What Makes Seneca Foods Corp. (SENEA) an Attractive Opportunity?
Greystone Capital Management, an investment management company, released its third-quarter 2023 investor letter. A copy of the same can be downloaded here. In the third quarter, the return for separate accounts managed by the firm was -11.4%, net of fees compared to S&P 500’s and Russell 2000’s returns of -3.2% and -5.1%, respectively. Client portfolios are invested in small companies outside of major indices, resulting in returns that differ from those indices. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Greystone Capital Management highlighted stocks like Seneca Foods Corporation (NASDAQ:SENEA) in the third quarter 2023 investor letter. Headquartered in Fairport, New York, Seneca Foods Corporation (NASDAQ:SENEA) offers packaged fruits and vegetables. On October 31, 2023, Seneca Foods Corporation (NASDAQ:SENEA) stock closed at $54.65 per share. One-month return of Seneca Foods Corporation (NASDAQ:SENEA) was -0.91%, and its shares lost 11.95% of their value over the last 52 weeks. Seneca Foods Corporation (NASDAQ:SENEA) has a market capitalization of $415.009 million.
Greystone Capital Management made the following comment about Seneca Foods Corporation (NASDAQ:SENEA) in its Q3 2023 investor letter:
"Moving on to our new position in Seneca Foods Corporation (NASDAQ:SENEA), I may have just one-upped even our most boring investments by way of owning this microcap canned vegetable producer, the largest in the US. As a company trading below the value of its net current assets, along with real estate held on the balance sheet that could exceed the entire market cap of the business, Seneca Foods is a throwback to the Graham and Dodd style of buying companies below their net current asset value. However, unlike most Graham and Dodd ‘cigar butt’ investments, Seneca Foods has an actual operating business. One that is not in decline. In fact, the industry in which Seneca Foods operates has changed in such a way that stable market share and the resulting higher earnings should be the norm moving forward.
Furthermore, there are clear cut reasons why the stock is mispriced. First, Seneca was booted from the S&P 600 index earlier this year, which resulted in forced selling, driving the share price down around 30% despite no significant changes to the business. Second, Seneca doesn’t screen particularly well. The company has both a large debt load (due to inventory purchase requirements) and understated earnings given their inventory accounting methodology. If investors don’t make the necessary earnings adjustments, GAAP earnings look non-existent. Third, management runs their business like a private company, with no IR strategy, no earnings calls, and no investor outreach (it took jumping through a few hoops to get management on the phone).
The canned vegetable business is tough and has historically been a battle for market share among a few large competitors, resulting in price wars driven by tough periods of seasonality and ever-changing cost structures. Following the exit of Del Monte Foods from the private label canned vegetable business, Seneca and smaller private competitor Lakeside Foods now control around 85% of the market, which will aid in the investment case moving forward, given Seneca’s substantial capacity versus their peers. Rather than pricing wars this time around, Seneca has been (and will be) able to pass along price increases to their customers, which will prove vital given the COVID-related increases in nearly all of their input costs. The importance of these factors can’t be overstated, as reduced industry supply and a more rational competitive environment means that these changes are more durable than Seneca is being given credit for."
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Seneca Foods Corporation (NASDAQ:SENEA) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 10 hedge fund portfolios held Seneca Foods Corporation (NASDAQ:SENEA) at the end of second quarter which was 8 in the previous quarter.
We discussed Seneca Foods Corporation (NASDAQ:SENEA) in another article and shared Alluvial Capital Management’s views on the company. In addition, please check out our hedge fund investor letters Q3 2023 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.
