Eminence Capital 13F Stock Holdings & Strategy

Published on November 13th, 2020 by Nikos Sismanis

Founded by Ricky Sandler in 1999, Eminence Capital manages around $7 billion worth of assets (AUMs), comprised of around $5 billion in core long/short equity and around $2 billion in pure long equity strategy. Mr. Sandler serves as the Chief Investment Officer, leading a team of over 20 investment professionals who are responsible for identifying and researching ideas across a broad range of industries and geographies. Eminence Capital, LP is headquartered in New York City.

Investors following the company’s 13F filings over the past 3 years (from mid-August 2017 through mid-August 2020) would have generated annualized total returns of 12.06%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 10.45% over the same time period.

Note:  13F filing performance is different than fund performance.  See how we calculate 13F filing performance here.

You can download an Excel spreadsheet with metrics that matter of Eminence Capital’s current 13F equity holdings below:

 

Keep reading this article to learn more about Eminence Capital.

Table Of Contents


Eminence Capital Investment strategy

Eminence Capital’s principal investing activity is in publicly-traded global equity securities embodying a bottom-up investment approach. Simply put, bottom-up investing concentrates on individual securities rather than on the performance of the overall market or the prospects of particular industries prospects. The bottom-up method assumes that individual stocks can do well even if the overall market struggles. Hence, funds like Eminence can keep hopefully achieve profitable quarters even under turbulent times.

Eminence’s seeks to identify “quality value” investment opportunities through tight fundamental research that its team expects conduct. While the fund’s emphasis on fundamentals remains true to its core focus of stock picking, Eminence has upgraded its capabilities by developing a quantitative research team and a data science team to improve the main team’s ability to include more rigorous data analysis into its investment process. The company believes accommodating to changing investment environments is critical to its long-term success, which its outperformance over the past few, rather usual years, has proven.


Eminence Capital’s Portfolio & some of its top holdings

The fund’s portfolio consists of 68 individual equities and is well-diversified over 9 different sectors. Its highest exposure is the consumer discretionary sector, which occupies around 17.5% of its holdings and likely indicates that Eminence expects a quick recovery in consumer spending post-COVID-19. The 17.2% capital allocation in tech is also quite high, as the fund bets on tech’s rapid evolution, which was further boosted by the pandemic.

Finally, the quite unusually large stake of around 15.2% in basic materials is most likely working as a hedging mechanism against a potential correction in the markets. Eminence is not overweight in any sector, while no holdings account for more than 6.1% of its total portfolio, further highlighting management’s careful capital allocation strategy.

Source: Company filings, Author

Berry Global (BERY)

The fund’s largest holding is Berry Global, which engages in packaging solutions such as injection molded and thermoformed pails, jars, tubs, and more. The company has been capitalizing on the increased demand for packing products amid e-commerce’s boom, continuously expanding its financials.

Berry has been reporting improving profitability over the past few years, with the last 4 quarters achieving record net income levels of $593 million. Despite Eminence trimming its position by 25% during the quarter, likely to book some profits off its prolonged rally, the fund still owns around 7% of its outstanding shares due to its $487 million stake out of its small market cap of around $7 billion.

Despite the sale, investors may find Berry’s low valuation of around 11 times its underlying earnings quite cheap, considering its modest growth and net income margin expansion.

Being the fund’s top holdings means that Berry remains a high conviction pick for Eminence, hence likely having the potential to deliver market-beating returns going forward.

Source: Company filings, Author

Ashland Global Holdings (ASH)

Ashland Global provides specialty chemical solutions worldwide. It is Eminence’s second-largest position at around 5.3% of its holdings, and is another case in which the fund owns a significant portion of the company’s shares – around 7%.

While the company has been struggling to generate stable revenues due to unfavorable commodity prices, it has been constantly improving its balance over the past decade. Its long-term debt has fallen from around $3.65 billion in 2011 to $1.55 billion as of its latest results, which has led to progressed profitability.

