In this article, we discuss the top 10 stock picks of Mark Kleiman’s Factorial Partners.
Factorial Partners was established in 2005 by Mark P. Kleiman, the portfolio manager of the New York-based hedge fund. Factorial Partners operates one private fund and has discretionary assets under management of $150 million to go along with a Q2 13F portfolio worth $123 million. The hedge fund invests primarily in the finance, healthcare, information technology, utilities and telecommunications, industrials, transports, and communication sectors.
Securities filings for Q2 reveal that Mark Kleiman’s Factorial Partners added 11 new stocks to its portfolio, made additional purchases in 35 stocks, sold out of 8 companies, and reduced its holdings in 37 securities. Factorial Partners strengthened its positions in Chord Energy Corporation (NASDAQ:CHRD), Viatris Inc. (NASDAQ:VTRS), and The Cheesecake Factory Incorporated (NASDAQ:CAKE), among others. On the other hand, the hedge fund sold out of stocks like Meta Platforms, Inc. (NASDAQ:FB), Kellogg Company (NYSE:K), and Dell Technologies Inc. (NASDAQ:DVMT) in the June quarter.
Some of the most notable stocks held by Mark Kleiman’s Factorial Partners include Apple Inc. (NASDAQ:AAPL), Pfizer Inc. (NYSE:PFE), and Citigroup Inc. (NYSE:C).
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Methodology
We used the Q2 2022 portfolio of Mark Kleiman’s Factorial Partners for this analysis, selecting the hedge fund’s top 10 holdings. The stocks are ranked according to Factorial Partners’ stake value in each company.
10. Post Holdings, Inc. (NYSE:POST)
Factorial Partners’ Stake Value: $2,903,000
Percentage of Factorial Partners’ 13F portfolio: 2.35%
Number of Q2 Hedge Fund Holders: 28
Post Holdings, Inc. (NYSE:POST) is a consumer packaged goods holding company that operates both in the United States and internationally. Its business is divided into five divisions: Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail, and BellRing Brands.
On August 9, Piper Sandler analyst Michael Lavery raised the firm’s price target on Post Holdings, Inc. (NYSE:POST) to $100 from $96 and maintained the stock’s ‘Overweight’ rating. The analyst remains bullish on Post Holdings, Inc. (NYSE:POST), expecting Foodservice margins to recover further and Refrigerated Retail margins to “have a runway of upside from increased inhouse production.”
Post Holdings, Inc. (NYSE:POST) announced on August 9 that it intends to begin a private offering to eligible purchasers of $400 million in aggregate principal amount of convertible senior notes maturing in 2027, subject to market and other conditions. The company intends to repurchase up to $100 million of its common stock concurrently with the offering in privately negotiated transactions effected through one or more of the initial purchasers of the notes, as well as to pay the fees and expenses associated with the repurchase.
According to Insider Monkey’s Q2 2022 database, 28 hedge funds were bullish on Post Holdings, Inc. (NYSE:POST), down from 38 funds in the preceding quarter. Ric Dillon’s Diamond Hill Capital is a leading stakeholder of the company as of the end of Q2, with 1.6 million shares worth $136 million.
Like Apple Inc. (NASDAQ:AAPL), Pfizer Inc. (NYSE:PFE), and Citigroup Inc. (NYSE:C), Post Holdings, Inc. (NYSE:POST) is on the radar of elite investors.
Here is what Heartland Mid Cap Value Fund had to say about Post Holdings, Inc. (NYSE:POST) in its Q1 2021 investor letter:
“The run up in equity prices over the past several months has narrowed the pool of attractively valued businesses. Economically sensitive areas of the market, in particular, have seen valuations stretched—but the impact of investor exuberance is evident in share prices of companies throughout the broader market. In response, we continue to focus on finding and owning companies that are poised to succeed against a variety of backdrops or those that are priced at significant discounts to peers regardless of the sector or industry. Recent addition Post Holdings, Inc. (POST) is an example of the type of business we’ve found attractive.
Post manufactures and markets food products through five business lines including a breakfast cereals unit, a food service division, refrigerated retail products, and active nutrition. Shares of the company came under pressure due to the severe impact the COVID-19 economic shutdown had on its food service segment.
Additionally, investors were wary of the company’s use of debt given the uncertainty surrounding how long the economic pullback would last. The bear case against the stock, in our view, is overblown.
