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!!




Spin-offs, Continued… The time is NOW

spin-off pic


As discussed in last week’s blog about spin-off opportunities, ATG will be taking a position in a recent spin-off company.  That company is NOW Inc., (ticker DNOW), a $3 billion market cap oil services distribution company based out of Houston that spun-off from the $30 billion market cap National Oilwell Varco (NOV) back in May 2014.

When looking at spin-offs, the first question to ask is this- who’s likely to win from a spin-off… the former parent company or the new spin-off??  While not always a zero-sum game, it’s the question that I suppose separates the men from the boys in the world of special situation investing.  In this case, I have a hard time coming to any strong opinion on the matter- National Oilwell Varco has been one of my favorite personal stocks for a while.  After all, NOV’s long-term dominance in providing equipment and components to all phases of the oil and gas industry has earned them the nickname of “NOV- No Other Vendor”.  Market leader, attractive P/E (10.5), low leverage, good return on equity (12%), solid earnings history… it has virtually all the traits that I covet when owning a stock.

According to the Form 10-12B filed in February, 2014 (Form 10’s are the formal notification documents when public companies intend to issue additional securities via IPO’s, secondary offerings, spin-offs etc.), NOV decided to spin their $3 Billion distribution arm off so that the separate entities could better focus on their particular niche and respective specialties- NOV as a drilling rig parts supplier and DNOW as a supply chain/ distribution provider to the oil and gas industry.

DNOW’s distribution arm has tended to be a lower margin business as compared with NOV’s main operations- by shedding DNOW they can improve their margins in hopes of getting a higher multiple on their stock.  On the flipside, a separate distribution company for DNOW allows them to leverage dominant distribution channels and market product for new suppliers in addition to NOV.

Since the spin-off, both NOV and DNOW have had a similar trajectory, albeit that DNOW has been a tad more volatile, reaching gains north of 25% before dropping to 5% below their spin-off price in light of the recent oil price slide:

NOV vs DNOW 10-2-14

While I have a hard time coming up with reasons to knock the long-term opportunity of NOV, ATG ultimately made the decision to buy DNOW instead of NOV for the following reasons:

  1. Merill Miller, the long-time CEO of NOV primarily responsible for their evolution into the dominant market leader for oil services stepped down from NOV in November 2013 in order to lead and serve as executive chairman of DNOW.


  1. DNOW has effectively no debt on its balance sheet despite a well-established, profitable business. There is tremendous opportunity for accessing cheap capital to pursue growth opportunities.


  1. As a $3 billion company (vs. NOV at $30 billion), DNOW has a larger runway for long-term growth prospects, particularly given the opportunity for them to market product from new suppliers.

The cyclicality of oil-related businesses and the glut of oil supply in the world today are serious risk factors in the near and medium term, but NOW feels like a good time to pick up a quality spin-off opportunity in DNOW for the long haul…