In this article, we will be discussing the top 10 stock picks of Charles Paquelet’s Skylands Capital.
Charles A. Paquelet is the founder, portfolio manager and research analyst of the Wisconsin-based long/short equity investment management firm, Skylands Capital. A veteran in the world of finance, Charles Paquelet earned his B.S degree from Case Western Reserve University’s Weatherhead School of Business in 1987. He later entered Indiana University’s M.B.A program which he completed in 1989 with a specialization in finance. Prior to founding Skylands Capital in 2004, Paquelet served as a financial analyst at B.F. Goodrich & Company. He left the firm to join Strong Capital Management in 1989.
Specializing in U.S. equities, Skylands Capital manages four long-biased long/short portfolios as well as long-only assets. Managing more than $809.5 million in its investment portfolio as of the third quarter of 2021, Skylands Capital’s portfolio is diversified across 12 sectors, with the Consumer Discretionary sector making up the bulk of it.
As of the third quarter of 2021, Skylands Capital has stakes in several major companies, including Apple Inc. (NASDAQ:AAPL), General Motors Company (NYSE:GM), and Visa, Inc. (NYSE:V), among others discussed in more detail below.
Our Methodology
With this context in mind, let us now analyze the top 10 stock picks of Charles Paquelet’s Skylands Capital. We made use of Skylands Capital’s 13F portfolio for the third quarter for this analysis, ranking the stocks based on the fund’s stake values.
Top 10 Stock Picks of Charles Paquelet’s Skylands Capital
10. Norfolk Southern Corporation (NYSE:NSC)
Skylands Capital’s Stake Value: $16 million
Percentage of Skylands Capital’s 13F Portfolio: 1.98%
Number of Hedge Fund Holders: 58
One of the premier transportation companies in the United States, Norfolk Southern Corporation (NYSE:NSC) is a holding company that engages in the rail transportation of raw materials and finished goods across the nation.
On October 28, TD Securities analyst Cherilyn Radbourne raised the price target on Norfolk Southern Corporation (NYSE:NSC) to $330 from $315, and kept a Buy rating on the shares of the company.
Charles Paquelet’s Skylands Capital currently holds 67,205 shares of Norfolk Southern Corporation (NYSE:NSC), worth approximately $16 million, accounting for 1.98% of the fund’s portfolio value.
Of the 873 elite funds tracked by Insider Monkey, 58 were long Norfolk Southern Corporation (NYSE:NSC) at the end of June, up from 46 in the first quarter of 2021. Ken Fisher of Fisher Asset Management is among the leading stakeholders of the company.
In addition to Apple Inc. (NASDAQ:AAPL), General Motors Company (NYSE:GM), and Visa, Inc. (NYSE:V), Norfolk Southern Corporation (NYSE:NSC) is a notable stock to invest in.
9. Beacon Roofing Supply, Inc. (NASDAQ:BECN)
Skylands Capital’s Stake Value: $21.54 million
Percentage of Skylands Capital’s 13F Portfolio: 2.66%
Number of Hedge Fund Holders: 20
Beacon Roofing Supply, Inc. (NASDAQ:BECN) is a Virginia-based distributor of commercial and residential roofing products, as well as related building products in North America.
On October 18, RBC Capital analyst Mike Dahl upgraded Beacon Roofing Supply, Inc. (NASDAQ:BECN) to Outperform from Sector Perform, with an unchanged price target of $63 on its shares.
At the end of the third quarter, Charles Paquelet held 451,010 shares of Beacon Roofing Supply, Inc. (NASDAQ:BECN), amounting to more than $21.54 million in worth and representing 2.66% of his hedge fund’s portfolio value.
Connecticut-based investment firm Iridian Asset Management is one of the biggest stakeholders of Beacon Roofing Supply, Inc. (NASDAQ:BECN) as of the end of the second quarter, according to the data tracked by Insider Monkey. Overall, 20 funds were bullish on Beacon Roofing Supply, Inc. (NASDAQ:BECN) by the end of the June quarter, compared to 21 in the previous quarter.
Fiduciary Management, in its Q3 2021 investor letter, mentioned Beacon Roofing Supply, Inc. (NASDAQ:BECN). Here is what the fund said:
“Beacon is the largest publicly traded (#2 overall) distributor of roofing materials and complementary building products in the U.S. and Canada. Beacon serves greater than 90,000 customers and offers 140,000 SKUs from over 400 branches throughout all 50 states (97% of sales) and 6 Canadian provinces (3% of sales). Beacon makes 1.7 million annual deliveries (within a two-hour radius) using its fleet of specialized trucks. Since the sale of the non-core Interiors division (2021), their run-rate sales have been 53% Residential Roofing; 25% Commercial Roofing; and 22% Complementary Building Products (siding, windows, specialty exterior building products, insulation, and waterproofing systems).