In recent years, Post has transformed itself into a higher-growth packaged food enterprise with a diversified portfolio that, taken as a whole, possesses superior growth and free cash flow characteristics vs. its peers. Despite this, shares sell at a meaningful discount to the peer group based on enterprise value/earnings before interest taxes depreciation and amortization, as well as our estimates of the company’s intrinsic value. As the economy returns to normal, Post’s food service line should rebound, and we believe investors will gain a greater appreciation of the company and its stock.”
9. Wells Fargo & Company (NYSE:WFC)
Factorial Partners’ Stake Value: $3,247,000
Percentage of Factorial Partners’ 13F portfolio: 2.63%
Number of Q2 Hedge Fund Holders: 92
Wells Fargo & Company (NYSE:WFC) is a diversified financial services firm that offers banking, investment, mortgage, and consumer and commercial finance products and services in the United States and around the world. Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management are its four business segments. Mark Kleiman’s Factorial Partners owns 82,900 shares of Wells Fargo & Company (NYSE:WFC) as of Q2 2022, worth $3.2 million, representing 2.63% of its total 13F holdings.
Barclays analyst Jason Goldberg reduced the firm’s price target on Wells Fargo & Company (NYSE:WFC) to $58 from $64 on July 27 and maintained an ‘Overweight’ rating on the shares following the company’s Q2 earnings report. In a research note, Goldberg told investors that pressured fee income followed by a higher-than-expected provision weighed on results.
According to Insider Monkey’s Q2 2022 data, 92 hedge funds were bullish on Wells Fargo & Company (NYSE:WFC), with collective stakes worth about $5.16 billion. Richard Pzena’s Pzena Investment Management is a leading stakeholder of the company as of June 30, with 16.9 million shares worth $665 million.
Here is what Davis Opportunity Fund had to say about Wells Fargo & Company (NYSE:WFC) in its Q4 2021 investor letter:
“The absolute level of revenues and profits generated by such companies is in fact so large that most of the major financial holdings in the portfolio produce enough annual operating income individually that a number of them could, in theory, purchase several entire businesses among hundreds of choices within the S&P 1500 Index, using just a year’s cash earnings without dipping into capital. This is theoretical, as financial companies would not be in the business of buying healthcare or technology companies, for example, but we point out these facts to illustrate the sheer scale of the economics produced by single financial companies in a given year, which is often a multiple of the cash earnings yielded by companies in a host of other industries.
Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund includes Wells Fargo.”
8. Capital One Financial Corporation (NYSE:COF)
Factorial Partners’ Stake Value: $3,282,000
Percentage of Factorial Partners’ 13F portfolio: 2.66%
Number of Q2 Hedge Fund Holders: 52
Capital One Financial Corporation (NYSE:COF) serves as the holding company for Capital One Bank (USA), National Association and Capital One, National Association, both of which offer a variety of financial products and services in the United States, Canada, and the United Kingdom. It is divided into three divisions: credit cards, consumer banking, and commercial banking.
On July 25, BMO Capital analyst James Fotheringham reduced the firm’s price target on Capital One Financial Corporation (NYSE:COF) to $173 from $183 following a “small” revenue miss and a pullback in auto loan originations amid rising auto delinquencies. The analyst maintains an ‘Outperform’ rating on the shares due to valuation, stating that the market values the stock as if Capital One were still a “mono-line specialty lender.”
According to Insider Monkey’s Q2 data, 52 hedge funds were bullish on Capital One Financial Corporation (NYSE:COF), down from 57 funds in the preceding quarter. Ken Fisher’s Fisher Asset Management is the largest shareholder of the company as of June 30, with more than 7.8 million shares worth $817 million.
Here is what Davis Opportunity Fund had to say about Capital One Financial Corporation (NYSE:COF) in its Q4 2021 investor letter:
“The absolute level of revenues and profits generated by such companies is in fact so large that most of the major financial holdings in the portfolio produce enough annual operating income individually that a number of them could, in theory, purchase several entire businesses among hundreds of choices within the S&P 1500 Index, using just a year’s cash earnings without dipping into capital. This is theoretical, as financial companies would not be in the business of buying healthcare or technology companies, for example, but we point out these facts to illustrate the sheer scale of the economics produced by single financial companies in a given year, which is often a multiple of the cash earnings yielded by companies in a host of other industries.
Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund includes Capital One Financial.”
7. Norfolk Southern Corporation (NYSE:NSC)
Factorial Partners’ Stake Value: $3,439,000
Percentage of Factorial Partners’ 13F portfolio: 2.79%
Number of Q2 Hedge Fund Holders: 44
Norfolk Southern Corporation (NYSE:NSC) and its subsidiaries transport raw materials, intermediate products, and finished goods by rail in the United States. Securities filings for Q2 reveal that Mark Kleiman’s Factorial Partners holds 15,130 shares of Norfolk Southern Corporation (NYSE:NSC) worth $3.43 million, representing 2.79% of its 13F portfolio’s value.
Cowen reduced its price target on Norfolk Southern Corporation (NYSE:NSC) to $316 from $331 and maintained its ‘Outperform’ rating on the stock. The firm noted that the company reported Q2 earnings in line with its estimates, with pricing coming in strong despite fuel expenses weighing on OR and volumes being held back by persistent fluidity issues. The firm is cautious about the second half of 2022 and 2023, owing to management-guided moderating yields offsetting volume improvements.
Among the hedge funds tracked by Insider Monkey, 44 were long Norfolk Southern Corporation (NYSE:NSC) at the end of Q2, compared to 48 funds in the prior quarter. Ken Fisher’s Fisher Asset Management owned 751,949 NSC shares worth roughly $171 million on June 30.
6. CSX Corporation (NYSE:CSX)
Factorial Partners’ Stake Value: $3,554,000
Percentage of Factorial Partners’ 13F portfolio: 2.88%
Number of Q2 Hedge Fund Holders: 64
CSX Corporation (NYSE:CSX) and its subsidiaries offer rail-based freight transportation services. The company provides rail services, as well as intermodal container and trailer transportation, as well as other transportation services such as rail-to-truck transfers and bulk commodity operations.
On July 21, Cowen analyst Jason Seidl reduced the firm’s price target on CSX Corporation (NYSE:CSX) from $39 to $37 and maintained a ‘Market Perform’ rating on the stock. The analyst noted that despite continued fluidity challenges, they kicked off rail earnings with a top/bottom-line beat driven by strong coal pricing and stable volumes. However, the analyst lowered his target due to a more conservative view of its multiple.
Mark Kleiman’s Factorial Partners owned 122,300 shares of CSX Corporation (NYSE:CSX), worth $3.5 million on June 30, representing 2.88% of the fund’s 13F holdings. Among the hedge funds tracked by Insider Monkey, 64 were bullish on CSX Corporation (NYSE:CSX) in Q2, compared to 72 funds in the earlier quarter. John Armitage’s Egerton Capital Limited is a leading stakeholder of the company, with approximately 22.2 million shares worth $646 million.
In addition to Apple Inc. (NASDAQ:AAPL), Pfizer Inc. (NYSE:PFE), and Citigroup Inc. (NYSE:C), CSX Corporation (NYSE:CSX) is one of the top stock picks of Mark Kleiman’s Factorial Partners
Here is what ClearBridge Investments Global Infrastructure Value Strategy had to say about CSX Corporation (NYSE:CSX) in its Q4 2021 investor letter:
“On a regional basis, the U.S. and Canada was the top contributor to quarterly performance, of which U.S. rail operators CSX was among the lead performers. CSX is one of five leading North American rail companies, with over 21,000 miles of rail, covering 23 states and 40+ ports. CSX is engaged in the transportation of rail freight in the Southeast, East, and Midwest via interchange with other rail carriers, to and from the rest of the U.S. and Canada. CSX performed well during the quarter after the company beats market expectations on its third-quarter results. The beats were largely driven by strong pricing, which could be hitting record highs, and healthy commodity/coal volume driven by the current energy crisis.”
5. Pfizer Inc. (NYSE:PFE)
Factorial Partners’ Stake Value: $3,602,000
Percentage of Factorial Partners’ 13F portfolio: 2.92%
Number of Q2 Hedge Fund Holders: 71
Pfizer Inc. (NYSE:PFE) develops, manufactures, markets, distributes, and sells biopharmaceutical products around the world. Factorial Partners added Pfizer Inc. (NYSE:PFE) to its portfolio during Q2, acquiring 68,700 shares worth $3.6 million, representing 2.92% of its total holdings.
