LPL Financial Holdings Inc. (LPLA): Why Is Eminence Capital’s Ricky Sandler Bullish on This Stock Right Now?

We recently compiled a list of the 10 Best Stocks to Buy According to Eminence Capital's Ricky Sandler. In this article, we are going to take a look at where LPL Financial Holdings Inc. (NASDAQ:LPLA) stands against the other stocks.

Investing prowess runs in Ricky Sandler's family. The manager of prominent hedge fund Eminence Capital had a 13F portfolio worth more than $7 billion at the end of the first quarter of 2024. His father was a research analyst at Goldman Sachs, one of the premier investment banks in the world, and later went on to manage a hedge fund. Sandler has had a somewhat similar career trajectory, beginning as a research associate for Mark Asset Management before making his name as a hedge fund manager at Fusion Capital Management. In 1999, Sandler founded Eminence Capital, growing the small fund into a multi-billion dollar investment firm over the course of two decades. The fund focuses on uncovering value in the market through fundamental research, an art that seems to be dying on Wall Street as fast money schemes become more popular.

The investing philosophy of Sandler has been influenced by his work at Mark Asset Management and Fusion Capital Management. At the former, Sandler learned the importance of focusing on a bottom-up research strategy aimed at picking great businesses. At the latter, Sandler learned that investing in good businesses was not enough. In order to create wealth, money managers had a duty to invest in great businesses at value prices, thereby creating room for future growth. Sandler calls this the “quality value” approach to investing. He made these comments in an appearance on the Equity Mates podcast last year. Sandler, in remarks made during the podcast, stressed that investors should not only buy at good prices but should also not stay invested in equities when they become too expensive. Young investors would do well to pick up on this simple yet effective tip.

At Eminence Capital, Sandler has developed a long-short equity strategy that has paid huge dividends for clients. Per the hedge fund manager, the Asian debt crisis in the late 1990s was one of the formative events in his life that led him to understand the value of an effective shorting strategy. During the crisis, the International Monetary Fund had to pump in more than $40 billion into large economies in East Asia to contain the spread of the meltdown to the world economy. The company Sandler was a part of at the time owned stakes in many mid-cap Asian firms that were hit particularly hard by the crisis, leading to huge losses for his fund. Sandler now makes sure that his stock pickers spend at least half of their time developing individual stock shorts, a strategy that aims to build up the defenses of his fund should the market take a turn for the worst.

Sandler believes that in the present economic environment, only investors that have valuation discipline and short selling skills will be able to keep pace with the changing dynamics of the stock market. However, he also underlines that long bets remain equally important. The New York-based manager outlines his long investing philosophy as owning mispriced stocks that have the potential to take a turn for the better in the coming two or three years. Sandler emphasizes the importance of investing in ownable companies — businesses that he describes are well-positioned competitively, sound structurally with trusted management teams, and able to generate solid cash flows. Sandler urges money managers to invest only in firms that they would be comfortable investing in for their family portfolio. A look at the top picks in his latest 13F portfolio illustrates this strategy in action.

Our Methodology

For this article, we scanned the stock portfolio of Eminence Capital according to the 13F filings submitted at the end of the first quarter of 2024. We selected the top 10 stocks from this portfolio. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

An experienced financial advisor discussing investment options with a client.

LPL Financial Holdings Inc. (NASDAQ:LPLA)

Number of Hedge Fund Holders: 47 

Eminence Capital’s Stake: $194,415,797

LPL Financial Holdings Inc. (NASDAQ:LPLA) provides an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at enterprises. The stock holds immense value for investors, indicated by revenue and earnings growth over the past few months, recent strategic acquisitions and partnerships, an impressive dividend profile, and the advisory and brokerage assets it holds. For example, the firm has recently entered into agreements to acquire Atria Wealth Solutions and is preparing to onboard the wealth management businesses of Prudential Financial and Wintrust Financial. These acquisitions are expected to enhance the market position of the company and provide substantial growth opportunities.

LPL Financial Holdings Inc. (NASDAQ:LPLA) has grown assets under management in the past few months primarily driven by organic growth and the successful onboarding of new clients and advisors. These would in turn strengthen the financial position of the firm by contributing to higher fee-based revenue. At the end of the first quarter of 2024, total advisory and brokerage assets of the firm grew to $1.22 trillion, up from $1.10 trillion at the end of Q1 2023, representing an 11% increase.

In its Q4 2023 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and LPL Financial Holdings Inc. (NASDAQ:LPLA) was one of them. Here is what the fund said:

“LPL Financial Holdings Inc. (NASDAQ:LPLA) is the largest independent broker-dealer in the U.S. Shares declined 4.1% in the quarter as expectations for the number of interest rate cuts in 2024 increased (shares still finished the year up 12.7%). LPL invests idle client cash in both floating as well as fixed rate contracts. Rate cuts could reduce LPL’s cash revenues and earnings from its floating rate contracts. LPL’s interest rate exposure has also made it a favored stock for short-term traders to gain exposure to higher interest rates. We believe some of the stock weakness was a result of these investors reducing their stake as rates look set to fall. On a long-term basis, we believe that even under conservative assumptions for rates, the stock offers a positively skewed risk/reward profile. Moreover, LPL’s execution continues to be strong as it gains share among advisors and wins large enterprise deals. We therefore remain shareholders and have been adding to our position.”

Overall LPLA ranks 7th on our list of the best stocks to buy according to Eminence Capital's Ricky Sandler. You can visit 10 Best Stocks to Buy According to Eminence Capital's Ricky Sandler to see the other stocks that are on hedge funds’ radar. While we acknowledge the potential of LPLA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LPLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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