Top 5 Value Stocks to Invest In According to ValueAct Capital

4. LKQ Corporation (NASDAQ: LKQ)

Value: $759,343,000
Percent of Jeffrey Ubben’s 13F Portfolio: 8.8%
No. of Hedge Fund Holders: 50

The auto parts distributor LKQ Corporation (NASDAQ: LKQ) is the fourth largest stock holding of ValueAct’s stock portfolio, accounting for 8.81% of the overall portfolio. The firm has been holding a position in LKQ since the third quarter of 2019. The share price gain of 90% in the last twelve months makes it one of the top value stocks to invest in.

LKQ Corporation was in 50 hedge funds’ portfolios at the end of the fourth quarter of 2020.

In their Q4 2020 investor letter, Bonsai Partners highlighted a few stocks and LKQ Corp (NASDAQ:LKQ) is one of them. Here is what Bonsai Partners said:

“LKQ is the largest provider of alternative collision and mechanical automotive parts in the United States. In Europe, they are the leading distributor of general automotive maintenance parts and supplies. Its shares appreciated 27.1% during the quarter.

LKQ reported reasonably healthy third-quarter results, with revenues nearly flat year-over-year. This is quite remarkable considering ~9 months ago when we first considered buying LKQ, I didn’t know if the company would potentially trip its debt covenants and run into liquidity issues due to steep revenue declines. These issues appear well behind us now.

Given the serious tail-risk concerns when we first acquired the position, we cheaply hedged with put options; the only time we’ve ever done so. These options recently expired worthless and it never felt so good to lose money.

The company seems back on track to execute its strategy of streamlining its operations, and management used COVID as a catalyst to rationalize the business and improve service levels. Fortunately, LKQ’s business is counter-cyclical, so it stands to benefit from economic stresses if they are yet to come.”