Good Business
• Manufacturers and distributors operate in a rational and consolidated market, with the top three distributors accounting for 54% of a $28 billion industry (almost two times what they had ten years ago).
• The industry is led by ABC Supply Co. Inc. (24% share), Beacon Roofing (20% share), and SRS (10% share), with the remaining 46% held by 1,500 smaller distributors.
• It is estimated that roughly 80% of roofing sales are replacement, and that the U.S. housing stock is now over 40 years old on average. Ninety-four percent of U.S. re-roofing demand is thought to be non-discretionary.
• With management’s focus on organic growth and maintaining discipline, rising returns should follow.
• Aided by the Interiors divestiture, the fiscal third quarter 2021 net debt-to-EBITDA ratio dropped to 2.4 times, providing financial flexibility and likely the ability to buy back stock and issue dividends.
• Beacon is a simple scale business, and roofing distribution is unlikely to undergo major change.Valuation
• Despite newfound financial health and flexibility, and strong fundamentals, Beacon’s shares have receded from $60 in May to $50 in August (-17%), and the stock trades at a discount to its 10-year average for the next twelve months P/E (11 times), enterprise value-to-EBITDA (9 times), and enterprise value-to-sales (0.85 times). With steady execution, we think there is scope for Beacon to trade at a premium to 10-year averages and north of 1 times EV/Sales.
• If Beacon were to grow 4.5% and reach the low end of their EBITDA margin target by fiscal year 2026 (9%-11%) and were ascribed a 15 P/E ratio, the compound return would be approximately 15%.Management
• New CEO Julian Francis has refocused the company on its core Roofing/Exteriors business (divesting Interiors and substantially de-risking the balance sheet), and inward on branch productivity, margin improvement, organic growth, and realizing the benefits of scale.
• Frank Lonegro, CFO, recently joined Beacon from CSX Corporation, where he was the CFO and Executive VP.Investment Thesis
Beacon is a simple business driven by largely non-cyclical, non-discretionary demand. While Beacon has achieved scale in an industry that has consolidated substantially over the last decade, under prior management they were saddled with (1) a challenging and costly integration (2) substantial debt and interest costs, and (3) a separate Interiors business. Under their new CEO they sold Interiors, and are progressing on strategic initiatives. Strong industry fundamentals have led to rapid restoration of financial flexibility and Beacon’s future now looks solid. While expecting a sequential slowdown in growth (in part due to lower y/y storm activity) and a decline in margin, we think enhanced focus on organic growth and structural margin improvement should help reaccelerate future earnings, particularly as replacement demand will likely benefit from the strong build period from 2000-2006.”
8. Oshkosh Corporation (NYSE:OSK)
Skylands Capital’s Stake Value: $21.8 million
Percentage of Skylands Capital’s 13F Portfolio: 2.69%
Number of Hedge Fund Holders: 28
Headquartered in Oshkosh, Wisconsin, Oshkosh Corporation (NYSE:OSK) is a leading manufacturer and marketer of specialty vehicles and truck bodies for the primary markets of defense, concrete placement, refuse hauling, access equipment and fire & emergency.
According to the 13F filings for the third quarter of 2021, Skylands Capital holds 213, 145 shares of Oshkosh Corporation (NYSE:OSK). These shares are valued at over $21.8 million and account for 2.69% of the investment firm’s total portfolio value.
As of the end of the second quarter, 28 hedge funds tracked by Insider Monkey reported owning stakes in Oshkosh Corporation (NYSE:OSK). The total worth of these stakes is $360.4 million. This is compared to 26 funds that had stakes in the company in the previous quarter, with a total worth of $416.4 million.
Out of the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm AQR Capital Management is a leading shareholder in Oshkosh Corporation (NYSE: OSK) with 755,940 shares worth more than $92 million.
On October 28, Baird analyst Mircea Dobre maintained an Outperform rating and a $131 price target on Oshkosh Corporation (NYSE:OSK) following the company’s Q4 earnings beat.
Just like Apple Inc. (NASDAQ:AAPL), General Motors Company (NYSE:GM), and Visa, Inc. (NYSE:V), Oshkosh Corporation (NYSE:OSK) is a stock investors are interested in.
7. FMC Corporation (NYSE:FMC)
Skylands Capital’s Stake Value: $24.54 million
Percentage of Skylands Capital’s 13F Portfolio: 3.03%
Number of Hedge Fund Holders: 33
FMC Corporation (NYSE:FMC) is a Pennsylvania-based chemical manufacturing company that engages in the discovery, development, and production of agricultural chemicals for crop protection and plant health. Originally a producer of insecticides, the company has expanded to multiple fields of agricultural sciences.
