We recently compiled a list of the 10 Best Stocks to Buy According to Eminence Capital’s Ricky Sandler. In this article, we are going to take a look at where Graphic Packaging Holding Company (NYSE:GPK) stands against the other stocks.
Investing prowess runs in Ricky Sandler’s family. The manager of prominent hedge fund Eminence Capital had a 13F portfolio worth more than $7 billion at the end of the first quarter of 2024. His father was a research analyst at Goldman Sachs, one of the premier investment banks in the world, and later went on to manage a hedge fund. Sandler has had a somewhat similar career trajectory, beginning as a research associate for Mark Asset Management before making his name as a hedge fund manager at Fusion Capital Management. In 1999, Sandler founded Eminence Capital, growing the small fund into a multi-billion dollar investment firm over the course of two decades. The fund focuses on uncovering value in the market through fundamental research, an art that seems to be dying on Wall Street as fast money schemes become more popular.
The investing philosophy of Sandler has been influenced by his work at Mark Asset Management and Fusion Capital Management. At the former, Sandler learned the importance of focusing on a bottom-up research strategy aimed at picking great businesses. At the latter, Sandler learned that investing in good businesses was not enough. In order to create wealth, money managers had a duty to invest in great businesses at value prices, thereby creating room for future growth. Sandler calls this the “quality value” approach to investing. He made these comments in an appearance on the Equity Mates podcast last year. Sandler, in remarks made during the podcast, stressed that investors should not only buy at good prices but should also not stay invested in equities when they become too expensive. Young investors would do well to pick up on this simple yet effective tip.
At Eminence Capital, Sandler has developed a long-short equity strategy that has paid huge dividends for clients. Per the hedge fund manager, the Asian debt crisis in the late 1990s was one of the formative events in his life that led him to understand the value of an effective shorting strategy. During the crisis, the International Monetary Fund had to pump in more than $40 billion into large economies in East Asia to contain the spread of the meltdown to the world economy. The company Sandler was a part of at the time owned stakes in many mid-cap Asian firms that were hit particularly hard by the crisis, leading to huge losses for his fund. Sandler now makes sure that his stock pickers spend at least half of their time developing individual stock shorts, a strategy that aims to build up the defenses of his fund should the market take a turn for the worst.
Sandler believes that in the present economic environment, only investors that have valuation discipline and short selling skills will be able to keep pace with the changing dynamics of the stock market. However, he also underlines that long bets remain equally important. The New York-based manager outlines his long investing philosophy as owning mispriced stocks that have the potential to take a turn for the better in the coming two or three years. Sandler emphasizes the importance of investing in ownable companies — businesses that he describes are well-positioned competitively, sound structurally with trusted management teams, and able to generate solid cash flows. Sandler urges money managers to invest only in firms that they would be comfortable investing in for their family portfolio. A look at the top picks in his latest 13F portfolio illustrates this strategy in action.
Our Methodology
For this article, we scanned the stock portfolio of Eminence Capital according to the 13F filings submitted at the end of the first quarter of 2024. We selected the top 10 stocks from this portfolio. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Graphic Packaging Holding Company (NYSE:GPK)
Number of Hedge Fund Holders: 28
Eminence Capital’s Stake: $247,071,933
Graphic Packaging Holding Company (NYSE:GPK) designs, produces, and sells consumer packaging products to brands in food, beverage, foodservice, household, and other consumer products. In the past few months, the company has reported impressive growth in sales numbers along with a steady improvement in margins. In the six years spanning 2017 to 2023, the company managed to double sales to around $9.4 billion. As a packaging firm primarily focused on food, the management has slowly transitioned to a sustainable packaging model that is likely to pay dividends in the long term. As the earnings of the firm continue to grow, there is room for the valuation multiples of the firm to expand as well, positioning it nicely as a key Sandler bet in the coming months.
As Graphic Packaging Holding Company (NYSE:GPK) invests in operations, analysts expect cash flow generation to remain a cause of concern moving forward. However, this seems to be a short-term problem only as operating profits remain solid. Last year, the company grew operating profits from $906 million to $1.17 billion. The earning margins are growing as well. The adjusted EBITDA margins for the firm improved to 19.9% in 2023 from 16.9% in 2022, indicating enhanced profitability and operational efficiency.
In its Q2 2023 investor letter, L1 Capital, an asset management firm, highlighted a few stocks and Graphic Packaging Holding Company (NYSE:GPK) was one of them. Here is what the fund said:
“As a child, I am sure you tossed a coin and called out “Heads I win, tails you lose!” – seemed witty at the time. At today’s share price we believe Graphic Packaging Holding Company (NYSE:GPK) presents almost as good an investment opportunity – more like “Heads we win, tails we don’t lose!” We outlined the investment case for Graphic Packaging International in our June 2021 Quarterly Report and the substance of our views then remain current today. Right now the market is concerned about weakness in demand for paperboard packaging and medium-term increases in supply of paperboard. Both concerns are valid, but in our view are overly reflected in Graphic Packaging International’s share price.
Graphic Packaging International supplies the boxes used by food, beverages, household and personal care companies. Normally demand growth is modest but relatively stable, supported by a continuous environmentally driven shift away from plastic packaging, but it is not macro immune. Recently a number of consumer staples companies have reported weakening demand, as well as some destocking by retailers who are looking to better match demand with their inventory levels. These issues will impact Graphic Packaging International, but to a modest extent and only for a temporary period. Graphic Packaging International also benefits from supplying packaging for house brand products which are benefitting from trade-down by cost conscious consumers…” (Read more)
Overall GPK ranks 5th on our list of the best stocks to buy according to Eminence Capital’s Ricky Sandler. You can visit 10 Best Stocks to Buy According to Eminence Capital’s Ricky Sandler to see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of GPK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GPK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.