In this article, we discuss the top 10 stocks to buy according to Ken Heebner’s Capital Growth Management.
Ken Heebner founded Capital Growth Management in 1990. An asset and investment management firm based out of Boston, Capital Growth Management has $1.10 billion in managed securities and $1.12 billion in assets under management, as per the 13F filings for the second quarter.
Ken Heebner is a sound strategist when it comes to investing, and he never invests in sectors and business ideas that he cannot fully comprehend. This approach to investment and tactful risk management served him well when the dot-com bubble created financial distress for several hedge funds and individual investors, since Heebner, like Warren Buffett, never invested in a scheme that he couldn’t completely understand.
As of the latest 13F filings, Heebner’s stock portfolio is concentrated in the real estate, materials, healthcare, finance, energy, and consumer discretionary sectors, with a top ten holdings concentration of 32.96%. The largest holding in Heebner’s Q2 portfolio is The Buckle, Inc. (NYSE:BKE), with Capital Growth Management owning 950,000 shares of the American fashion retailer.
The most notable stocks in Heebner’s Q2 portfolio include Best Buy Co., Inc. (NYSE:BBY), Bank of America Corporation (NYSE:BAC), Philip Morris International Inc. (NYSE:PM), and JPMorgan Chase & Co. (NYSE:JPM), among others discussed in detail below.
Ken Heebner of Capital Growth Management
Why should we pay attention to Ken Heebner’s stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Our Methodology
With this context in mind, let’s take a look at the top 10 stocks to buy according to Ken Heebner’s Capital Growth Management. The stocks are ranked according to the value of each holding in Heebner’s investment portfolio for the second quarter.
Top Stocks To Buy According to Ken Heebner’s Capital Growth Management
10. Vale S.A. (NYSE:VALE)
Capital Growth Management’s Stake Value: $31,250,000
Percentage of Capital Growth Management’s 13F Portfolio: 2.81%
Number of Hedge Fund Holders: 27
A metals and mining corporation from Rio de Janeiro, Vale S.A. (NYSE:VALE) is the largest global producer of iron ore and nickel. Vale S.A. is a multinational operating hydroelectric power plants, a network of railroads, ships, and ports, in addition to mining precious metals. Heebner’s Capital Growth Management owns 1.37 million shares in Vale S.A., worth $31.25 million, making up 2.81% of the firm’s investment portfolio as of June this year.
Tyler Broda from RBC Capital, on October 21, downgraded Vale S.A. from Outperform to Underperform, slashing the price target from $17 to $12.50. He explains that the Chinese property sector isn’t ideal right now, due to an economic shift away from spending on fixed-asset investments. This will impact Vale S.A.’s iron ore business significantly. The analyst lowered his 2022 EBITDA estimate by 34%, in addition to lowering the EPS estimates for 2021 and 2022 for Vale S.A..
Vale S.A. announced on October 28 earnings for the third quarter. The EPS for the quarter came in at $1.26, beating estimates by $0.19. The revenue did not meet analysts’ expectations, missing estimates by -$1.19 billion, coming in at $12.68 billion.
As of the second quarter of 2021, 27 hedge funds tracked by Insider Monkey were long Vale S.A., down from 31 in the preceding quarter.
In addition to Best Buy Co., Inc., Bank of America Corporation, Philip Morris International Inc., and JPMorgan Chase & Co., Vale S.A. is a top stock in Heebner’s Q2 portfolio.
9. Best Buy Co., Inc. (NYSE:BBY)
Capital Growth Management’s Stake Value: $32,769,000
Percentage of Capital Growth Management’s 13F Portfolio: 2.95%
Number of Hedge Fund Holders: 27
Best Buy Co., Inc., a top stock to buy according to Ken Heebner, is an American multinational retailer dealing in consumer electronics. Best Buy Co., Inc. operates in Canada and the United States, with multiple subsidiaries and house brands to cater to different segments of customers, offering a range of products from home appliances, video games, software, and personal computers to mobile phones and digital cameras. Capital Growth Management owns 285,000 shares in Best Buy Co., Inc., valued at $32.76 million, representing 2.95% of Heebner’s 13F portfolio as of the end of June.
Piper Sandler analyst Peter Keith, on October 26, kept an Overweight rating on Best Buy Co., Inc., raising the price target from $150 to $155. Keith suggested that member discounts are attractive and will help maintain returning customers.
At the end of the second quarter, 27 hedge funds in the database of Insider Monkey were bullish on Best Buy Co., Inc., down from 33 in the previous quarter.
