Miller Value Partners, an investment management company, released its “Deep Value Select Strategy” third-quarter 2024 investor letter. A copy of the letter can be downloaded here. In the third quarter, Strategy returned 4.6% (net of fees) behind the S&P 1500 Value Index’s 9.1% return and the S&P 600 Value Index’s +11.3% returns. The strategy returned 20.13% (net of fees) year to date, well ahead of +14.8% and +6.1% returns for the indexes. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Miller Deep Value Select Strategy highlighted stocks like Quad/Graphics, Inc. (NYSE:QUAD), in the third quarter 2024 investor letter. Quad/Graphics, Inc. (NYSE:QUAD) offers marketing solutions that operates through United States Print and Related Services, and International segments. The one-month return of Quad/Graphics, Inc. (NYSE:QUAD) was 22.15%, and its shares gained 57.58% of their value over the last 52 weeks. On November 26, 2024, Quad/Graphics, Inc. (NYSE:QUAD) stock closed at $7.17 per share with a market capitalization of $373.693 million.
Miller Deep Value Select Strategy stated the following regarding Quad/Graphics, Inc. (NYSE:QUAD) in its Q3 2024 investor letter:
“Our two largest detractors during the quarter were Nabors Industries (NBR) and Quad/Graphics, Inc. (NYSE:QUAD) that were down 8% and 16% during the quarter. Both companies’ share prices are at deep discounts to their long-term fundamental value in our estimation and we have recently increased our positions in both holdings. Nabors became the strategy’s largest holding during the third quarter.
Quad Graphics shares remained under pressure during the third quarter given ongoing revenue challenges from weaker print volumes possibly due to ongoing double-digit postage increases. While weaker print volumes will likely remain a near-term headwind, the marketplace seems to be overlooking the company’s ongoing transformation to a marketing experience company. Leveraging their longstanding relationships with most Fortune 500 customers, Quad has expanded their traditional print offerings to provide customers data intelligence, creative, production media and technology solutions. These marketing solutions services have attractive margins and should continue to grow as a portion of the revenue mix, helping the company to return to annual revenue growth overtime. Quad also owns more than 13M square feet of manufacturing sites and surrounding land which is a significant “hidden” asset. The company has undertaken ongoing manufacturing site rationalization, which maintains higher utilization rates and supports strong margins and cash flow generation. Quad has four properties that are in the process of being sold which should provide additional proceeds to further accelerate debt reduction. We believe the current share discounts minimal success for Quad’s multi-year transformation plan. In our estimation, the company has the potential to generate greater than $175M of free cash flow over the coming six quarters and, assuming non-core asset sale success, which suggests the shares are currently trading at less than three times 2025 EV/EBITDA. This represents a significant discount to the 2023 acquisition of peer RR Donnelley at 6.8 times EV/EBITDA and leading marketing/ad agencies currently trading between seven and nine times. Management is also increasing capital return to shareholders, repurchasing 11% of their shares since 2022 and initiating a 4% dividend yield. Success on their transformation should lead to accelerating growth of free cash flow, earnings, and valuation expansion overtime. We believe Quad’s upside potential is multiples of current price levels. The greatest near-term risk would be an unexpected deep recession which would create greater pressure on the company’s large print volumes. However, the company has in the past been able to offset short-term unexpected revenue pressures by quickly adjusting their variable cost base.”
A manufacturing plant floor producing high-quality ink products.
Quad/Graphics, Inc. (NYSE:QUAD) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 9 hedge fund portfolios held Quad/Graphics, Inc. (NYSE:QUAD) at the end of the third quarter which was 10 in the previous quarter. In the third quarter of 2024, Quad/Graphics, Inc. (NYSE:QUAD) reported net sales of $675 million, reflecting a 4% decline compared to the same period in 2023. This decrease was primarily driven by reduced sales in paper and agency solutions. While we acknowledge the potential of Quad/Graphics, Inc. (NYSE:QUAD) as an investment, our conviction lies in the belief that 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In addition, please check out our hedge fund investor letters Q3 2024 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.