KeyCorp (KEY), McDonald’s Corporation (MCD): Clinton Group Makes Huge Moves On These 5 Finance and Consumer Stocks

Founded in 1991 by George Hall, New York-based activist hedge fund Clinton Group has been in the asset management business for 25 years now, but its reputation today is nowhere close to what it was a decade earlier. Back in 2003, Clinton Group was among the fastest-growing hedge funds in the world, with assets under management totaling over $5 billion. However, the fund found itself mired in controversies for a considerable period of time over the last decade and its assets plunged dramatically during that time.

According to the fund’s website, it managed assets worth over $2.5 billion at the end of the second quarter and its latest 13F filing reveals that almost 90% of that, or $2.28 billion, was invested in the U.S. public equities market. The filing also shows that at the end of June, Clinton’s equity portfolio was well diversified, with 859 long positions, while its top-ten equity holdings accounted for only 10.16% of the value of its equity portfolio. As per the filing, the fund had considerable exposure to the consumer discretionary and finance sectors at the end of June, stocks from which amassed 21% and 14%, of the value of its equity portfolio, respectively. In this article, we’ll shed light on the five major bullish moves made by the fund in those two sectors during the second quarter.

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KeyCorp (NYSE:KEY)

– Shares Owned by Clinton Group (as of June 30): 1.97 Million

– Value of Holding (as of June 30): $21.83 Million

Let’s begin with KeyCorp (NYSE:KEY), in which Clinton Group increased its stake by 332% during the second quarter. The bank holding company has lost 8% of its market capitalization this year, however, the decline has at least helped increase its annual dividend yield to 2.8%. Earlier this year, the company received regulatory approval for its $4.1 billion acquisition of Buffalo-based First Niagara. Though by assuming no revenue synergies, the deal is expected to be only 5% accretive to the company’s earnings by its fiscal year 2018, investors expect it to provide many long-term benefits to KeyCorp going forward. Several analysts who track the stock are currently bullish on it, citing the company’s well-diversified, fast-growing lending portfolio and the expected growth from its investment banking operations. However, analysts at Piper Jaffray don’t share that same view on it. At the end of last month, they downgraded the stock to ‘Neutral’ from ‘Overweight’ and also lowered their price target on it to $13 from $14.50. During the second quarter, ownership of KeyCorp (NYSE:KEY) among the funds covered by us rose by six to 46, but the aggregate value of their holdings in it fell by $133 million to $934.46 million.

McDonald’s Corporation (NYSE:MCD)

– Shares Owned by Clinton Group (as of June 30): 192,922

– Value of Holding (as of June 30): $23.22 Million

Clinton Group boosted its stake in McDonald’s Corporation (NYSE:MCD) by almost ten-fold during the June quarter. Shares of the fast food giant have been on a downward journey ever since the company reported its second quarter earnings on July 26 and are currently trading down by 2.5% in 2016. While analysts had expected McDonald’s to report EPS of $1.39 on revenue of $6.28 billion for the quarter, the company delivered EPS of $1.45 on revenue of $6.27 billion. Beset by a stagnating market and challenging operating environment in China, the company is currently engaged in finalizing the sale of the right to operate its restaurants in that country, which is estimated to be worth almost $3 billion. On September 15, Reuters reported that McDonald’s Corporation (NYSE:MCD) has received final offers from at least three entities for its China and Hong Kong outlets. The company’s popularity among the hedge funds in our system saw a notable drop during the second quarter, as its ownership among them declined by 20 to 63 and the aggregate value of their holdings in it dropped by almost $1 billion to $3.03 billion.

We’ll check out three other major moves made by Clinton Group during the second quarter on the next page.

Home Depot Inc (NYSE:HD)

– Shares Owned by Clinton Group (as of June 30): 180,922

– Value of Holding (as of June 30): $23.10 Million

Clinton Group made a U-turn regarding Home Depot Inc (NYSE:HD) during the first-half of this year. While during the first quarter the fund reduced its holding in the company by 81%, it increased its stake in Home Depot by a whopping 3,175% during the second quarter. Other hedge funds that also became increasingly bullish on the company during the second quarter included Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, as well as Matthew Tewksbury’s Stevens Capital Management. The multi-year bull run that Home Depot’s stock has enjoyed seems to have ended in 2016, as it’s currently trading down by nearly 5% year-to-date. Even analysts who used to be extremely upbeat about the stock have toned down their expectations in the past few months, citing the company’s recent comp sales figures. On September 16, analysts at Argus reiterated their ‘Hold’ rating and $154 price target on Home Depot, which represents potential upside of 21.4%. At the end of June, there were 67 hedge funds in our system long Home Depot Inc (NYSE:HD), with the aggregate value of their holdings in it amounting to $4.37 billion.

American International Group Inc (NYSE:AIG)

– Shares Owned by Clinton Group (as of June 30): 497,732

– Value of Holding (as of June 30): $26.32 Million

American International Group Inc (NYSE:AIG) was a new entrant to Clinton Group’s equity portfolio during the second quarter. Despite the company agreeing to return $25 billion to shareholders over the next two years back in January, its stock has fallen by almost 7.5% in 2016 and currently trades at a 30% discount to its book value. Most analysts consider the stock to be a lucrative long-term buy right now, especially when one takes into account its current annual dividend yield of 2.21% and the expected hike to that quarterly dividend. For AIG’s fiscal year 2016 third quarter, the current consensus estimate of analysts is for it to pull in EPS of $1.18 on revenue of $13.03 billion. For the same quarter of its previous fiscal year, the company reported EPS of $0.52 on revenue of $13.18 billion. The number of hedge funds that we track which were bullish on American International Group Inc (NYSE:AIG) fell by nine to 86 during the second quarter, while the aggregate value of their holdings in it declined by $1.11 billion to $7.28 billion.

Visa Inc (NYSE:V)

– Shares Owned by Clinton Group (as of June 30): 365,564

– Value of Holding (as of June 30): $27.11 Million

Visa Inc (NYSE:V) made its debut in Clinton Group’s equity portfolio during the second quarter and immediately became the fund’s most valuable equity holding at the end of the period. Shares of the payment processing giant have appreciated by 263.15% in the last five years and made their 52-week high at $83.63 earlier this month. In June 2016, the company completed its acquisition of Visa Europe, which unified the brand once again after eight years as separate companies. Though some investors are concerned that the cash-and-stock acquisition will dilute their equity in the company, most analysts think that won’t happen because the company has accelerated its share repurchase program in the last two quarters and will continue to do so until the dilutive effect of new shares has been completely offset. Last week, analysts at Barclays reiterated their ‘Overweight’ rating on the stock while boosting their price target on it to $92 from $88, which represents potential upside of 11.5%. Visa Inc (NYSE:V) was the eighth-most popular company among the hedge funds tracked by Insider Monkey at the end of the second quarter, 118 of which reported holding long positions in it as of June 30, with the aggregate value of their Visa holdings accounting for 5.80% of the company’s float.

Disclosure: None