8. Bank of America Corporation (NYSE:BAC)
Capital Growth Management’s Stake Value: $32,984,000
Percentage of Capital Growth Management’s 13F Portfolio: 2.97%
Number of Hedge Fund Holders: 87
The next stock on our list of top stocks to buy according to Ken Heebner is Bank of America Corporation, the second largest bank in the US and a leading financial services corporation. The main services offered by Bank of America Corporation include wealth management, commercial banking, and investment banking. Capital Growth Management owns 800,000 shares in Bank of America Corporation, valued at $32.98 million, representing 2.97% of the firm’s portfolio at the end of the second quarter.
Bank of America Corporation announced Q3 earnings on October 14. The EPS came in at $0.85, beating analysts’ estimates by $0.15. Revenue for the quarter also beat estimates by $1.16 billion, coming in at $22.77 billion.
On November 1, Baird analyst David George downgraded Bank of America Corporation from Neutral to Underperform, with a $42 price target. He believes that the risk/reward is unattractive, especially since competitors are offering better interest rates, capital return potential, and better market expectations.
At the end of the second quarter, 87 hedge funds monitored by Insider Monkey’s database of elite funds reported owning stakes in Bank of America Corporation, down from 97 in the previous quarter.
Here is what Oakmark Funds has to say about Bank of America Corporation in its Q3 2021 investor letter:
“Earlier this year, one of our holdings, Bank of America, announced that it was raising its minimum hourly wage from $15 to $20 and would increase it to $25 by 2025. The company received great press for placing the well-being of its employees above profits. But was it really either/or? Bank of America’s chief human resources officer spoke to the bigger picture: “A core tenet of responsible growth is our commitment to being a great place to work…that includes providing strong pay and competitive benefits to help them and their families, so that we continue to attract and retain the best talent.” Bank of America understood that engaged, high-caliber employees are more productive, less prone to turnover and, therefore, less expensive in the long run. Increasing the pay for employees wasn’t elevating employees above shareholders; it was the right thing to do for employees and for shareholders.
If an increase to $20 was good, why stop there? Why not $50 per hour? Because the benefits the business receives at $50 don’t justify the expense. The bank would no longer be able to price its products competitively and would lose business. The employees would “win” in the short term, but eventually the lost business would lead to job cuts, meaning both employees and shareholders would lose. The negative effects of stakeholder overreach are no different than when CEOs overreach to inflate short-term profits. Both hurt shareholders and stakeholders.”
7. Prudential Financial, Inc. (NYSE:PRU)
Capital Growth Management’s Stake Value: $35,352,000
Percentage of Capital Growth Management’s 13F Portfolio: 3.18%
Number of Hedge Fund Holders: 28
Prudential Financial, Inc. (NYSE:PRU) is an American company serving retail and institutional clients, offering insurance, investment management, and other financial services. Prudential Financial, Inc. is the largest insurance company in the United States, serving customers across 40 countries. Ken Heebner, via Capital Growth Management, owns stakes worth $35.35 million in Prudential Financial, Inc., representing 3.18% of the firm’s investment portfolio as of June 2021.
Prudential Financial, Inc. reported on November 2 that EPS for the third quarter came in at $3.78, beating estimates by $1.05. The revenue for Prudential Financial, Inc. missed estimates by -$486.41 million, coming in at $12.87 billion.
As of the second quarter, 28 hedge funds were long Prudential Financial, Inc., down from 37 in the preceding quarter.
Like Best Buy Co., Inc., Bank of America Corporation, Philip Morris International Inc., and JPMorgan Chase & Co., Prudential Financial, Inc. is a top stock according to Ken Heebner’s investment portfolio.
6. DICK’S Sporting Goods, Inc. (NYSE:DKS)
Capital Growth Management’s Stake Value: $36,068,000
Percentage of Capital Growth Management’s 13F Portfolio: 3.25%
Number of Hedge Fund Holders: 36
Another top stock according to Ken Heebner is DICK’S Sporting Goods, Inc., which is the largest American sporting goods retailer, offering a variety of sports and gym equipment via its chain of more than 850 stores across the United States. Capital Growth Management owns 360,000 shares in DICK’S Sporting Goods, Inc., worth over $36 million, accounting for 3.25% of the firm’s 13F portfolio as of June.
