VIC Idea Summaries

Below are summaries of ideas posted on Value Investors Club. VIC is great! … but noisy. The summaries below are supposed to help sift through that noise.

Around 2-5 new investment ideas appear on VIC daily. Some are really good and some are posted just to meet membership quotas. Initially, these are for members only, but all move to the public domain after 45 days. That’s when summaries will appear here and on Twitter.

Is the 45 days delay on VIC post-opening for the public a big issue? Not at all – only a very limited number of VIC write-ups actually move the markets right away. Usually, the articles age really well, with critical pushback and additional insights in the comments section.

Market cap and share price is indicated at the time of posting the summary with comparison to price at VIC publication.

November 15, 2022

L.B. Foster (FSTR), mcap=$142m price $13.00 vs $9.64

Small-cap industrial manufacturer and service provider to the rail and general infrastructure industries. Over the last two years, FSTR was transformed from strategy, leverage, and management perspectives. Currently is too cheap relative to the expected growth in free cash flow over the next few years. Recent acquisitions and timely divestitures indicate a greater portion of future revenue growth and increased profitability will come from higher gross margin segments of rail technologies and precast concrete. Tailwinds from the recent US infrastructure packages, stable, large-scale commercial and infrastructure construction projects. Set to elevate back to Russell 2000 at some point in 2023-2024 - was kicked out in June'21.
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November 15, 2022

Asbury Automotive Group (ABG), mcap=$4bn, price $179 vs $151

The fifth-largest franchised automotive dealer in the US. Investment thesis based on several industry-wide and company-specific factors. (1) Fears regarding EV transition overblown - manufacturer won't switch to DTC model and dealerships are here to say. (2) Dealers are not over-earning - gains from used vehicle sales are offset by decreased new car sales. (3) ABG normalized margins are materially above 2019 levels. ABG is the best-in-class operator with margins and operating KPIs that consistently exceed other publicly traded dealership groups. Admirable track record of capital allocation, reducing share count by nearly a third since 2010 while adding ~60 net new dealerships (out of 148 current total).
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November 15, 2022

Aerojet Rocketdyne (AJRD), mcap=$4bn, price $49.12 vs $40.39

The last remaining independent Aerospace & Defence supplier likely to be acquired in the near term. A highly strategic asset that is in discussions with multiple interested acquirers - a number of signs/tell that $LHX is one of the interested parties. Trades below peer and its own historical multiples. The underlying business structure and FCF cadence are misunderstood by the market. $LMT attempted to take it private at $56/share (Dec'20), but was eventually blocked by FTC. Activists own nearly 25% of the company.
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November 15, 2022

Skyline Champion (SKY), mcap=$2.9bn, price $51.22 vs $51.00

Builder of modular and manufactured homes. The current valuation of 5x '23 EBITDA and 7x '23 EPS is pricing in a doomsday demand scenario and is well below historical levels. The company underperformed traditional homebuilders on concerns that the demand in SKY’s lower-end customer demographic will be disproportionately affected by higher interest rates. Investors misunderstand that the trade-down dynamic benefits value-priced manufactured as well as the 'friendly oligopoly' nature of the industry. Margin improvements will be stickier than the market expects and the demand for manufactured homes is less interest rate reflexive than demand for site-built homes.
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November 14, 2022

Cigna (CI), mcap=$93bn, price $303 vs $278

Health insurer – overlooked by investors. Cheaper (11x PE) than peers. In an industry that benefits from the tailwind of an aging population and is largely immunized from economic cycles. Peers $UNH, $ELV, and $HUM have long captured the imaginations of growth investors and now trade at higher valuations while offering only slightly better EPS growth. Cigna guides to 10%-13% long-term EPS growth and has delivered 15% over the past 11 years. Set to re-rate through its conservative guidance and beat-and-raise model. Compounder that has trounced the S&P 500 and Nasdaq over the past decade.
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November 14, 2022