On July 8, Morgan Stanley analyst Terence Flynn reduced the firm’s price target for Pfizer Inc. (NYSE:PFE) from $52 to $49 after modifying projections ahead of the company’s upcoming Q2 earnings report, while maintaining an ‘Equal Weight’ rating on the shares. Companies that can provide revenue growth in the second half of the decade, according to Flynn, are best positioned among the group, and he expects biopharma sales to remain resilient even if economic activity slows.
Pfizer Inc. (NYSE:PFE) declared a $0.40 per share quarterly dividend on June 23, payable on September 6 to shareholders of record as of July 29. Pfizer Inc. (NYSE:PFE) shares deliver a dividend yield of 3.21% as of August 11.
According to Insider Monkey’s Q2 data, 71 hedge funds were long Pfizer Inc. (NYSE:PFE), with combined stakes worth $2.8 billion. Kahn Brothers is a major stakeholder of the company, with 1.04 million shares worth $54.9 million.
Here is what ClearBridge Investments Value Equity Strategy had to say about Pfizer Inc. (NYSE:PFE) in its Q4 2021 investor letter:
“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks.
What we did not account for, however, was vaccine hesitancy and the risk of further infection waves. As a result, the first variant wave, Delta, was a negative surprise to both the market and our team. When the risk surfaced, we immediately updated our probability-driven models and debated how we should react. The resulting conclusion was that the recovery would be delayed and that we should reduce our exposure quickly, subsequently targeting the most aggressive recovery stocks such as cruise lines. We again acted swiftly and decisively to the positive surprise that Pfizer had delivered a high-efficacy antiviral COVID-19 pill. This pill should greatly reduce COVID-19 severity risks globally, increasing the probability of a global travel recovery in 2022. While this is still true, the emergence of the highly mutated Omicron variant set off another infection wave which spurred us to again act quickly and further reduce our risk exposure. This back-and-forth may sound exhausting, but it highlights our compulsion to act if we determine a surprise has a large enough impact on the probabilities that power our valuation-driven investment cases.”
4. Discover Financial Services (NYSE:DFS)
Factorial Partners’ Stake Value: $3,641,000
Percentage of Factorial Partners’ 13F portfolio: 2.95%
Number of Q2 Hedge Fund Holders: 40
Discover Financial Services (NYSE:DFS) provide digital banking products and services, as well as payment services, in the United States through its subsidiaries. It has two business segments: Digital Banking and Payment Services. Factorial Partners owned 38,500 shares of Discover Financial Services (NYSE:DFS) on June 30, worth $3.6 million, and representing a 2.95% chunk of its 13F portfolio’s weighting.
BMO Capital analyst James Fotheringham reduced his Discover Financial Services’ (NYSE:DFS) price target to $118 from $131 on July 25 and maintained a ‘Market Perform’ rating on the stock. The company reported solid Q2 results with higher revenues, lower costs, and benign credit trends, while raising its 2022 guidance on growth, net interest margins, and net charge-off rates, but all of this was overshadowed by the suspension of share repurchases, the analyst wrote in a research note.
Among the hedge funds tracked by Insider Monkey, 40 were long Discover Financial Services (NYSE:DFS) on June 30, with combined stakes worth $597 million. Ric Dillon’s Diamond Hill Capital is a leading position holder in the company, with 64,850 shares worth $6.1 million.
3. Apple Inc. (NASDAQ:AAPL)
Factorial Partners’ Stake Value: $3,741,000
Percentage of Factorial Partners’ 13F portfolio: 3.04%
Number of Q2 Hedge Fund Holders: 130
Apple Inc. (NASDAQ:AAPL) creates, manufactures, and sells smartphones, personal computers, tablets, wearables, and accessories all over the world. Factorial Partners added Apple Inc. (NASDAQ:AAPL) to its portfolio in Q2 by obtaining 27,360 shares worth $3.7 million, representing 3.04% of the portfolio’s total holdings.
On July 29, Morgan Stanley analyst Erik Woodring said Apple Inc.’s (NASDAQ:AAPL) June quarter results were “better than feared,” as iPhone and Services upside offset Mac and iPad supply constraints and a decline in Wearables. Management’s September quarter guidance for revenues to be up a mid-single digits percentage year-over-year appears “rightfully conservative,” said Woodring, who maintains Apple as his Top Pick with an unchanged $180 price target and ‘Overweight’ rating.