On November 4, Citi analyst P.J. Juvekar raised the price target on FMC Corporation (NYSE:FMC) to $110 from $101, and kept a Neutral rating on the shares of the company.
Based on our Q3 data, Charles Paquelet’s hedge fund holds 268,075 shares of FMC Corporation (NYSE:FMC), worth more than $24.54 million, representing 3.03% of his fund’s investment portfolio. Of the 873 elite funds tracked by Insider Monkey, 33 reported holding stakes in FMC Corporation (NYSE:FMC) at the end of the second quarter, up from 32 in the previous quarter.
Out of the hedge funds being tracked by Insider Monkey, Scotland-based Aubrey Capital Management is a leading stakeholder in FMC Corporation (NYSE: FMC) with 2,620 shares worth more than $283.4 million.
6. The Joint Corp. (NASDAQ:JYNT)
Skylands Capital’s Stake Value: $32.44 million
Percentage of Skylands Capital’s 13F Portfolio: 4%
Number of Hedge Fund Holders: 22
The Joint Corp. (NASDAQ:JYNT) is a national operator, manager, and franchisor of chiropractic clinics across the United States. Based in Arizona, the company operates on a non-insurance, cash-based model.
On October 8, Roth Capital analyst George Kelly reiterated a Buy rating on The Joint Corp. (NASDAQ:JYNT) with a $105 price target on its shares.
Based on the 13F securities for the third quarter of 2021, Charles Paquelet’s Skylands Capital holds 331,040 shares of The Joint Corp. (NASDAQ:JYNT). These shares amount to more than $32.44 million and represent 4% of the fund’s total portfolio value.
There were 22 hedge funds in our database that held stakes in The Joint Corp. (NASDAQ: JYNT) in the second quarter of 2021. Of these funds, New York-based Bandera Partners is the leading shareholder in the company.
In the Q2 2021 investor letter of Artko Capital, the fund mentioned The Joint Corp. (NASDAQ:JYNT). Here is what the fund had to say:
“Two poignant examples in recent years have been our investments, one is in Joint Chiropractic (JYNT). Both of the investments have worked out fantastically for our partners with 300% plus return for each, however, our experience and our risk process where we take off at least 5% of portfolio gains when a position reaches 15% of the portfolio has limited our potential, as has limiting our vision for potential gains in 100s of percent instead of a 1000+ (as been the case with JYNT). Additionally, following this risk management model has resulted in some minor tax inefficiencies for the partnership.”
5. Arch Resources, Inc. (NYSE:ARCH)
Skylands Capital’s Stake Value: $36.4 million
Percentage of Skylands Capital’s 13F Portfolio: 4.5%
Number of Hedge Fund Holders: 28
Formerly known as Arch Coal, Arch Resources, Inc. (NYSE:ARCH) is an American coal mining company involved in the mining, processing, and marketing of bituminous and sub-bituminous coal in the United States.
On October 4, B. Riley analyst Lucas Pipes raised his price target on Arch Resources, Inc. (NYSE:ARCH) to $120 from $87, and kept a Buy rating on the shares of the company.
Charles Paquelet’s Skylands Capital currently holds 393,520 shares of Arch Resources, Inc. (NYSE:ARCH), amounting to more than $36.4 million in worth and accounting for 4.5% of the fund’s total investment portfolio. At the end of the second quarter of 2021, 28 hedge funds in the database of Insider Monkey held stakes worth $276 million in Arch Resources, Inc. (NYSE:ARCH), up from 25 in the previous quarter worth $162 million.
4. General Motors Company (NYSE:GM)
Skylands Capital’s Stake Value: $38.6 million
Percentage of Skylands Capital’s 13F Portfolio: 4.77%
Number of Hedge Fund Holders: 86
General Motors Company (NYSE:GM) is a leading multinational automotive corporation that designs and manufactures automobiles. The company operates through its multiple brands, which include Chevrolet, GMC and Cadillac.
On October 26, the company announced a new community charging program to install up to 40,000 Level 2 EV chargers across the United States and Canada, including in underserved, rural and urban communities where charger access is limited. This initiative, which begins in 2022, is part of the company’s recently announced commitment to invest nearly $750 million to expand home, workplace and public charging infrastructure through its Ultium Charge 360 ecosystem.
As of Q3 2021, Skylands Capital holds 733,975 shares of General Motors Company (NYSE:GM). These shares are valued at $38.6 million and represent 4.77% of the hedge fund’s total portfolio value. At the end of the second quarter of 2021, 86 hedge funds in the database of Insider Monkey held stakes worth $7.41 billion in General Motors Company (NYSE:GM). The number of hedge funds that held stakes in the automotive manufacturing company remained the same for the first and second quarters of 2021.