Postal Realty Trust (PSTL), mcap=$365m, price $15.65 vs $14.83

The largest owner of $USPS postal properties - roll-up with plenty of runways ahead. All lease payments are inherently backed by credit from the U.S. government - 100% collection rates and 99% renewal rates. Rents have historically risen by 5%. Owns only 5% of USPS properties, with the rest of the market fragmented among 16k legal entities. Can acquire and grow property counts without increasing its G&A base of ~20 employees in corp headquarters. Buys properties in the 6-8% cap range and well below replacement cost. Rents have historically risen by 5%. Attractive even without further M&A - expected IRR of 9-11% with 6.3% AFFO yield + 3-5% organic growth from rent increases. Strategic assets of U.S. infrastructure - last mile delivery properties utilized also by the likes of $AMZN, $UPS, and $FDX.
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November 14, 2022

Veris Residential (VRE), mcap=$1.5bn, price $14.96 vs $12.40

Multi-family REIT is almost done selling its office properties and owns apartment buildings mostly in NY and Boston. Class A buildings in areas with barriers to supply. At 50% of replacement cost and 1/3 of NAV. Portfolios should benefit substantially from inflation, high mortgage rates, and immigration. Expect the shares to re-rate in the next 12-18 months as a substantial dividend is reinstated. Potential acquisition target.
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November 14, 2022

The Charles Schwab (SCHW), mcap=$146bn, price $78.36 vs $70.00

Dream business trading at 14x 2023 P/E with mid-20s ROE. Online brokerage with a wide moat nearly $7T in customer assets. Consistent and profitable growth since 2009 which shows no signs of moderating. Generates 70% of profits from 10% of customers, allowing it to improve retention by offering best-in-class customer service and products at very little or no cost. Set to benefit from rising interest rate environment. On the cusp of returning a significant amount of cash to equity holders.
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November 8, 2022

Udemy (UDMY), mcap=$2.1bn, price $15.17 vs $13.23

Online learning platform offering free and paid courses. SaaS platform business where content is produced and maintained by incentivized "instructors" and consumers/enterprises pay a subscription or one-off fees to access the content. Trades at 2x sales multiple. The company is now focusing on higher margin and growth enterprise customers. Strong margin expansion potential with a lot of room for growth. Historically robust growth/margin expansion/monetization levels. IPO of Oct'21 and has materially sold off with the rest of the market.
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November 8, 2022

Logan Ridge Finance Corporation (LRFC), mcap=$55m, price $20.30 vs $19.50

BDC that trades at 50% of NAV and is expected to be acquired by its sister company $PTMN. Assuming similar dividend yields, the merger would result in a +50% re-rating of LRFC shares. A year ago new management team took over the wheel of LRFC. The same management team has done an outstanding job at $PTMN organically and grown the company through acquisitions of other BDCs. Both LRFC and PTMN are run by the same people, share the same office space/back office/audit firms, have similar boards, and increasingly are investing in the same debt securities. The merger between the two seems inevitable, especially given the precedents.
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November 8, 2022

Resolute Forest Products (RFP), mcap=$1.6bn, price $21.11 vs $20.26

Merger Arbitrage with CVR. RFP is getting acquired by Paper Excellence. Currently trades just below the $20.5 cash consideration, additionally, shareholders will receive non-transferable CVR that will payout based on any refunds on lumber duty deposits. These duties relate to recurring trade spats between Canada and the U.S. and in the last cycle, 80% were refunded. If the current trade dispute plays out similarly, CVR will payout an additional $5.1/share. Antitrust approval from US and Canada is still pending, but mostly this looks like a low-risk merger.
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November 8, 2022

Blackstone Secured Lending Fund (BXSL), mcap=$4bn, price $24.00 vs $24.20

BDC is managed by $BX. Has a 10% dividend yield with earnings power likely to increase 30-50% over the next 2-4 quarters due to rising short-term rates. Differentiates itself from other BDCs by its conservative lending practices, positive exposure to rising short-term rates, and shareholder-friendly structure. More conservative credit book than most other BDCs with an LTV of 46% and 98% of the book in first-lien debt. Almost 100% of its debt investments are floating rates. The overhang from the Oct-21 IPO as some of the previously-private entity shareholders might be exiting since Jul'22 unlock. The company opportunistically repurchases shares below NAV.
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November 7, 2022

