This Hedge Fund is Up 88% This Year, Here is What It’s Buying
In this article, we present the stock picks of a top performing hedge fund that is up 88% this year. If you want to skip our detailed analysis of CAS Investment Partners’ history, investment philosophy, and hedge fund performance, go directly to 5 Top Stocks CAS Investment Partners is Buying.
Founded by Clifford Sosin, CAS Investment Partners has found its footing in the market after a roller-coaster 2022. Sosin launched the hedge fund in 2012 after working five years as a director in the Fundamental Investment Group of UBS.
Sosin's investment strategy focuses on highly undervalued companies backed by solid underlying fundamentals. While conducting an in-depth analysis, the hedge fund manager tries to determine why a business will grow and tries to develop a hypothesis. The hedge fund manager prefers to hold stocks for a very long time to generate value.
CAS Investment Partners is up by about 88% year to date, outperforming the broader market by a large margin. The hedge fund has benefited from the overall market turning bullish, with the S&P 500 up by about 15% and the NASDAQ up by about 37%. Nevertheless, it has also benefited from solid stock picks and activist campaigns that have generated significant returns.
The outperformance helped recoup most of the losses accrued in 2022 at the height of a bearish run that saw many stocks under pressure. The hedge fund, which focuses on long-term value investing and seeks to identify and exploit market inefficiencies, saw most of its investments turn sour at the height of the bearish run.
Its investments in online used car retailer Carvana backfired, with the stock plunging by more than 70% as the once-pandemic darling fell out of favor. The company was facing cash burn issues and struggled to raise $3.3 billion in the corporate debt market.
The underperformance in 2022 starkly contrasted its previous preface, as the hedge fund had not had a down year since launching in 2012. It delivered 65.79% gain in 2013, 6.31% in 2014, 14.47% in 2015, 22.03% in 2016, 31.24% in 2017, and 64.47% in 2018 until October 29. In 2020, as the COVID-19 pandemic sent shockwaves, the hedge fund returned a record 96.5%.
Fast forward, the hedge fund has bounced back to winning ways, going by the 88% plus gain year to date. The gain has come on most hedge fund holdings rallying on the overall market turning bullish. The outperformance also stems from the fact that the hedge fund has most of its holdings in the consumer discretionary sector.
Clifford Sosin of CAS Investment Partners
The consumer discretionary sector has benefited from improved consumer spending as inflation levels edge lower. Healthcare is another sector in CAS Investment Partners that boasts significant holdings, followed by Information technology.
The hedge fund's biggest holding is Hilton Grand Vacations, owning 6.7 million shares and accounting for 46.83% of the portfolio. Carvana is the second largest holding, accounting for 26%, and World Acceptance Corp comes in third, accounting for 15.19%
CAS Investment Partners also engages in stock activism on acquiring significant stakes in companies. Its activism entails pushing for management changes, board seats, asset sales, or the sale of the entire business in the race to unlock shareholder value. In the most recent past, the company has entered into a cooperation agreement with advertising firm Cardlytics, therefore averting a proxy fight.
Our Methodology
CAS Investment Partners continues to outperform the overall market in line with its stellar performance over the years. The hedge fund having one down year since inception underscores the impressive stock picking skills by Sosin and other managers. We have compiled a list of some of the biggest hits that have affirmed the hedge fund status. The stocks are ranked chronologically based on the net gains over the years of investment. We also looked at the hedge fund sentiment on these stocks in the second quarter of 2023, using Insider Monkey’s database of over 900 elite hedge funds.
This Hedge Fund is Up 88% This Year, Here is What It's Buying
10. Cardlytics, Inc. (NASDAQ:CDLX)
Net Gains: -35%
Cardlytics, Inc. (NASDAQ:CDLX) is a company that operates an advertising platform that enables marketers to reach customers through their networks of financial institution partners. Sosin first took interest in the advertising company in the second quarter of 2019 by acquiring about 2 million shares at an average price of $20 a share. The investor increased stakes and ended up owning about 16.30% of outstanding shares as of the first quarter of 2023.
By the end of the second quarter of this year, Cardlytics, Inc. (NASDAQ:CDLX) had a $34.23 million investment from Mr. Sosin's hedge fund, making it one of its largest shareholders. This came through 5.42 million shares and represented 5.21% of its investment portfolio. Insider Monkey’s Q2 2023 survey of 910 hedge funds revealed that 17 had invested in the company.
CAS Investment Partners will launch a proxy battle against management in early 2023 as it seeks to get more representation on the board and become one of the major shareholders. The two would strike a cooperation agreement in September, ending the fierce battle.
With the agreement, the company agreed to appoint Alex Mishra, chief executive officer and chief investment officer of KPS Global Asset Management, as an independent member of its board of directors. The stock is down by about 35% from when the hedge fund bought stakes.
Cardlytics, Inc. (NASDAQ:CDLX) is rated as ‘Moderate Buy’ by 1 buy, 2 hold and 0 sell ratings from analysts. Its average price target is $14, ranging from $9 to $19. This is -2.78% lower than its current price of $14.4.
9. Herbalife Ltd. (NYSE:HLF)
Net Gains: -27%
Herbalife Ltd. (NYSE:HLF) is a global leader in meal-replacement protein shakes and dietary supplements. It also deals in skin care products. Sosin first invested in the company in the fourth quarter of 2017 when it was embroiled in a fierce battle, pitying activist investor Bill Ackman on one side and Carl Icahn on the other.