DICK’S Sporting Goods, Inc. announced a partnership with NIKE, Inc. (NYSE:NKE) on November 3, where NIKE, Inc. (NYSE:NKE)’s footwear and apparel would be displayed on the mobile application of DICK’S Sporting Goods, Inc.. The customers can connect their membership accounts for both DICK’S Sporting Goods, Inc. and NIKE, Inc. on the mobile application, easily accessing both lines of products. This partnership will enhance customer engagement for both brands, and offer a seamless and uncomplicated online experience for buyers.
As of the second quarter, 36 hedge funds tracked by Insider Monkey were bullish on DICK’S Sporting Goods, Inc., up from 31 in the first quarter.
5. Select Medical Holdings Corporation (NYSE:SEM)
Capital Growth Management’s Stake Value: $36,132,000
Percentage of Capital Growth Management’s 13F Portfolio: 3.25%
Number of Hedge Fund Holders: 24
Select Medical Holdings Corporation (NYSE:SEM), a top stock to buy according to Capital Growth Management’s Ken Heebner, is a medical and healthcare company, which operates long-term acute care and inpatient rehabilitation hospitals, managing them via its subsidiary, Select Medical. Capital Growth Management owns 855,000 shares in Select Medical Holdings Corporation, worth $36.1 million, representing 3.25% of the firm’s Q2 portfolio.
On November 4, the Q3 EPS for Select Medical Holdings Corporation came in at $0.57, beating the estimated EPS by $0.05. The corporation’s revenue for the quarter was 1.53 billion, exceeding estimates by $91.03 million.
As of the second quarter of 2021, 24 hedge funds tracked by Insider Monkey were long Select Medical Holdings Corporation, up from 22 in the preceding quarter.
4. Signet Jewelers Limited (NYSE:SIG)
Capital Growth Management’s Stake Value: $36,356,000
Percentage of Capital Growth Management’s 13F Portfolio: 3.27%
Number of Hedge Fund Holders: 33
Signet Jewelers Limited (NYSE:SIG) is a top stock pick of Ken Heebner, and the largest retailer of diamond jewellery in the world. Catering mainly to the middle market jewellery segment, Signet Jewelers Limited has stores across the United States, the UK, Canada, the Republic of Ireland, and Channel Islands. Signet Jewelers Limited owns and operates multiple brands under its banner including Zales, Jared, and JamesAllen.com, among others. Capital Growth Management owns 450,000 shares in Signet Jewelers Limited, worth $36.35 million, representing 3.27% of the firm’s portfolio at the end of June.
UBS analyst Mauricio Serna initiated coverage of Signet Jewelers Limited with a Buy rating and a $140 price target. The analyst believes that Signet Jewelers Limited is positioned to experience increased sales over the next four years due to its attractive pricing, strong store footprint, and a healthy balance sheet.
As of the second quarter, 33 hedge funds were bullish on Signet Jewelers Limited, up from 26 in the preceding quarter.
3. Philip Morris International Inc. (NYSE:PM)
Capital Growth Management’s Stake Value: $37,662,000
Percentage of Capital Growth Management’s 13F Portfolio: 3.39%
Number of Hedge Fund Holders: 46
Philip Morris International Inc. is a multinational tobacco corporation which caters to over 180 countries with its nicotine products. Philip Morris International Inc. is one of the Big Tobacco companies, and its most popular cigarette brand is Marlboro. Capital Growth Management owns 380,000 shares in Philip Morris International Inc., worth $37.66 million, representing 3.39% of the firm’s Q2 portfolio for the second quarter.
Out of the 873 hedge funds tracked by Insider Monkey, 46 funds were bullish on Philip Morris International Inc. at the end of June, compared to 48 in the first quarter.
Philip Morris International Inc. announced Q3 earnings on October 19, with the EPS coming in at $1.58, beating estimates by $0.02. Revenue for the quarter was $8.12 billion, exceeding estimated revenue by $175.15 million.
Here is what Broyhill Asset Management has to say about Philip Morris International Inc. in its Q2 2021 investor letter:
“Philip Morris (PM) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 23%. We shared our thoughts on these regulations during the quarter, which are available here.