Perion Network (PERI), mcap=$998m, price $22.23 vs $21.24

Advertising technology with above-average growth prospects is priced as one with below-average prospects. Perion has a growing ad search business expanding at double-digits, with a solid anchor tenant in Bing / $MSFT advertising (35% of revenues). Sitting on $350 million of cash, and actively looking for more M&A, which could drive additional growth. Perion has achieved some pricing power and margins are improving. Increased ROE and ROA signal the existence of a franchise. Set to grow earnings at a mid-teens rate in the intermediate term.
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November 7, 2022

RingCentral (RNG), mcap=$2.8bn, price $29.62 vs $42.84

Provider of cloud-based unified communication software for enterprises and smaller businesses. 20% market share. Trades at 2.3x EV/NTM sales - overly pessimistic valuation for recurring revenue software business with 78% gross margins and 30% growth. Entry of $MSFT and $ZM in the market intensified competition and somewhat commoditized the industry, but TAM is large enough to support multiple competitors. So far RNG has been able to maintain market share and pricing through best-in-class differentiated product offerings. Management increasingly focused on Margin expansion and FCF generation. Strategic asset that would be an attractive acquisition. Private market values are materially higher (at least 2x upside).
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November 7, 2022

Target (TGT), mcap=$73bn, price $159 vs $159

Mass merchandiser with 2k retail stores. Stock beaten down due to temporary inventory issues that have depressed GMs and net income. Gross margin expected to mean revert to c. 29% historical levels from the current 22%. Trades at low valuation on temporarily depressed earnings. Target’s retail model is fundamentally more efficient than competitors and this should win them more customers over time. Unique and hard to replicate the combination of convenient multi-category one-stop shop retail model, experience owning/creating eleven $1B+ revenue brands, highly efficient & developed omnichannel capabilities and valuable store space.
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November 7, 2022

Bayerische Motoren Werke Aktiengesellschaft (BMWYY), mcap=$54bn, price $27.20 vs $25.00

One of the best luxury brands in the auto industry. The market is pricing low odds of a successful transition to EVs and driverless thereafter. As a result, BMW trades at 5x '23 PE and sports a 7.8% dividend yield. At a discount to Volkswagen and Mercedes. The company has not been sitting still in its transition & already has 16% of its revenues coming from EVs. The goal is for EVs to account for 50% of revenue by 2030.
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November 4, 2022

Curtiss-Wright (CW), mcap=$6.4bn, price $167 vs $145

Provider of highly engineered and mission-critical technologies to the Aerospace & Defense and industrial markets. Attractive valuation at 16x PE. With 56% of revenues generated from the defense markets is set to benefit from higher defense spending in a rising threat environment. Owns multiple businesses of unique strategic value with a portfolio of critical technologies that are unlikely to be displaced.
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November 3, 2022

Haleon (HLN), mcap=$29bn, price $6.16 vs $2.59

A recent spin-off from $GSK - consumer healthcare products. The lock-up on 45% ownership by $PFE and $GSK expires on the 11th of Nov - this dynamic is pressuring shares and creating attractive entry opportunities. High-quality franchise with a leading portfolio of healthcare brands. Strong FCF generation with 60% gross and 23% EBIT margins. Attractive valuation on an absolute basis. Takeout target by strategic acquirers - an offer from $UL at a 67% premium to current prices was rejected in Jan'22.
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November 3, 2022

TransAlta (TAC), mcap=$2.3bn, price $8.56 vs $9.40

Decarbonization play on independent power producer that is turning towards 100% renewable energy. Takeout candidate at 2x of the current price. TAC is down YTD despite numerous positive developments. Set to benefit from high electricity prices in 2023/2024 once the current hedges roll off (75% hedged for the remainder of the year). The Canadian government is rolling out a clean electricity standard that massively incentivizes renewables buildouts and TAC has an enviable pipeline to execute with its converted gas plants getting preferential treatment. Has retired the remaining coal plants and will be fully off coal by 2025. An established renewable energy platform is a scarce asset and M&A in the space has accelerated. Potential takeout target by its largest shareholder $BEP.
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November 3, 2022

