industry perhaps near the peak of its earnings cycle, Hayden disagrees with that sentiment and thinks that the company could take market share/continue to increase earnings even when the rest of the sector contracts. Due to those views, Hayden thinks the company should trade for a higher than market multiple, not less.
In the same letter, Hayden Capital mentioned that it trimmed its position in Cimpress NV (NASDAQ:CMPR) by 15% in the third quarter at an average price of $99.29 per share. Although Hayden is still bullish on Cimpress due to the fact that the fund expects the company “to compound at its high double-digit reinvestment rate”, Hayden has already made a 51% return and the odds of additional multiple expansion are lower than before. In terms of other hedge fund sentiment, 16 funds that we track owned $644.11 million worth of Cimpress NV (NASDAQ:CMPR)’s shares, which accounted for 22.10% of the float on June 30, versus 12 funds and $726.56 million, respectively, on March 31.
On the next page, we examine what GreenWood Investors had to say about Fiat Chrysler Automobiles NV and MEI Pharma Inc.