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Why Berry Global (BERY) Stock is a Compelling Investment Case

Alex Smith
·4 mins read

Rhizome Partners recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 18.3% for the second quarter (net of fees), underperforming its benchmark, the S&P 500 Index which returned 20.6% in the same quarter. You should check out Rhizome Partners' top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Rhizome Partners highlighted a few stocks and Berry Global Group Inc. (NYSE:BERY) is one of them. Berry Global Group Inc. (NYSE:BERY) is a producer and marketer of plastic packaging products. Year-to-date, Berry Global Group Inc. (NYSE:BERY) stock gained 10.3% and on August 21st it had a closing price of $52.59. Here is what Rhizome Partners said:

"Berry Global – During Q2, Berry Global’s share price increased 31% from $33.71 to $44.32. We increased our Berry Global positions by roughly 7.5% during the quarter. Due to our familiarity with the plastic packaging business, we also started a position in IPL Plastic which we will discuss later in the letter. With the proceeds from selling Berry Global puts, we created an 80/20 allocation between Berry Global and IPL Plastics.

As we predicted in the previous letter, Berry Global has performed exceptionally well during the pandemic. During Q1, the company reported 2% organic volume increases. Two thirds of the business is recession resistant and should experience volume growth during the Pandemic. One third of the business has more cyclical exposure to industrials and automobiles and should experience some volume decline. The company guided to 2% volume decrease companywide for calendar Q2 and Q3. This is an incredibly recession resistant business that generates free cash flow year in year out. We believe that the increased use of protective garments and face masks will drive demand for Berry’s health and hygiene products. Consumers stocking their pantries and household cleaning products will likely lead to volume growth. Berry also confirmed its guidance for $800mm of free cash flow for the 2020 fiscal year. Since becoming public, Berry has never missed annual free cash flow guidance. This is a testament to the “bond‐like” characteristics of the business. Integration of the RPC acquisition is going well. During calendar Q2, Berry redeemed $500mm or roughly 5% of the debt outstanding which will save the company over $25mm in annual interest expenses going forward. This is an incredible counter cyclical accomplishment during one of the worst economic crises in history. It appears the market is starting to appreciate these attributes of Berry."

Best Bottled Water in the World in 2018
Best Bottled Water in the World in 2018

Copyright: kurga / 123RF Stock Photo

This isn’t the first time Rhizome Partners talked about Berry Global Group Inc. (NYSE:BERY) favorably either. The investment firm has been a long time Berry Global Group Inc. (NYSE:BERY) bull. In April, we shared Rhizome Partners bullish Berry Global Group Inc. (NYSE:BERY) thesis in this article.

In Q1 2020, the number of bullish hedge fund positions on Berry Global Group Inc. (NYSE:BERY) stock decreased by about 28% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with Berry Global's growth potential. Our calculations showed that Berry Global Group Inc. (NYSE:BERY) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.