Omni Bridgeway (OBL.AX), mcap=$1.2bn, price $4.54 vs $3.70

Litigation asset manager - in the business of funding individual litigation cases and in return receive a portion of the win (if any). Earnings in recent years inconsistent due to the inherent lags before receiving returns and further lags due to the waterfall nature of legacy investment funds. Over the next two years, OBL will see most of the lucrative tail end of their legacy Funds 1-3. Management in the past has been relatively accurate in their assessment of cash realizations expected from the committed business.
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November 3, 2022

Toll Brothers (TOL), mcap=$4.8bn, price $42.24 vs $43.66

Leader in US luxury homebuilding market and 5th largest homebuilder. Cheap relative to tangible book value (0.9x) and vs historical levels. Book value comprised of owned/optioned lots that were mostly acquired at pre-covid pricing. Limited build-out risks as the majority of TOL homes are pre-sold and built-to-order. 70% upside if rerates to historical multiples. Insiders own 7% of shares.
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November 3, 2022

Williams-Sonoma (WSM), mcap=$7.7bn, price $116 vs $134

Furniture and home décor retailer - the owner of William Sonoma and Pottery Barn. 5th most shorted retail stock on the consensus that furniture demand was pulled forward. At bet that furniture demand will prove to be more sustainable and that most of WSM's margin gains will remain. The latest quarterly results with +11% SSS comps appear supportive of that notion. At single-digit earnings, multiple is cheap vs peers and historically. 66% of revenues are from e-commerce. Steady performer remaining FCF positive since 2007 and delivering positive SSS growth since 2010. The New B2B initiative provides further upside & eclipses the entire enterprise value within a couple of years.
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November 1, 2022

Invacare (IVC), mcap=$28m, price $0.74 vs $1.00

Healthcare products company specializing in essentials: wheelchairs, respiratory products, and care beds. One of three global competitors. Turnaround play with activists on board. Last year was very challenging with supply chain issues and inflation weighing on profitability. Management struggled to execute in the face of these headwinds. This underperformance has led to an activist joining the Board and the recent ouster of its CEO. Demand remains strong and the company has a high backlog. After the latest convertible exchanges and debt raises IVC has plenty of liquidity to execute. Potentially multi-bagger over the next two years.
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November 1, 2022

Hillman Solutions (HLMN), mcap=$1.6bn, price $7.81 vs $8.24

Market leader across the fastening and hardware industry. Boring business, but one with a mid-to-high-teens ROIC and an incredible record of stable revenue growth through the cycle. Demand for HLMN products is tied to maintenance and repair/remodel activity – not to new housing. At 11x '23 EBITDA trades below industry peers. Hillman came public via a SPAC over a year ago.
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November 1, 2022

International Game Technology (IGT), mcap=$4bn, price $20.05 vs $19.55

Leading player in the lottery and slot manufacturing. Lottery operations are 65% of revenues and 85% of EBITDA. Trades at 7x EBITDA with industry transactions getting done at 12x. The lottery industry significantly outperformed during COVID-19, reaching new/younger players over that time frame. The digital lottery is creating new growth opportunities. The company is actively returning capital to shareholders via a dividend and repurchases on the open market.
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October 31, 2022

Apollo Global Management (APO), mcap=$34bn, price $55.63 vs $58.00

In the acquisition of Athene, APO received $1 for 50c. However, the market did not appreciate the benefits of transactions and continues to undervalue APO due to Athene's asset-heavy insurance business, concern's over its credit portfolio, and lower value SRE income. Acquisition by Apollo signaled the soundness of Athene's book. Future Athene growth is to be driven by third-party AUM. Athene is able to generate excess returns not by taking more credit risk but by a willingness to take on illiquidity/structural/complexity risks.
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October 31, 2022