Earlier on October 22, Barclays analyst Brian Johnson raised his price target on General Motors Company (NYSE:GM) to $70 from $68, and maintained an Overweight rating on the shares of the company.
Warren Buffett’s Berkshire Hathaway is the leading shareholder in General Motors Company (NYSE:GM), with over 60 million shares worth more than $3.55 billion.
3. Crown Castle International Corp. (NYSE:CCI)
Skylands Capital’s Stake Value: $47.5 million
Percentage of Skylands Capital’s 13F Portfolio: 5.87%
Number of Hedge Fund Holders: 42
Crown Castle International Corp. (NYSE:CCI) is a real estate investment trust (REIT) that provides shared communications infrastructure in the United States. Its network includes over 40,000 cell towers and nearly 80,000 route miles of fiber supporting cells.
On October 21, Deutsche Bank analyst Matthew Niknam reiterated a Buy rating on the shares of Crown Castle International Corp. (NYSE:CCI), alongside a $175 price target.
As of Q2 2021, 42 hedge funds tracked by Insider Monkey have positions in Crown Castle International Corp. (NYSE:CCI), compared with 43 in the previous quarter. Skylands Capital reported holding 274,500 shares in the company at the end of the third quarter of 2021. These shares amount to more than $47.5 million and represent 5.87% of the investment firm’s portfolio.
ClearBridge Investments mentioned Crown Castle International Corp. (REIT) (NYSE:CCI) in its Q2 2021 investor letter. Here is what the firm has to say:
“Turning to the U.S., U.S. communications company Crown Castle was one of the lead performers. Crown Castle is the leading independent owner and operator of wireless communications infrastructure in the U.S. with a portfolio of approximately 40,000 towers. Crown Castle performed well after the U.S. network operators announced plans to deploy 5G spectrum, with investment much larger and much sooner than the market was anticipating.”
2. Apple Inc. (NASDAQ:AAPL)
Skylands Capital’s Stake Value: $57.13 million
Percentage of Skylands Capital’s 13F Portfolio: 7.05%
Number of Hedge Fund Holders: 138
Multinational technology company Apple (NASDAQ:AAPL) reduced its iPad production by 50% in order to allocate more resources to filling iPhone 13 orders on November 2, a day after the company added to its worldwide lead in the tablet market.
By the end of the third quarter of 2021, Charles Paquelet’s Skylands Capital reported holding 403,750 shares in Apple Inc. (NASDAQ:AAPL), worth more than $57.13 million. These shares accounted for 7.05% of the investment firm’s portfolio value. According to our database, 138 hedge funds were long in Apple Inc. (NASDAQ:AAPL) in the second quarter of 2021, compared to 127 funds in the previous quarter.
On November 2, Morgan Stanley analyst Katy Huberty kept an Overweight rating and $164 price target on Apple Inc. (NASDAQ:AAPL) shares.
Out of the hedge funds being tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway is a leading shareholder in Apple Inc. (NASDAQ:AAPL), with over 887 million shares worth more than $121.5 billion.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
1. Union Pacific Corporation (NYSE:UNP)
Skylands Capital’s Stake Value: $60.2 million
Percentage of Skylands Capital’s 13F Portfolio: 7.43%
Number of Hedge Fund Holders: 69
Union Pacific Corporation (NYSE:UNP) is a transport holding company that operates over 8,300 locomotives through its subsidiary, Union Pacific Railroad Company. The second largest railroad company in the U.S, Union Pacific Corporation (NYSE:UNP) operates across 23 states.
On October 22, TD Securities analyst Cherilyn Radbourne raised the price target on Union Pacific Corporation (NYSE:UNP) to $245 from $240, and kept a Hold rating on the shares following the company’s Q3 earnings results.
According to the 13F filings for the third quarter of 2021, Skylands Capital reported holding 307,170 shares of Union Pacific Corporation (NYSE:UNP). These shares amount to more than $60.2 million, representing 7.43% of the investment firm’s portfolio value.
By the end of the second quarter of 2021, 69 hedge funds out of the 873 tracked by Insider Monkey held stakes in Union Pacific Corporation (NYSE:UNP) worth roughly $5.03 billion. This is compared to 75 hedge funds in the previous quarter with a total stake value of approximately $4.7 billion. Ken Fisher of Fisher Asset Management is among the leading stakeholders of the company.
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Disclosure. None. Top 10 Stock Picks of Charles Paquelet’s Skylands Capital is originally published on Insider Monkey.
