Every week I go through institutional and insider filings, treating the SEC filings as my personal unpaid research service. This research helps me know which stocks the best money managers, private equity funds, and hedge fund managers are buying.
This past week I noticed a very successful under-the-radar institutional investor was making considerable additions to its positions in a couple of stocks with the potential for massive long-term gains.
Let’s take a look…
Of course, I do not blindly follow anybody. Any stock I buy or recommend must go through my own filters first—but starting with a list of stocks vetted by Wall Street’s best and brightest can help us earn higher returns.
Institutions also pay attention to what the best managers are doing, and their buying pressure can be a considerable tailwind that pushes a stock price higher.
Now, I suspect that very few people have ever heard of Turtle Creek Asset Management—it is on no one’s radar screen. Its managers have done no interviews with the mainstream press.
For one thing, Turtle Creek is not in Manhattan or Palo Alto. In fact, although it invests in U.S companies, Turtle Creek Asset Management operates out of Toronto, Canada.
According to its website, the firm identifies high-quality companies with management that is always looking for ways to improve, then looks to buy them during a “fire sale,” when these great businesses can be purchased at a great price.
All year, Turtle Creek has been buying shares of JELD-WEN Holding Inc. (JELD), one of the largest providers of doors and windows in North America, Europe, and Australasia. When ranked by net revenues, JELD-WEN holds the top position in most countries where it does business.
Over the past five years, the company has averaged a return on equity north of 20%.
It has also been a voracious buyer of its own stock. Since the end of 2020, JELD-WEN has repurchased about 12% of the outstanding shares. Earlier this year, it authorized another $200 million stock buyback, amounting to about 26% of the current market cap.
Turtle Creek has been buying this gem since earlier this year at prices as high as $24. Today, the stock is priced below $10, and Turtle Creek is still buying. In fact, it made three purchases last week that totaled more than 240,000 shares of JELD-WEN.
The stock is trading for less than seven times its earnings. In addition, the company has a price-to-sales ratio of just 0.16, one of the lowest of any company listed on the market. To causal investors who rely on the financial news for their opinions, this must all make perfect sense. Interest rates are going higher, and home sales are slowing. Housing affordability remains a problem in many markets.
However, keep in mind that we have a shortfall of as many as four million homes, according to the National Association of Realtors. And, that same association estimates that student loan forgiveness could bring as many as 1.2 million new home buyers into the marketplace.
Sure, the upper end of the housing market will probably come to a screeching halt. People looking to move just to move will probably hold off until rates come back down, whenever that might be. But imagine you are a young couple having your first child. After a few years of enjoying everything about downtown living, you are now undergoing a massive priority switch—all of a sudden, things like daycare, schools, and shopping are much more important than what kind of beans the closest coffee shops uses and the ability to get pad thai at 3 a.m.
Work-from-anywhere policies also allow younger people to take that $3000 or more they have been spending on rent and buy a house in a smaller city or town well outside major urban areas.
So, there is still going to be demand for first-time homes. And given that more than half of all homes in the United States are owned by people 55 or over—most of whom who will not be inclined to move anytime soon—those homes will need to be built. New construction requires windows, doors, and all the ancillary products JELD-WEN sells. As a market leader, it will get its shares of the new construction spending.
There will also be increased demand for multifamily housing outside the more expensive gateway cities like New York, San Francisco, and Seattle. And apartments and condos have windows and doors, too.
To meet demand, JELD-WEN is also using robotics and AI to make its factories more efficient to protect margins.
This a very good business that dominates its markets. It recognizes how cheap its stock is, and is buying back a lot of shares in the open market.
Analysts expect the company to grow earnings by almost 30% annually for the next five years. If JELD-WEN comes anywhere close to that, this stock is a ten-bagger.
It is a race between JELD-WEN and Turtle Creek board to see who can buy the most shares.
Given the business’s quality and the stock’s bargain price, I think we should probably get in this race as well.
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