Despite its recent losses due to the pandemic, as its current market of $4.7 billion, its under-normal-conditions FY2019 net income of $505 would imply a P/E of 9.3, and hence a very attractive investment. While its future results are subject to the volatile commodity markets, investors looking for a high risk/high reward case in the sector are likely to find Ashland a fitting pick.

Source: Company filings, Author

New Relic (NEWR)

New Relic is Eminence’s largest tech holding. Entering Q3, the fund had increased its position by 25% from its previous filing, expanding its total equity stake at around 7.7% of New Relic’s total shares. This is quite a contrarian play since shares have lost around half their value over the past year, currently trading at just $55/share.

Considering that the company had invested in NEWR last year and hence sitting on quite significant paper losses, the double down is certainly a bold move, illustrating high hopes for the company’s future. The market’s main concern that caused shares to depreciate has likely been that while quarterly revenues are expanding, the case is the same for its net losses.

Revenues may be still be growing quarter-over-quarter, which is quite impressive, though their growth rate has slowed down. Additionally, the company has not improved its margins yet, resulting in losses widening as revenues grow, lacking a clear path towards profitability.

Source: Company filings, Author

On the one hand, the investors’ concerns are valid and could indeed play out to be correct in the medium term. On the other hand, however, New Relic’s shares are currently valued at around 5 times its run rate sales, while growth persists. If the company somehow manages to converge towards profitably, Eminence’s double down will end up being a massive success, having bought a quality company at a relatively low valuation.

Still, New Relic’s investment case remains rather speculative. We believe that Eminence, through its already significant holding, aims to achieve an active and influential role in the company if it accumulates more shares, maybe to steer the company towards profitability faster.

Alibaba (BABA)

On the international front of its portfolio, and occupying around 2.6% of its total holdings is China’s e-commerce giant, Alibaba. The company’s most recent results delivered another quarter of solid performance, recording $155 billion in revenues and $28 billion in net income, respectively. Chinese equities have accrued some bad reputation due to previously several accounting scandals, including Luckin Coffee’s delisting from the NASDAQ.

As a result, despite the stock’s rapidly expanding financials and massive moat, shares are currently trading at a modest P/E ratio of around 28, presenting an attractively priced growth opportunity relative to its American counterparts. Despite shares rallying higher over the past few months, Eminence increased its position by 33% vs. the previous quarter, further showcasing confidence in the company.

Source: Company filings, Author

Capri Holdings (CPRI)

Another interesting play made by Eminence is what seems to be a distressed-equity opportunity in Capri Holdings. The owner of Versace, Jimmy Choo, and other luxury brands was enjoying constant growth prior to the pandemic. However, with retail locations shut down worldwide, reduced footfall in retail commerce, and duty-free airport locations unable to contribute to revenues, the company had suffered severely during Q1 and Q2.

However, sales and profitability made a quick comeback, as the bar chart illustrates below. As a result, the stock has nearly quadrupled from March’s low, massively regarding those who take the risk of allocating capital in the midst of the pandemic. Eminence has invested in the company since Q1-2019, which means that despite the recently prolonged rally, the fund has most likely broken even.

In any case, Capri Holdings remains a compelling investment case, with a forward P/E of around 9, assuming its net profits completely recover by next year. With that being said, the release and success rate of a potential vaccine is a major catalyst for the company’s future financials, and hence shares are attached to substantial risks.

Source: Company filings, Author

Final Thoughts

Eminence Capital is an interesting case of a fund, as retail investors can possibly find some attractive investment ideas in its portfolio of holdings. While its over-performance against the overall market may be by just a few basis points, compounded returns can quickly accumulate, even if they seem quite tiny, from a marginal perspective.

The fund’s portfolio is well-diversified, with exposure in several sectors and numerous individual companies. Still, despite its prolonged success, investors are encouraged to conduct their own due diligence before allocating their hard-earned capital.