Updated on April 13th, 2021 by Nikos Sismanis
Founded by Ricky Sandler in 1999, Eminence Capital manages around $10.8 billion worth of assets, comprised of around $3.6 billion in core long/short equity and around $4.2 billion in a purely 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-February 2018 through mid-February 2021) would have generated annualized total returns of 21.8%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 12.5% 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
- Introduction & 13F Spreadsheet Download
- Eminence Capital Investment Strategy
- Eminence Capital’s Portfolio & Some Of Its Top Holdings
- Final thoughts
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. The bottom-up method assumes that individual stocks can do well even if the overall market struggles. Hence, funds like Eminence can hopefully achieve profitable quarters even under turbulent times.
Eminence seeks to identify “quality value” investment opportunities through tight fundamental research that its team expects to conduct. 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 has proven.
The fund’s portfolio consists of 64 individual equities and is well-diversified over 9 different sectors. Its highest exposure is the technology sector, which occupies around 22.5% of its holdings as Eminence rides tech’s accelerated wave as a result of the pandemic. The 19.4% capital allocation in Consumer Discretionary is also quite high, as the fund bets on consumers ‘purchasing power to quickly recover post-COVID-19.
Source: 13F, Author
During the quarter, Eminence initiated or sold its position in the following stocks:
- Expedia Group Inc (EXPE)
- AutoNation, Inc. (AN)
- Alphabet Inc. Class C (GOOG)
- Analog Devices Inc (ADI)
- GoDaddy Inc (GDDY)
- Mastercard Inc (MA)
- Fidelity National Information Services Inc (FIS)
- Guardant Health Inc (GH)
- McKesson Corp. (MCK)
- Charles River Laboratories International Inc (CRL)
- AutoZone Inc. (AZO)
- D.R. Horton, Inc. (DHI)
- Keurig Dr Pepper Inc (KDP)
- Restaurant Brands International Inc (QSR)
- VICI Properties Inc (VICI)
- CLARIVATE PLC (CCC)
- Adaptive Biotechnologies Corp (ADPT)
- Bank of America Corp. (BAC)
- Boston Scientific Inc. (BSX)
- Raymond James Financial Inc. (RJF)
- Ventas, Inc. (VTR)
- HD Supply Holdings Inc (HDS)
- Shake Shack Inc (SHAK)
- Vapotherm Inc (VAPO)
- JPMorgan Chase & Co. (JPM)
Finally, the unusually large 11.53% concentration 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 4.2% of its total portfolio, further highlighting management’s careful capital allocation strategy.
The fund’s 10 most significant holdings are the following, all of which are discussed below:
Source: 13F filings, author
Berry Global (BERY)
The fund’s largest holding, occupying 4.2% of Eminence’s portfolio, is Berry Global. The company engages in packaging solutions such as injection molded and thermo-formed pails, jars, tubs, and more. The company has been capitalizing on the increased demand for packing products amid the e-commerce 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 $642 million.
Despite Eminence trimming its position by 3% during the quarter, likely to book some profits off its prolonged rally, the fund still owns more than 4.5% of the company’s outstanding shares. Despite the sale, investors may find Berry’s low valuation of around 11 times forward earnings quite cheap, considering its modest growth and margin expansion. Being amongst the fund’s top holdings means that Berry remains a high conviction pick for Eminence, likely having the potential to deliver market-beating returns going forward.
Corteva, Inc. (CTVA)
Corteva operates in the agriculture industry, developing and supplying superior germplasm and traits that allow for optimal yield for farms. The company also offers products that protect against weeds, insects, and other pests. The company was the agricultural unit of DowDuPont (which has also been split) prior to being spun off as an independent public company. Corteva’s revenues have been stagnant over the past few years, generating around $14 billion per year. In the agriculture industry, these are huge numbers. However, the company struggled with profitability over the past few years, as its margins were very compressed pursuing its development plans.
The stock valuation may seem a bit rich at a forward P/E of 24.4. However, if Corteva reached its past peak (2018) profitability of $2.92 billion, that multiple would drop to around 12, which is what the market likely attempts to price in. This is not an impossible figure, as the company’s gross profit margins of 34.1% can easily support it.
Eminence owns around 1% of Corteva’s total shares outstanding. The fund increased its stake by 12% during the quarter.