DICK’S Sporting Goods (DKS) short, mcap=$9.2bn, price $116 vs $120

Post-pandemic means reversion play. The sporting goods category has been one of the biggest pandemic beneficiaries. The market expects elevated revenues/margins to be sustained due to perceived sticky consumer behavior changes including the adoption of healthy habits and migration to outdoor pursuits. DKS still sells want-based discretionary goods subject to waning consumer spending and pull forward. The company is on a glide path to normalization where gravity’s just beginning to weigh.
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October 31, 2022

Genesco (GCO), mcap=$624m, price $47.82 vs $50.00

Footwear retailer with a number of concepts including Journeys, Schuh, Johnston & Murphy. Mainly targets teens and kids - this drives recurring sales and store visits due to ever-changing feet size. Much healthier business compared to pre-COVID. Stock is cheap trading at 3.4x EBITDA. Reduced share count by 50% over the last 6 years with further buybacks likely due to zero leverage on the balance sheet. Possible monetization of RE assets and disposal of non-core brands could generate proceeds equivalent to half of the current market cap.
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October 25, 2022

Cansortium Inc. (CNTMF), mcap=$43m, price $0.17 vs $0.18

One of the fastest growing, most profitable, highest margin, and cheapest stocks in the entire cannabis universe. Producer and seller of medical cannabis products mostly in Florida (27 out of 31 dispensaries). The turnaround story is currently at an inflection point. Trades at less than 3x estimate of next year's EBITDA.
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October 25, 2022

Admiral Group (AMIGY), mcap$6.7bn, price $22.24 vs $25.00

GEICO of UK with 14% market share. Cost advantage over competitors due to DTC business and cost-focused culture. A capital-light model with 50%+ ROEs. The stock underperformed recently due to claims inflation impacting margins - should be a temporary issue only. Currently trades below historical multiples and is expected to re-rate as the insurance cycle plays out.
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October 25, 2022

2seventy bio (TSVT), mcap=$562m, price $14.83 vs $14.70

Biotech with liquidation value nearly 3x above current price. A recent spin-off from $BLUE, with BLUE CEO migrating to TSVT. Down 63% since the spin-off. 2/3rds of market cap in net cash and 50% ownership of ABECMA worth more than $30/share. ABECMA is first in class treatment for multiple myeloma marketed in conjunction with $BMY, with demand outstripping supply and heading for $1.4bn peak revenue.
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October 24, 2022

Computer Modelling Group (CMG.TO), mcap=$400m, price $5.03 vs $4.50

The Canadian software company focused on O&G reservoir simulation and modeling. CMG business/booking cycle lags movement in oil & gas prices, with inflection expected by the year-end with pent-up growth for additional software licensing/seats. 35% market share, behind Schlumberger's Eclipse solution (55% share). Strong entry barriers with half of the personnel & 20% of revenues spent on R&D.
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October 24, 2022

Docebo (DCBO), mcap=$932m, price $28.33 vs $30.00

Corporate learning management software company. Trades at 4.5-5x fwd revenue with 30% organic growth and mild cash generation. Runway to grow 25-35% for some time. Best-in-class S&M efficiency should help the company reach 25-35% mature FCF margins.
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October 24, 2022

Domino’s Pizza Group (DOM.L), mcap=£966m, price £2.26 vs £2.41

Domino's Pizza - delivery/takeout franchisor in UK with a 48% market share. Defensive, high-quality compounder with asset-light business model at 12x fwd PE. EV just declined below Mar'20 COVID low. “Baby out with the bathwater” situation due to manic selling in the European markets this year and UK's weak macro outlook. Set to benefit from consumers “trading down” - hard to beat Domino's on price/value.
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October 21, 2022

The GEO Group (GEO), mcap=$1bn, price $8.53 vs $8.23

For-profit prison operator - 60% of op profit from prison business and 40% from electronic monitoring. Equity upside from strong cashflows and focus on deleveraging. Well-protected downside already low valuation (6xEBITDA) and value of land+buildings. Undergoing transformational change after conversion to C-corp from REIT and the shutdown of the construction business segment. The new GEO will focus available FCF on deleveraging and exit of non-core businesses - no risk of dilutive M&A or growth investments. Minimal risks from federal aims to reduce the prison population in the US as half of the prison revenue is coming from states.
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October 21, 2022

