ATG Portfolio 6 Month Check-up

I suppose it’s my turn to provide a quick take on the current make-up of ATG’s portfolio and thoughts on specific equities.  While I have a few regrets (such as not buying Royal Caribbean at moMANon’s behest in hopes of buying a little cheaper and not picking up a larger entry position of Whitewave Foods), overall I’m happy with the current makeup of our portfolio and the various trades over its first 6 months.

ATG Snapshot 10-30-14

 

  1. OZM- At 16% of invested capital, Och-Ziff is our largest holding in the portfolio, more as a result of picking up more shares on weakness than overt confidence. I am extremely interested to see how their third quarter earnings pan out on November 4- the beauty of this stock is that they distribute most of their earnings as a dividend and it’s priced so cheap that their funds only need to gain a few ticks above 0% to generate adequate profits.  The downside is that that they primarily play in international alternative investments, an area where getting a few ticks above 0% is no easy task in today’s environment.  I’m a HOLD on this one.

 

  1. ESV- Admittedly, I keep getting this stock wrong. It has been the worst performer of the ATG portfolio, with an unrealized loss of 13.5% to date.  Plummeting oil prices coupled with concerns about over supply in the offshore rig industry have outweighed positive earnings results, a stable balance sheet, attractive dividend yields, and continued backlog of revenue for the company.  Perhaps this is my version of the Ackman-Herbalife complex, but I’m convinced that ESV is destined to turn around- today’s earnings announcement of a solid beat and 3.2% gain is a good start.  It’s hard to find a best-in-class company that generates ample profit, cash flow, and trades at a price below net book value of assets, even after excluding intangibles.   I’m a believer in Ensco, but keeping a HOLD rating relative to the ATG portfolio given our large position.

 

  1. GOOGL- I like monopolies, low leverage, strong revenue growth, and cutting edge technology investments at a price equal to the average S&P P/E ratio. STRONG BUY.  We’ll be adding more soon.

 

  1. VNM- Vietnam index, this is a tough one. I like this play a lot in the long run, but I’m annoyed by  the nature of emerging market ETF’s like this where  local players can anticipate the ETF buys for particular stocks in advance and move the market (increasing the ETF basis);  I’m also cautious about emerging markets in general over the next couple of years.  I think we’ll see a lot of volatility here and will need to buy on dips/ maybe sell on big upswings over the next year or so, hence the HOLD/ WATCHING WITH CAUTION rating.

 

  1. HTZ- Hertz is a fascinating story, not too dissimilar to WTW: incredible overall market demand drivers for the industry but company-specific misteps and under-performance.  If you missed my prior post on Hertz, check it out for more detail on why I’m intrigued, including how Carl Icahn bailed my ass out of the initial trade.  We’re back in now that the stock has plummeted from $31/ share to around $20 share and has removed their CEO.  While there may be some short-term turbulence as they eventually re-state their earnings and name a new permanent CEO, I’m extremely bullish on this stock over the next 12 months.  STRONG BUY.

 

  1. DE, PHM, DNOW, CLNY- I’m going to pull a Bill Simmons and group all these stocks together because (i) I’m lazy and (ii) they all share the similar characteristic of being what I consider relatively safer, industry leading stocks at attractive P/E ratios that I don’t lose any sleep over. We’ll buy on dips but they also aren’t likely to sky-rocket any time soon.  The overall theme is increased importance on agricultural equipment/ farming efficiency, eventual millennial movement towards starting families and moving into new homes, continued energy/ oil industry growth in the US via a Warren Buffet supported spin-off, and attractive risk-adjusted real estate returns via a super smart shop that plays in both debt and equity (including rental residential).

 

  1. WTW- In the last 3 months, Weight Watchers notched a staggering 53% gain from $19.25/ share to $29.42/ share before dropping 13% today despite a healthy earnings and revenue beat (but a 12% reported loss in overall membership). We’ve done well on this stock, and any reader of this blog knows that I’ve been cheer-leading it for over a year (admittedly more in bad times than good).

 

After reading the earnings transcript, the clear strategy set by new CEO Jim Chambers,  and witnessing the measureable improvement of Weight Watcher’s technology presence (app integration with fitbit, iphone6, jawbone, etc.) I remain a steadfast  believer in the stock.

 

The only caveat is that I actually did a little “gonzo investment research” and joined a new weight watchers group through my company to see what the program was like from the inside.  I lasted one meeting- out of the total 18 people in attendance, there were literally 17 women staring down the 1 man with total disdain.  I knew that Weight Watchers was overwhelmingly women, but I never fully appreciated the company’s challenge in attracting men to their onsite meetings until being there in person and feeling the awkwardness.  I was very impressed by the initial Simple Start program and could immediately see the benefit of their group weight loss approach, but I think the programs need to be separated by gender if they ever hope to gain critical mass from the dudes.  They also need a dude sponsor that men can actually relate to: Jonah Hill or Seth Rogan need to get fat again!!

 

-Maverick

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Let’s Go Shopping!

shopping

In the past 10 days the S&P 500 has dropped over 3% over Russia/ Ukraine tension, Argentinian bond defaults, fighting in the Gaza strip, improving GDP numbers that could trigger an unwinding of quantitative easing, and who knows what else.  Anyone who claims to fully understand the complexities and future implications of each of these events should be thrown in a padded room (or given a spot on CNBC Squawk Box).   

This is the bad news- aside from diversifying across asset classes or dollar cost averaging, there is very little an investor can do to anticipate and guard against these unforeseen events.

Now for the good news- Despite all of these events and the recent drop, the S&P 500 is still up 5.5% on the year and plenty of stocks continue their upward march as the economy improves and earnings improve.  This little 3% “hiccup” from macro and geo-political uncertainty may provide some discount shopping opportunities.

Here’s my take on discount shopping in times like this:

  1. This is a “sale” opportunity and not a “clearance” rack. Make sure you buy quality companies that you believe in over the long haul just in case that sale turns into a clearance after you buy and a patient holding period is necessary.
  1. Start with looking at the stocks you already own and know well: buy more of the stocks you still really like that have taken a hit, but make sure you re-visit their financial position and prospects for growth.
  1. Look for companies that are actually on sale at the moment and have dropped materially from their highs (or have below-market P/E ratios). For example, I’ve been waiting for an opportunistic time to open a position in Disney (DIS) because I love the company, have a 3 yr old daughter obsessed with Tinkerbell, and I believe they have incredible staying power, but their stock price has not been affected at all by the geo-political and macro noise over the past month.  I’ll have to wait on Disney until the next sale or clearance opportunity. 

Based on the criteria above,  ATG has taken an entry position in John Deere (DE), added to its position in Ensco (ESV), and will likely be adding to its position in Google (GOOGL) and Whitewave Foods (WWAV).  We are also looking harder at airline and transportation stocks for sale opportunities.

It’s no coincidence that all the companies listed above are long-standing companies with huge competitive advantages in what I believe to be high growth industries.  Can you imagine a (near) future with increased capital spending on agriculture, energy consumption, continued dependence on online marketing/ e-commerce, more demand for non-dairy organic substitutes and increased travel for commerce and pleasure? 

If so, I’ll see you at the discount rack.