Nuance Communications (NUAN)
Nuance Communications is Eminence’s third-largest holding. The company specializes in conversational and cognitive artificial intelligence (AI) innovations that bring intelligence to everyday work and life. The fund initiated its position in Q1-2020 and has bought shares at an average price of around $23. Today, shares have doubled, despite Nuance struggling to produce decent financials.
Revenues have been constantly declining since 2015, and the rally in share is mostly due to the market betting towards the long-term AI bets of the company. The company trimmed its position by 18%, most likely to book some profits out of Nuance’s massive rally. But it still owns just over 2.5% of the company’s total shares, which indicates strong confidence in its long-term outlook. As you can see, the stock has undergone a massive valuation expansion over the past couple of years.
New Relic (NEWR)
New Relic is Eminence’s fourth-largest tech holding. Entering 2021, the fund had increased its position by 2% from its previous filing, expanding its total equity stake to around 8.7% of New Relic’s total shares. This is quite a contrarian play since shares lost nearly half their value over the past year, currently trading at just $64/share. Considering that the company had invested in NEWR last year and is sitting on quite significant paper losses, the double down is certainly a bold move, while 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, resulting in losses widening as revenues grow. The company lacks a clear path towards profitability.
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, New Relic’s shares are currently valued at around 5.7 times its forward 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.
Ashland Global Holdings (ASH)
Ashland Global provides specialty chemical solutions worldwide. It is Eminence’s fifth-largest position at around 3.9% of its holdings. Eminence owns around 6.65% of the company’s outstanding shares. While the company has been struggling to generate stable revenues due to unfavorable commodity prices, it has been constantly improving its balance sheet over the past decade. Its long-term debt has fallen from around $3.65 billion in 2011 to $1.60 billion as of its latest quarter.
Despite its recent losses in FY2020 due to the pandemic, at its current market of $5.47 billion the valuation is a P/E ratio of 10.8. 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 to be a fitting pick.
Macquarie Infrastructure Corporation (MIC)
Macquarie Infrastructure Corporation invests in infrastructure and infrastructure-like businesses. The company’s revenues were hurt massively from the ongoing pandemic, nosediving to the same levels that were a decade ago. With not enough revenues to sustain costs, the company’s bottom line was also in the red last year. With much of its infrastructure assets in the aviation industry, the company’s recovery may take a bit longer as the pandemic still persists globally.
Eminence increased its position by 1% during the quarter.
Real Page (RP)
Eminence’s seventh-largest holding as of its latest filing was Real Page. The company was taken private. Eminence likely held the stock to play the waiting game towards the acquisition.
Morgan Stanley (MS)
The banking giant Morgan Stanley has been outperforming its peers by a significant margin. The company has been growing its revenues and net income with no disturbances caused by the ongoing pandemic. Management has been taking advantage of the stock’s low valuation, to opportunistically repurchase stock and deliver shareholder value. Yet, shares continue trading quite cheaply, at just 13.5 times the company’s forward net income.
Eminence trimmed its position in Morgan Stanley by around 2% during the quarter.
DuPont de Nemours, Inc. (DD)
DuPont de Nemours, Inc. provides technology-based materials, ingredients, and solutions for every industry imaginable that utilizes specialty chemicals. The company comes from the original DowDupont, which was split into 3 separate companies specializing in agriculture (Corteva), materials science (Dow Inc.), and specialty products (DuPont). The massive revenue decline recorded this past year was attributed to the business splitting. The stock currently trades at a rather rich multiple, though this is for the same reason as Corteva.
Eminence’s equity stake was decreased by 35% during the quarter.
Change Healthcare Inc. (CHNG)
Change Healthcare Inc. is a healthcare technology platform that provides data and analytics-driven solutions to improve and predict clinical, financial, administrative, and patient engagement outcomes. The company IPO’d nearly 2 years ago and started generating revenues as recently as this year. The company’s lack of history in the public markets and lack of past performance in its financials, make it a rather speculative pick.
The stock is currently trading at around 2 times its forward sales, which seems like a low valuation considering the 50%+ gross margins.
Eminence slashed its equity stake by a massive 42% during the quarter.
Eminence Capital is an interesting case of a fund, as retail investors can possibly find some attractive investment ideas in their portfolio of holdings. While its out-performance against the overall market may be slight, compounded returns can quickly accumulate.
The fund’s portfolio is well-diversified, with exposure to 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.