While Sosin did initially think Ackman was right in calling out Herbalife Ltd. (NYSE:HLF) for allegedly running a pyramid scheme, he did reconsider the stance on concluding his analysis had many faults. He went on to invest in the company, insisting the company had built a belief system around its products analogous to a religious movement.
Consequently, Sosin bought about 1.13 million shares valued at $38.27 million at the time. The investment accounted for 21% of CAS Investment Partners portfolio. By 2019, the stock had rallied by more than 80%, generating significant returns. However, when the hedge fund exited its position in the second quarter of 2022, the stock was down by about 27%
As Q2 2023 ended, 28 out of the 910 hedge funds polled by Insider Monkey had invested in the company. Out of these, William Duhamel’s Route One Investment Company is Herbalife Ltd. (NYSE:HLF)’s largest investor. It owns 10.85 million shares that are worth $143.60 million. Herbalife Ltd. (NYSE:HLF) received a ‘Neutral’ rating and a price target of $13.50 from DA Davidson, who initiated coverage of the company on September 14.
8. Hilton Grand Vacations Inc. (NYSE:HGV)
Net Gains: 3%
Hilton Grand Vacations Inc. (NYSE:HGV) is a timeshare company that develops, markets, sells, and operates resorts under the Hilton Grand Vacations Brand. It operates through Real Estate Sales, Financing, and Resort Operations, and Club Management segments.
Sosin first disclosed stakes in Hilton Grand Vacations Inc. (NYSE:HGV) in the third quarter of 2021 on acquiring 6 million shares at an average price of $42 a share.
Nevertheless, Hilton Grand Vacations accounts for the largest share of the hedge fund portfolio at 46.83%. CAS Investment Partners’ June quarter of 2023 investment portfolio held 6.77 million Hilton Grand Vacations Inc. (NYSE:HGV) shares which were worth $307.58 million and constituted 46.83% of the portfolio. The stock has gained about 3% from the initial purchase price.
On September 7, Deutsche Bank analyst Chris Woronka initiated coverage of Hilton Grand Vacations Inc. (NYSE:HGV) with a ‘Buy’ rating and a $59 price target. He said timeshare stocks were undervalued and HGV could benefit from Diamond synergy and Hilton Honors members.
Insider Monkey analyzed the second-quarter 2023 holdings of 910 hedge funds and found that 29 of them had stakes in Hilton Grand Vacations Inc. (NYSE:HGV).
7. Cimpress plc (NASDAQ:CMPR)
Net Gains: 5%
Operating in the communication services sector, Cimpress plc (NASDAQ:CMPR) is a company that provides mass customization of printing and related products. It operates through five segments Vista, Print Brothers, The Print Group, National Pen, and All Other Businesses, offering printed and digital marketing products. It also offers internet-based canvas print, wall décor, and other printed products.
CAS Investment Partners acquired a stake in Cimpress plc (NASDAQ:CMPR) in the fourth quarter of 2017 worth about $32 million. The stakes accounted for about 17.69% of the hedge fund portfolio. As the fourth quarter of 2018 ended, CAS Investment Partners had owned 183,085 Cimpress plc (NASDAQ:CMPR) shares which allowed it to own a $18.94 million stake in the company that represented 7.18% of its investment portfolio. It exited its position in the company in the first quarter of 2019 after the stock had gained 5%.
During the second quarter of 2023, 14 out of the 910 hedge funds polled by Insider Monkey had held a stake in the company. Out of these, Zachary Sternberg And Benjamin Stein’s Spruce House Investment Management is Cimpress plc (NASDAQ:CMPR)’s largest investor. It owns 2.36 million shares that are worth $140.31 million.
On September 15, Truist analyst Youssef Squali increased the price target on Cimpress plc (NASDAQ:CMPR) from $87 to $90 while maintaining a ‘Buy’ rating on the stock.
6. Capital One Financial Corporation (NYSE:COF)
Net Gains: 7.7%
Capital One Financial Corporation (NYSE:COF) is a financial services holding company that provides various financial products and services. It operates under three segments: Credit card, Consumer banking, and Commercial Banking. It accepts checking accounts, money markets, savings, and time deposits.
Sosin and his hedge fund CAS Investment Partners first bought stakes in the company in the fourth quarter of 2022. The hedge fund continues to hold stakes in the company, which has gained about 7.7%. The stock has received a significant boost in the aftermath of Berkshire Hathaway confirming it had also started accumulating potion in the stock in the first quarter of 2023. Reports indicate that Berkshire Hathaway placed a $954 million bet on the credit card and banking company in the first quarter.
CAS Investment Partners owned 349,560 Capital One Financial Corporation (NYSE:COF) shares as part of its Q2 2023 investment portfolio. These let it own a $38.23 million stake in the company. During the same time period, 51 out of the 910 hedge funds polled by Insider Monkey had also invested in Capital One Financial Corporation (NYSE:COF).
Capital One Financial Corporation (NYSE:COF)’s largest investor in our database is Natixis Global Asset Management’s Harris Associates which owns 19.09 million shares that are worth $2.09 billion. Analysts give Capital One Financial Corporation (NYSE:COF) a ‘Hold’ rating with 5 buy, 6 hold and 3 sell ratings. Its average price target is $116, with a high of $145 and a low of $87. This is 18.51% higher than its current price of $97.88.
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Disclosure: None. This Hedge Fund is Up 88% This Year, Here is What It's Buying is originally published on Insider Monkey