In this article, we take a look at the top 10 stocks Kettle Hill Capital Management is buying.
Andrew Kurita’s Kettle Hill Capital Management is a New York-based long/short equity hedge fund that focuses its investment efforts on the small-cap space. The fund, which was founded in 2003 by Mr. Kurita, uses proprietary fundamental research and takes a disciplined approach to its investment and risk management decisions as part of its investment philosophy.
The Kettle Hill Partners, LP fund had a string of underperformance heading into the 2020’s, as it posted marginal losses in both 2018 and 2019 after a similar marginal gain in 2017. From its inception in June 2003 through March 2020, the fund has managed compound annual returns of 7.53%. As of July 2021, Kettle Hill had nearly $800 million in assets under management, while its well-diversified 13F portfolio was valued at $535 million at the end of September 2020.
During the third quarter, Kettle Hill Capital Management added 18 new positions to its 13F portfolio in anticipation of big things to come for those stocks. We’ll take a look at the fund’s 10 biggest new purchases of the quarter in this article.
Photo by Joshua Mayo on Unsplash
Our Methodology
These are the top stock picks of Kettle Hill Capital Management. We used the hedge fund’s Q3 portfolio for this analysis.
Top 10 Stocks Kettle Hill Capital Management Is Buying
10. Alphabet Inc. (NASDAQ:GOOGL)
Our list of the top stocks that Kettle Hill Capital Management is buying now starts with Alphabet Inc. (NASDAQ:GOOGL). Kettle Hill took the plunge into one of the most popular hedge fund stocks during Q3, opening a new position of 2,740 of the tech giant’s class A shares worth $7.33 million on September 30. There are more than 350 hedge fund positions in Google’s two classes of shares.
One of the Top 5 Stock Picks of George Soros, Alphabet Inc. (NASDAQ:GOOGL) has shrugged off declining search revenue by greatly increasing revenue and margins on its wildly popular Play Store and through video giant YouTube. Google’s cloud services have also been a huge bright spot for Alphabet Inc. (NASDAQ:GOOGL)’s bottom line. Future growth also seems assured thanks to Google’s huge investments in AI, which should pay dividends across the breadth of its virtual and physical offerings alike.
Saturna Capital, an investment management firm, published its “Amana Funds” third-quarter 2021 investor letter, and mentioned Alphabet Inc. (NASDAQ:GOOGL). Here‘s what the fund said:
“Alphabet was a new addition to the Fund this year, as we believed it important to have exposure to the top online media and advertising company in the world. Some have raised concerns surrounding Alphabet’s exposure to political interference, but we take comfort from the belief that were the company to be broken up, it would quite likely be worth even more than as a single entity.”
9. Meta Platforms, Inc. (NASDAQ:FB)
Kettle Hill also opened a new stake in Meta Platforms, Inc. (NASDAQ:FB), the bizarre and memetastic new name for the parent company of Facebook and Instagram. The fund bought 21,680 shares of Meta Platforms, Inc. (NASDAQ:FB) during Q3, building a position worth $7.36 million on September 30. Meta Platforms is another of the most popular stocks among hedge funds, being owned by 251 of them at the end of Q3.
While Meta Platforms, Inc. (NASDAQ:FB) CEO Mark Zuckerberg’s declaration that he wants to take over the metaverse was just a tad creepy, there’s no denying the Facebook’s continuous integration of new technologies into its platform, including cryptocurrencies and blockchain, could help pave the way for the future online metaverse he envisions, where people live, work, play, and pay in Meta Platforms’ digital worlds. Meta Platforms pulled in $3.22 in EPS during Q3, narrowly beating estimates.
Canterbury Tollgate, an investment management firm, published its third-quarter 2021 investor letter, and mentioned Meta Platforms, Inc. (NASDAQ:FB). Here‘s what the fund said:
“To say traditional media is anti-Facebook would not be an overstatement. An already intense and multi-year critique of (or attack on) Facebook has ratcheted up in recent weeks. Facebook’s research efforts have been reported on, if often derided, for nearly a decade. Going back to 2014, Slate.com called their research practices “unethical” when FB tried to study the impact social posts had on users. Now those efforts have been turned against them for the kill shot.
My job is to observe, assess, and allocate. Not to commentate on all the whims and wishes of media narrative. However, in the case of Facebook I cannot avoid going into some detail re: the onslaught against them, which I find to be most unwarranted and insincere.
Last month the Wall Street Journal ran a five-piece series titled “The Facebook Files” which allegedly shows how toxic Instagram is for teens. The foundation of their argument was a single slide from an internal presentation claiming, based on FB’s own research, that of teens who had a negative self-image, one-third said Instagram “made them feel worse.”iii Somehow the implication here is that this is not an inescapable aspect of either the human psyche and/or society-atlarge, but that it is of Facebook’s doing…” (Click here to see the full text)
8. Dycom Industries, Inc. (NYSE:DY)
Dycom Industries, Inc. (NYSE:DY) was another new addition to the 13F portfolio of Kettle Hill during Q3, as the fund bought 103,379 shares valued at $7.37 million at the end of the quarter. Kettle Hill was one of just 18 hedge funds tracked by Insider Monkey’s database that were long DY at that time.
Hedge fund ownership of Dycom Industries, Inc. (NYSE:DY) fell in lockstep with the stock’s decline throughout 2018 and 2019 but has yet to rebound much even as Dycom shares have more than doubled in value since the middle of 2020.
That’s somewhat surprising given that infrastructure companies like Dycom Industries, Inc. (NYSE:DY) appear poised to benefit greatly from President Biden’s $2 trillion plan to upgrade America’s roads, bridges, and other important infrastructure.