‘PM Valuation. PM is up ~ 15% YTD and would have the most to gain under a nicotine cap. A cap would likely accelerate conversion to iQOS, which is 100% incremental for PM (PM also has zero exposure to combustible cigarettes in the U.S. and licenses its IQOS product for MO to distribute domestically). As such, the decline in PM was much more muted, with the stock hitting new 52 week highs a day after the Biden headline, driven by yesterday’s earnings release. It didn’t take long for investors to shift their attention back to fundamentals and the fundamentals here are best in class. In short, results beat estimates across the board (a recurring theme here), and management raised guidance for the full year (another recurring theme). IQOS continued to deliver impressive growth, recording continued market share gains on the heels of continued user acquisition growth, up 1.5M to 19.1M total users. Importantly, IQOS now represents nearly 30% of PM net revenues (management expects “smoke-free” products to represent more than half of their business by 2025, which should make the ESG folks happy), which is driving top-line growth and margin expansion. Hard to believe that they have created a product with higher margins than combustible cigarettes!! We expect PM operating margins to increase by 100bps – 200bps annually as IQOS continues to gain share. The stock trades at ~ 15x today or 2/3 of the market’s multiple for a business likely to generate $35B in cash flow – or 25% of the market cap – in just the next three years. Over the last decade, shares have traded at an average multiple of 18x and within a range of ~ 14x – 22x (+/-1 standard deviation). The stock yields 5.1% at the current price, and we expect management to resume share purchases in the back half of this year.’”
2. OneMain Holdings, Inc. (NYSE:OMF)
Capital Growth Management’s Stake Value: $39,541,000
Percentage of Capital Growth Management’s 13F Portfolio: 3.56%
Number of Hedge Fund Holders: 41
OneMain Holdings, Inc. (NYSE:OMF), a top stock to buy according to Capital Growth Management, is a financial services company that offers personal loans and insurance to customers across the US. What sets OneMain Holdings, Inc. apart from most financial services companies is its business model that offers lending services to customers who have otherwise limited access to traditional lending corporations.
As of June this year, Capital Growth Management owns 660,000 shares in OneMain Holdings, Inc., worth $39.5 million, representing 3.56% of the firm’s Q2 portfolio.
OneMain Holdings, Inc., on October 20, reported earnings for the third quarter. The Q3 EPS came in at $2.37, beating estimates by $0.09. OneMain Holdings, Inc.’s revenue for the quarter was $1.03 billion, which exceeded analysts’ estimates by $0.26 million.
As of the second quarter, 41 hedge funds were bullish on OneMain Holdings, Inc., down from 43 in the preceding quarter.
James Fotheringham, an analyst from BMO Capital, kept a Market Perform rating on OneMain Holdings, Inc. on October 22, lowering the price target from $65 to $60. He stated that the Q3 earnings didn’t beat estimates by a significant margin, and even though demand for loans is increasing, the loan yields are shrinking and operational expenses are rising.
Here is what Miller Value Partners has to say about OneMain Holdings, Inc. in their Q4 2020 investor letter:
“OneMain Holdings (OMF) was the top contributor over the quarter, advancing 56.0% after reporting Q3 Earnings Per Share (EPS) of $2.19, well above consensus of $1.26 and the quarterly dividend, which was increased 36% to $0.45/share (3.5% annualized yield and 11.5% Trailing Twelve Month (TTM) yield). Net interest income of $836M beat estimates of $778M, implying a 24.3% asset yield and 18.7% net interest margin. Origination volumes increased 41% sequentially to $2.9Bn on continued strength in digital while end-of-period net receivables were flat at $17.8Bn. Credit quality remains excellent with net charge-offs of 5.2%, the lowest level since 3Q 2015. Management guided to year-end receivables of $18.1Bn, net charge-offs of 5.6% (from 5.8%-6.0%), and net leverage of 4.3x-4.5x.”
1. The Buckle, Inc. (NYSE:BKE)
Capital Growth Management’s Stake Value: $47,263,000
Percentage of Capital Growth Management’s 13F Portfolio: 4.26%
Number of Hedge Fund Holders: 25
The Buckle, Inc. is the top stock according to Ken Heebner’s portfolio as of June this year, with Capital Growth Management owning 950,000 shares in The Buckle, Inc., worth $47.26 million. This stock accounts for 4.26% of Heebner’s investment portfolio. The Buckle, Inc. is a fashion retailer operating across the United States, offering apparel, footwear, and accessories since its inception in 1973.
As of the second quarter of 2021, 25 hedge funds in Insider Monkey’s database of elite funds reported owning stakes in The Buckle, Inc., worth over $196.9 million. This is compared to 22 hedge funds in the preceding quarter, with an approximate stake value of $77.7 million.
You can also take a look at 10 Most Shorted Stocks Hedge Funds Are Buying and Yale University Stock Portfolio: Top 10 Picks.
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originally published on Insider Monkey.