Bancolombia (CIB), mcap=$6.1bn, price $25.46 vs $28.20

Colombia's largest bank at 5xPE and 0.9xBV - cheap historically and vs Latam peers. Partially macro and political bet on Colombia's economy as well as rerating of Colombian equities. Concerns over the New Regime & Socialism are overblown. 10% dividend yield while waiting for re-rating.
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October 21, 2022

Brenntag (BNTGY), mcap=$8.6bn, price $11.48 vs $13.17

The largest independent chemical distributor globally at only 10x PE. Leading scale and dense global network, extremely resilient business model. Overstated market fears that the company is overlearning due to exceptional pricing linked to product shortages. Even with market conditions fully reverting, the stock would lead to mid-teens IRR over the next 3 years.
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October 20, 2022

Community Health Systems (CYH), mcap=$319, price $2.37 vs $2.67

The highly levered operator of hospitals is potentially on the verge of bankruptcy due to spiraling wage inflation. If bankruptcy / highly dilutive capital raise is avoided in the next couple of years stock is expected to rebound to the $10+ range, i.e. 275% upside. Recent results and trends indicate that turnaround is moving in the right direction and default on debt could be avoided. The company still has $1.2bn in liquidity from cash + untapped ABL. High leverage, $350m mcap vs $12.5bn net debt, 7.1x net debt to EBITDA.
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October 19, 2022

CNX Resources (CNX), mcap=$3.4bn, price $17.85 vs $17.35

One of the largest natural gas producers in the Appalachian Basin with fully owned midstream assets. Chairman William Thorndike of 'Outsiders' fame - fully focused on proper capital allocation. In a conservative scenario a double in the next 4-5 years. Orphaned stock, trades at 4x EBITDA with almost all production hedged at significantly lower prices - 70% of '23 and 60% of '24 gas production hedged at $2 vs $9 spot. These legacy hedges indicate management's conservatism during shale go-go years rather than idiocy. Continues to retire debt and repurchase shares with 16% of outstanding bought back over the last two years. FCF per share doubled since 2020. Management intends to allocate 80% of FCF to buyback, reducing the share count by a further 54% by 2026.
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October 19, 2022

Doximity (DOCS), mcap=$5bn, price $26.17 vs $32.68

LinkedIn for Doctors, 80% of US physicians, 90% of med students, and 50% of nurses on board. Earns from advertising + recently acquired hospital staffing company. Covid beneficiary with the stock has sold off by 70%+ as guidance was brought down. Monopoly business with pricing power. Strong balance sheet. Multiple growth opportunities are not reflected in the valuation.
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October 18, 2022

Lam Research (LRCX), mcap=$44bn, price $320 vs $430

Supplier of semi-conductor wafer fab equipment focused on deposition and etching tools. High barriers to entry with large moats around its product positions. The oligopolistic industry is expected to grow at a 9% CAGR by 2030. LRCX continues to gain market share at a fast pace.
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October 17, 2022

Similarweb (SMWB), mcap=$462m, price $6.09 vs $7.49

Similarweb.com web and app comparison/analysis tool - leading SaaS digital shopper intelligence provider. $190m ARR with only 4k customers - still in the early innings of growth. Primarily targets enterprise clients. 115% net revenue retention. Currently spending heavily on its product and sales efforts. The payoff from S&M investments is c. 4x. Expected to re-rate when it becomes profitable over the next 2-3 years.
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October 17, 2022

Zovio (ZVO), mcap=$6m, price $0.16 vs $0.27

Liquidation play with management committed to selling their last and best asset by the end of October. Liquidation estimates in the range of $0.35-1.7/share vs $1.7 current price. Other assets have been divested recently. The remaining asset is Fullstack Academy - coding bootcamp, for which ZVO paid $38m back in 2019. It's growing revenues at 35% YoY and could be worth between $50m-$100m.
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October 17, 2022