According to Insider Monkey’s data, 130 hedge funds were bullish on Apple Inc. (NASDAQ:AAPL) at the end of Q2, down from 132 funds in the prior quarter. Ken Fisher’s Fisher Asset Management featured as one of the largest stakeholders in the company, with 65.7 million shares worth $8.9 billion.
2. Citigroup Inc. (NYSE:C)
Factorial Partners’ Stake Value: $4,157,000
Percentage of Factorial Partners’ 13F portfolio: 3.37%
Number of Q2 Hedge Fund Holders: 86
Citigroup Inc. (NYSE:C), a diversified financial services holding company, offers a wide range of financial products and services to individuals, businesses, governments, and institutions in North America, Latin America, Asia, Europe, the Middle East, and Africa. As of the end of Q2, Factorial Partners owned 90,400 shares of Citigroup Inc. (NYSE:C) worth around $4.15 million, representing 3.37% of its total 13F holdings.
On July 18, Analyst Chris Kotowski at Oppenheimer raised the firm’s price target on Citigroup Inc. (NYSE:C) to $86 from $81 and maintained an ‘Outperform’ rating on the stock. The analyst noted that while Citigroup Inc.’s (NYSE:C) stock was up 13% on earnings day, it’s still trades at only at 62% of the firm’s $80 tangible book value, and this for a company with a clean balance sheet and non-accruals at 0.5% of loans. That, in his opinion, means that the book is “hard” and could be converted into cash and returned to shareholders over time, even if the returns remain subpar.
According to Insider Monkey’s data, 86 hedge funds were long Citigroup Inc. (NYSE:C) at the end of June 2022, down from 90 funds in the preceding quarter. Kahn Brothers is a leading stakeholder of the company, with roughly 1.11 million shares worth $51.2 billion.
1. The Goldman Sachs Group, Inc. (NYSE:GS)
Factorial Partners’ Stake Value: $4,304,000
Percentage of Factorial Partners’ 13F portfolio: 3.49%
Number of Q2 Hedge Fund Holders: 70
The Goldman Sachs Group, Inc. (NYSE:GS) is a financial institution that offers a variety of financial services to corporations, financial institutions, governments, and individuals around the world. Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management are its four business segments. Factorial Partners added The Goldman Sachs Group, Inc. (NYSE:GS) to its Q2 portfolio, acquiring 14,490 shares worth around $4.30 million, representing 3.49% of the fund’s total 13F holdings.
On April 14, The Goldman Sachs Group, Inc. (NYSE:GS) declared a $2.00 per share quarterly dividend. The dividend was payable on June 29 to shareholders of record as of June 1. The Goldman Sachs Group, Inc. (NYSE:GS) shares deliver a dividend yield of 2.38% as of August 11.
BMO Capital analyst James Fotheringham reduced the firm’s price target on The Goldman Sachs Group, Inc. (NYSE:GS) to $461 from $475 on July 19, but maintained an ‘Outperform’ rating on the stock. While the company reported an “impressive” revenue-driven beat, the analyst lowered his forward estimates due to higher expected operating and credit costs, according to a research note. Fotheringham adds that in the long run, The Goldman Sachs Group, Inc. (NYSE:GS) can maintain mid-teens RoTCE due to ongoing tailwinds from share gains in core IB/GM franchises, improved profitability of higher-growth adjacencies, and ongoing capital and funding optimization.
Among the hedge funds tracked by Insider Monkey, 70 funds were bullish on The Goldman Sachs Group, Inc. (NYSE:GS) at the end of June 2022, with a collective stake of around $4.62 billion. Ken Fisher’s Fisher Asset Management is a major shareholder of the company, with more than 3.2 million shares worth $976 million.
Here is what Ariel Investments had to say about The Goldman Sachs Group, Inc. (NYSE:GS) in its Q4 2021 investor letter:
“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.
This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. The Goldman Sachs Group, Inc. (NYSE:GS) jumped +47.59% for the year and +1.73% in the quarter.”
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Disclosure: None. Top 10 Stock Picks of Mark Kleiman’s Factorial Partners is originally published on Insider Monkey.
