Special Situation Investments

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 VIC 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 ideas before they become 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.

Note: You will need to register for free guest access to Value Investors Club to be able to access VIC posts with a 45-day delay window.

Market cap is indicated at the time of posting the summary.

Nov 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.

Nov 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.

Nov 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.

Nov 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).

Nov 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.

Nov 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.

Nov 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.

Nov 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.

Nov 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.

Nov 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.

Nov 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.

Nov 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.

Nov 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.

Nov 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.

Nov 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 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.

Oct 14, 2022

AlerisLife (ALR), mcap=$31m, price $0.95 vs $1.13

Potential multi-bagger upside. Real estate assets on balance sheet worth 5x-8x more than EV in private markets. Owner/operator of assisted living and independent living facilities. Part of infamous $RMR / Portnoy family web with a track record of self-enrichment. Currently, RE assets are underearning. Not clear if and when management will decide to unlock RE value, but the margin of safety is very wide.

Oct 14, 2022

Opendoor Technologies (OPEN), mcap=$1.54bn, price $2.45 vs 4.53

Opendoor - digital marketplace for buying and selling residential real estate. Has the potential to 10x over the medium term. Trades below 1x 2025 EV/EBITDA. Currently has a ~75% share of the iBuying industry - buying homes from private sellers to its balance sheet. iBuying penetration is set to grow from a very low single digits % of existing home sales to ~10% over the next decade. The company is expected to significantly improve unit economics through superior buying/selling and attaching high-margin incremental ancillary services to a transaction. Although OPEN has benefited from time arbitrage in a hot housing market during COVID, the business model should work in any housing market environment.

Oct 14, 2022

The Sherwin-Williams (SHW), mcap=$52bn, price $201 vs $234

Paint and coatings producer/retailer with a network of 4,500 stores in the US, Canada & LatAm. 50% market share in the US, with the next 3 competitors at 15%, 15%, and 5%. An extremely profitable and well-managed franchise. Currently underearning due to temporarily depressed gross margins, expected to normalize by 2024 from 41% to 47%. Vertically integrated and controls local monopolies. The stock has declined +30% over the last few months in expectation of the housing slowdown.

Oct 13, 2022

Silicon Motion Technology (SIMO), mcap=$1.93bn, price $58.25 vs $78.00

Merger arbitrage with a 90% spread and trading below pre-announcement levels. SIMO is a decent buy at the current price regardless if the merger closes or not. To be acquired by $MXL at $93.54 in cash + 0.388x in MXL shares. Expected to close in H1'23. Buyer is also the main competitor, but product overlap is minimal and HSR has already been cleared. Chinese regulatory approval is the main risk as SIMO is a Taiwanese company. The recent request by the Chinese regulator to refile the merger application kind of puts the merger in limbo. The company and the buyer operating in the flash memory storage controllers industry.

Oct 13, 2022

Fairfax India Holdings (FIH-U.TO), mcap=$1.4bn, price $10.18 vs $10.54

Prem Watsa company trading at 0.56x BV. A bet on it mean reverting closer to 0.8x - 0.9x BV as it has done a number of times in the past. Trades at discount to BV due to a drop in the Indian Rupee, emerging markets being out of favor, and investors being scared of the impact of high energy prices on emerging markets. BV per share has doubled over the last 7 years. History of large buybacks and ongoing open market purchases. Current BV calculations appear to be based on conservative assumptions.

Oct 13, 2022

Enova International (ENVA), mcap=$984m, price $31.18 vs $36.06

Subprime and near-prime online lenders to consumers and SMBs. The stock is very cheap (PE of 4x-6x), and the business is substantially overcapitalized/underlevered. ENVA is exceptionally well run with thoughtful/prudent/disciplined underwriting. Having achieved the necessary scale, the cmpany is well-positioned with a very long runway for earnings growth. Management is aggressively repurchasing shares at highly accretive prices ($217m LTM buybacks out of $1.2bn mcap). The market is overestimating the risk of material consumer credit losses.

Oct 13, 2022

AMERCO (UHAL), mcap=$10.3bn, price $523 vs $553

Two businesses under one roof: rental of trucks and related moving equipment and owner/operator of self-storage. The stock is cheaper (8x-10x EPS) and the business is stronger and more overcapitalized than ever. The market overestimates UHAL’s COVID benefit - two factors drove structurally sustainable earnings growth: (1) lease-up of self-storage properties that were with zero occupancy initially and (2) truck and equipment rental price increases. UHAL’s brand equity and related competitive moat are underappreciated - the company is dominant in organic web search traffic. Management talks openly about taking actions to close the long persisting valuation gap.

Oct 12, 2022

10x Genomics (TXG), mcap=$3bn, price $26.72 vs $38.68

Life sciences company that pioneered the single-cell category within genomics. TXG operates with a razor-and-blade model with 85%+ of its sales being high-margin consumables. Trades at its lowest valuation since its IPO in 2019 due to the impact of a transitioning customer base in the US, a supply chain stumble in Europe and the complete shutdown of genomics labs in China. However, fears are overblown. Growth is set to reaccelerate next year with plenty of headroom for further expansion as TXG single-cell technology continues to gain popularity among academic labs as well as pharma. Management expects to reach profitability in 2023. TXG has the potential to achieve 30%+ operating margins in line with $ILMN, which has a similar razor-and-blade business model.

Oct 12, 2022

Everbridge (EVBG), mcap=$1.2bn, price $29.98 vs $40.00

High-quality enterprise SaaS business with 85% of recurring revenue, 110%+ net revenue retention, and multi-year contracts. Provides mass notification and critical event management software - given the increasingly risky operating environment enterprise clients are unlikely to cancel subscriptions in a recession or downturn. EVBG is too cheap, trading at 4x 2023 revenue multiple and a reasonable multiple of forward EBITDA. Activist investor Ancora Advisors took a stake in Everbridge and has been publicly pushing the board to sell the company. According to Ancorra, there are likely several interested private equity buyers. The new CEO is no stranger to selling public companies. 3 directors have made pen market purchases at much higher prices.

Oct 12, 2022

Robinhood Markets (HOOD), mcap=$8.7bn, price $10.44 vs $9.38

Robinhood is one of the best consumer products of all time, and the market is currently valuing its ongoing operations at just over $2bn, well below takeout value. A turnaround play in its current form. To turn profitable HOOD must (1) radically reduce expenses, (2) aggressively pursue larger accounts from the likes of $SCHW, $TD, $IBKR, and Etrade, (3) repair the brand so it is seen as a bona fide financial institution consumers trust. If they can execute well on those 3 objectives, HOOD is double from current levels. Potential takeout target - FTX has already been reported as being potentially interested and its CEO @SBF_FTX personally bought ~7.6% of the company.

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