P10 (PX), mcap=$1.2bn, price $10.33 vs $12.32

An alternative asset manager with an income stream based 100% on recurring management fees from the long-term (10-15 years) locked-up vehicles. AUM of $18.5bn with 1% annual management fees. Performance fees have been left with the investment teams, creating a stable revenue stream for P10. P10’s asset managers have excellent reputations and track records. Continues to grow organically (21% 4-year CAGR) and through acquisitions. Expected to compound in the mid-teens to low twenties over the next 5-10 years. Low risk of permanent capital loss.
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October 17, 2022

Ally Financial (ALLY), mcap=$9bn, price $29.25 vs $33.20

Online-only bank/insurer of the auto industry, funding operations with low-cost sticky deposits. Trades at 1.1xTBV and single-digit earnings despite management guiding to 16-18% ROTCE. Mgmt guidance already takes into account material reduction in used vehicle values. 33% of shares repurchased since 2016, with 11% of the current mcap repurchased YTD. $BRK owns 10% of the company and Norbert Lou has ALLY as a core position.
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October 17, 2022

InMode (INMD), mcap=$2.8bn, price $33.12 vs $31.89

Medical device maker - provider of radiofrequency-based, minimally invasive surgical aesthetic and medical treatment solutions. Fast growth and high-quality business at 7% FCF yield. Generates 85% of its revenue from the sale of capital systems at ASPs in the $100,000+ range - installed base at 14k and growing every quarter. Unlike most fast-growth MedTech companies, INMD delivers strong FCF with mid-80 % gross margins, 50% EBIT margins, and ROIC of 40%. Growth potential beyond current applications from the pipeline of new products and indication treatments. A strong balance sheet with a $440m net cash position.
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October 17, 2022

Dropbox (DBX), mcap=$7.4bn, price $20.17 vs $21.64

Dropbox - cloud storage solutions. A largely stale short report and sell rating from a leading bank has created an attractive contrarian setup. Growth is set to reaccelerate in 2H'22 on the back of recent 20% price increases. Successful execution of the pricing increase will also debunk the short thesis that cloud storage is a commodity product while $GOOG, $APPL, and $MSFT are giving it away for free. Consensus estimates are too low and remain below the mid-point of mgmt's LT guidance. Several paths to push Dropbox back to double-digit revenue growth.
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October 15, 2022

Shawcor (SCL.TO), mcap=$2.1bn, price $94.70 vs $9.16

Undervalued Canadian industrial company with a dominant position in offshore pipeline coating. The share price does not reflect its recent strategic transformation and financial de-leveraging. Over the last 3 years, SCL completed several actions to optimize its portfolio of products focusing on the highest-value, most differentiated industrial businesses and divesting or shutting down non-core activities. Cost optimization efforts resulted in a 28% headcount reduction. Strong momentum in all of its businesses. Management expects H2'22 earnings to inflect & be substantially higher.
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October 15, 2022

Sinclair Broadcast Group (SBGI), mcap=$1.3bn, price $18.55 vs $22.60

The 2nd largest broadcaster in the US, owning/operating 193 stations across 100 markets. The stock is depressed due to the overhang due to the expensive Diamond Sports Group before the pandemic. The market is treating DSG as a negative value when in reality it should be zero due to the non-resource nature of its debt. Hidden value and the low valuation of SBGI’s core broadcasting business vs. comps. A number of different upside levers can accrete to equity value. Management team working on righting its wrongs and maximizing value to shareholders through repurchases, dividends, and boxing the DSG risk.
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October 15, 2022

Hayward Holdings (HAYW), mcap=$1.9bn, price $8.73 vs $10.70

Manufacturer of pool equipment for residential consumers with 30%+ market share. Was a clear Covid beneficiary and 3Q will be rough, however, the aftermarket represents 78% of sales and this is effectively non-discretionary. The industry is an oligopoly with good pricing power, high returns on capital, and solid cash generation. The installed pool base continues to increase and pool installations are still far below prior peaks in 2005. Trades at a reasonable multiple on run-rate earnings with good long-term growth prospects from the increasing installed base, mix improvements, and pricing power.
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