7. Comerica Incorporated (NYSE:CMA)
Kettle Hill opened a new position in financial services company Comerica Incorporated (NYSE:CMA) during Q3, buying 91,892 shares worth $7.4 million on September 30. Hedge fund ownership of Comerica has tumbled by nearly 50% since the beginning of 2018.
Comerica Incorporated (NYSE:CMA) pulled in $1.90 in EPS during the third quarter, greatly outpacing estimates of $1.64. Comerica Incorporated (NYSE:CMA)’s revenue also rose by 6.34% year-over-year to $755 million thanks to growth in the commercial loan segment.
6. Zions Bancorporation, National Association (NASDAQ:ZION)
Zions Bancorporation, National Association (NASDAQ:ZION) is another financial services company that Kettle Hill took a new stake in during Q3, buying 120,609 ZION shares worth $7.46 million at the end of Q3. As with Comerica, hedge funds have soured on ZION over the years, with less than half the hedge fund shareholders of the stock as of Q3 than there were at the beginning of 2017.
It’s possible that Kettle Hill’s bets on Zions Bancorporation, National Association (NASDAQ:ZION) and Comerica are a bet on interest rates being pushed higher in 2022, which seemed a distinct possibility in late September after the Fed’s meeting revealed that half of the 18 officials would be ready to do so next year. National Association (NASDAQ:ZION) shares have more than doubled in value since November 2020.
5. Vail Resorts, Inc. (NYSE:MTN)
Kettle Hill appears to like the recent results and projections that Vail Resorts, Inc. (NYSE:MTN) has been able to deliver, as the fund opened a new position in the ski resort company during Q3 consisting of 42,934 shares. That holding was valued at $14.34 million on September 30.
Hedge funds have generally been bullish on Vail Resorts, Inc. (NYSE:MTN) even in the face of the pandemic, buying more shares on weakness rather than fleeing the stock and they’ve been rewarded with huge gains, as those shares have nearly doubled in value since the middle of 2020. Vail Resorts, Inc. (NYSE:MTN) announced strong season pass sales for the 2021/2022 season back in September, with unit sales up 42% year-over-year.
4. Bloomin’ Brands Inc. (NASDAQ:BLMN)
Bloomin’ Brands Inc (NASDAQ:BLMN)’s third quarter earnings were solid, with results passing estimates and margins improving, even as comps slid slightly. On the plus side, the latter appears to be the result of a popular promo from 2019 making comps more difficult, rather than a reflection of Bloomin’ Brands Inc (NASDAQ:BLMN) losing market share to its restaurant rivals.
3. FMC Corporation (NYSE:FMC)
FMC Corporation (NYSE:FMC) comes in third on our list of the top 10 stocks to buy now according to Kettle Hill Capital Management. The fund bought 235,889 shares of FMC during Q3, building a new position that was valued at $21.6 million on September 30 and which ranked as the fund’s 7th largest holding overall. Hedge funds began selling out of FMC Corporation (NYSE:FMC) this year after shares soared by more than 50% during the previous two years. Just 28 hedge funds were long FMC at the end of Q3, the lowest total since the first quarter of 2016.
Tweedy, Browne Company laid out the ongoing bullish case for FMC Corporation (NYSE:FMC) in its Q3 2021 investor letter, saying that the crop materials products have pricing power thanks to their patents and high barriers of entry due to the regulatory approval process, which is why FMC was able to deliver stellar EBITDA margins and Return on Equity in 2020 of 27% and 25% respectively. The fund also likes FMC’s new product pipeline.
2. Activision Blizzard, Inc. (NASDAQ:ATVI)
Coming in the runner-up position in Activision Blizzard, Inc. (NASDAQ:ATVI), which was Kettle Hill’s second-largest new buy of Q3 2021.289,969 shares of the video game developer were added to Kettle Hill’s portfolio, giving it a position worth $23.22 million. That gives Kettle Hill two video game developers among its top five stock picks, as Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has been a favorite of the fund for over two years.
In its Q1 2021 investor letter, Cooper Investors noted that if Activision Blizzard, Inc. (NASDAQ:ATVI) can successfully replicate its Call of Duty model with its other popular franchises like Warcraft and Diablo, Activision Blizzard, Inc. (NASDAQ:ATVI) should be able to significantly increase its free cash flow and transition more into a recurring services provider than a publisher. Mobile and free-to-play versions of Call of Duty were released in 2020 which resulted in the franchise’s operating income more than doubling.
1. Mandiant Inc. (NASDAQ:MNDT)
Topping our list of Kettle Hill’s biggest new stock purchases of Q3 is Mandiant Inc (NASDAQ:MNDT), which also became the fund’s largest 13F position overall. Kettle Hill purchased 1.55 million shares of Mandiant Inc (NASDAQ:MNDT) during Q3, building a position worth $27.58 million on September 30. Kettle Hill’s huge buy was in stark contrast to the overall hedge fund industry’s sentiment, as 38% of former shareholders sold off the stock in Q3, leaving MNDT with its lowest hedge fund ownership since 2014.
Many hedge funds may be concerned about Mandiant Inc (NASDAQ:MNDT)’s lack of a roadmap to return the company to profitability, or management’s transparency when it comes to revealing it if they have one. Mandiant expected to lose $0.12 to $0.13 per share in Q4. It’s also unclear how to company plans to address share dilution or capital allocation as it pursues new growth initiatives.
You can also take a peek at the 10 Best Advertising Stocks to Buy Now and 15 Best Bourbons in the World.
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Disclosure: None. Top 10 Stocks Kettle Hill Capital Management Is Buying is originally published at Insider Monkey.
