Fiduciary Management Inc. (FMI), an independent money management firm, released its third quarter 2023 investor letter. A copy of the same can be downloaded here. After a strong start to the year, the market gave up some of its gains in September. The FMI Large Cap Strategy declined 2.3% (gross) / 2.4% (net) in the quarter compared to a 3.27% drop in the S&P 500 Index and a 3.19% decline in the iShares Russell 1000 Value ETF. The FMI Small Cap Strategy lost 1.7% (gross) / 1.9% (net) compared to a 5.13% drop in the Russell 2000 Index and a 2.96% decline in the Russell 2000 Value Index in the same period. The FMI All Cap Equity lost 2.0% (gross) / 2.1% (net) compared to a 3.31% decline for the iShares Russell 3000 ETF and the FMI International Strategies fell 0.2% (gross) / 0.4% (net) on a currency-hedged basis and 3.3% (gross) / 3.4% (net) on a currency unhedged basis in the third quarter of 2023. In addition, please check the fund’s top five holdings to know its best picks in 2023.
FMI highlighted stocks like Valvoline Inc. (NYSE:VVV) in its Q3 2023 investor letter. Headquartered in Lexington, Kentucky, Valvoline Inc. (NYSE:VVV) is an automotive services provider. On October 23, 2023, Valvoline Inc. (NYSE:VVV) stock closed at $30.37 per share. One-month return of Valvoline Inc. (NYSE:VVV) was -5.42%, and its shares gained 3.90% of their value over the last 52 weeks. Valvoline Inc. (NYSE:VVV) has a market capitalization of $4.211 billion.
FMI made the following comment about Valvoline Inc. (NYSE:VVV) in its Q3 2023 investor letter:
“After a long history of underinvestment under Ashland and a messy seven years as a standalone public company, Valvoline Inc. (NYSE:VVV) is finally a pure-play quick lube retailer, having sold their motor oil business earlier this year. We like the business model for its stability, growth potential, pricing power, and high returns on capital. The business offers customers a better oil change experience relative to the alternatives. Going forward, the story will be simpler to understand, the analyst coverage will be uniform, and it should get reclassified as retail. In the current environment, Valvoline has the added benefit of having a tight store-level culture that helps minimize labor turnover, and has effectively no shrink, which is currently a major thorn in the side of retailers. Given Valvoline’s choppy history (thanks to the divested motor oil business), we believe investors are in a wait and see mode as the company proves out its standalone financial results and accelerates its organic store expansion. Increased penetration in a fragmented market, expanded usage of synthetic oils, and a consistent experience as consumers continue to shift to do-it-for-me, should drive strong earnings per share growth at high incremental returns. Although we believe we can get an attractive return from just the growth, there is the chance for a higher valuation as Valvoline puts up its first year of (nearly) clean financials in Fiscal Year 2024. We also believe the short- to medium-term threat of electric vehicles is manageable. If our growth expectations are achieved, the downside is modest even if the multiple compresses meaningfully over our five-year investment horizon. We expect investors will increasingly appreciate Valvoline’s simple, high return model after a long period of being obfuscated by inferior businesses.”
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Valvoline Inc. (NYSE:VVV) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held Valvoline Inc. (NYSE:VVV) at the end of second quarter which was 31 in the previous quarter.
We discussed Valvoline Inc. (NYSE:VVV) in another article and shared Larry Robbins’ net worth, performance and portfolio. In addition, please check out our hedge fund investor letters Q3 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.