Portfolio Update 10.31.21

Period
October 31, 2021

Portfolio update as of 10.31.21:

image

There weren’t many changes to the portfolio in the month of October but there was one major change — the complete exit of Meredith Corp ($MDP).

After Meredith announced they would sell the TV stations to Gray Television ($GTN) for ~$17/share, $IAC came in and offered to scoop up the remaining pieces of Meredith for what amounted to $59/share in total between the 2 sales. I exited my position completely and now have 11% sitting in cash at the moment.

I’ve topped up a few existing positions with some of that cash and added 1 new position during the month.

Portfolio activity…

  • Meredith Corp ($MDP) — Exited
  • Previously mentioned the Meredith exit. My average basis was about $28 as I started buying in late 2019 at prices between $30-35/share. I was buying in the 2 red-lined areas below:

    image

    It wound up being a little more than a 2x over ~2 years which is great but it took a heroic last minute buyout effort to outperform the market (from my original buy prices)!

    $MDP vs. S&P 500 since 12/20/2019

    image

    As a quick post mortem of sorts — I’m a bit sad to see this one go and feel that $IAC is getting a great deal (maybe I’ll review that business in the future). I felt the market was overly negative/punitive on the magazine/digital business and was excited to own that free of the TV stations and any leverage for the next few years. Their digital brands were some of the most popular in the country and on the web and the shift to digital revenue was going well. It was clear management wanted to accelerate that trend after ridding themselves of a heavy debt burden. It was a classic good business / bad business setup where the good business had recently overtaken the bad business such as to tip the scale for the whole company. Oh well… on to the next one!

  • Garrett Motion ($GTX) — New Position
  • Started purchasing a very small (<1%) position around $7.30/share in October. I wrote a Quick Value post with some highlight-reel coverage on this one but I’ll outline it more thoroughly in the future. I think some of the auto suppliers offer good value right now but the short-term impact from supply chain and auto production downtime makes me nervous around FY2022 guidance.

    I currently own shares of $GTX and NN Inc ($NNBR) which have unique situations in the auto supply industry (NN may even be more of an industrial supplier). Both stocks are incredibly cheap but face the same market-driven near-term issues.

Portfolio commentary…

I say I’m not a thematic investor but I certainly have exposure to a few general themes in the portfolio. Several positions in the same industry where the entire group looks cheap for various reasons.

image

Behind these 4 groups is another one I’m currently evaluating — Insurance. I already own shares of Fairfax Financial ($FRFHF) and Hallmark Financial ($HALL) + recently purchase Heritage Insurance ($HRTG). I’ll outline this theme as a detailed write-up in the month of November; stay tuned.

I’ve previously covered most of these industries in-depth in previous posts (check out specific company write-ups or past portfolio updates). Instead, I’ll share a few charts that highlight the attractiveness of these industries/companies:

Long-running underperformance of pharmaceutical companies vs. the S&P 500 — long-time underperformance equates to lower expectations and a stronger rebound if/when fundamentals turn — obviously this has been going on for a long time in this industry.

image

Blockbuster drugs coming off patent in the current decade — major revenue opportunities for generic manufacturers.

image

5-year CAGR for various subsets of $NNBR auto supply business — overall, the company is targeting 7.5% revenue growth from 2020-2025

image

Energy stocks + Oil prices + S&P 500 over a 3-year period — this order remains true under 5-year and 10-year conditions as well. During the past year, energy stocks are up >100% vs. the S&P up 41% but they still have plenty of ground to make up. On top of that, most oil companies are cleaning up their balance sheets, focusing on FCF, and returning capital to shareholders — major shifts in capital allocation industrywide.

image

Winter storm Uri is pretty easy to spot on the charts of Vistra / NRG — it also took valuations down well below long-term averages (EV/sales highlighted here but the same holds for FCF/EBITDA).

image