Should You Consider Investing in Spectrum Brands Holdings (SPB)?

Heartland Advisors, an investment management firm, published its “Heartland Mid Cap Value Fund” third-quarter 2021 investor letter – a copy of which can be seen here. Security selection was mixed with holdings in Real Estate and Financials leading on the upside, but the Strategy lagged its Russell Mid Cap® Value Index benchmark for the period. Holdings in Materials detracted from relative performance. The portfolio continued to outpace its benchmark year to date through September 30. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Heartland Advisors, in its Q3 2021 investor letter, mentioned Spectrum Brands Holdings, Inc. (NYSE: SPB) and discussed its stance on the firm. Spectrum Brands Holdings, Inc. is a Madison, Wisconsin-based manufacturing company with a $4 billion market capitalization. SPB delivered a 20.47% return since the beginning of the year, while its 12-month returns are up by 57.14%. The stock closed at $95.15 per share on October 21, 2021.

Here is what Heartland Advisors has to say about Spectrum Brands Holdings, Inc. in its Q3 2021 investor letter:

Narrowing the spectrum. While investors spent much of the period bidding up businesses based on sales growth expectations, we continue to be drawn to companies that have an improved outlook through self-help measures. Spectrum Brands Holdings (SPB), a household products company, is one such example.

Spectrum sells a variety of home goods through its market-leading brands including Black and Decker, Pfister and Remington. During the past 18 months, management has undertaken an initiative to exit non-core business lines such as auto care and batteries, reduce debt and improve efficiencies. The latest of these efforts came in mid -September when the company announced it was selling its home improvement segment for a sum greater than the market capitalization of the entire company.

Management expects to use the proceeds to further bolster Spectrum’s balance sheet, continue to buy back shares and do tuck-in acquisitions to increase scale in its secular growth businesses, such as Pet and Home and Garden lines.

Despite recent improvements in its share price, the company still trades at a meaningful discount to its peers on an enterprise value/earnings before interest, taxes, depreciation and amortization basis.”

Based on our calculations, Spectrum Brands Holdings, Inc. (NYSE: SPB) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. SPB was in 35 hedge fund portfolios at the end of the first half of 2021, compared to 37 funds in the previous quarter. Spectrum Brands Holdings, Inc. (NYSE: SPB) delivered a 9.86% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.