McClain Torch Fund Period Two Report
March 31, 2019
McClain Torch Fund Period Two Report
Account Summary
Portfolio Value as of 12-31-18 $249,525.64 Contributions 0 Withdrawals 0 Realized Gains 17.50 Unrealized Gains 18472.40 Interest 175.31 Dividends 1545.00 Portfolio Value as of 03-31-19 $269,735.85 Performance Summary
Period Period Trailing One1 Two2 6 Month3 McClain (13.58%) 8.10% (6.58%) Torch Fund Russell 3000 (12.20%) 11.91% (1.81%) (without dividends reinvested) Relative (1.38%) (-3.81%) (4.77%) Performance
Other Indices
Period Period Trailing 6 One1 Two2 Month3 CPI + 7% 2.04% 2.31% 4.35% S&P 500 (13.52%) 13.65% (1.73%) Index
Risk/Return Metric
Period Period Trailing One1 Two2 6 Month3 Sharpe Ratio (2.18) 2.85 (.81) Treynor Ratio (0.49) 0.39 (.15)
*December 31, 2018 to March 31, 2019
1. September 30 – December 31 2. December 31 – March 31 3. September 30 – March 31
McClain Torch Fund Period Two Report
Best Performers (Period Two) December 31, 2018 to March 31, 2019 Security % of Portfolio Return Period 1 Contribution to Return Super Micro Computer 1.95% 53.1% 0.85% Hanesbrands 3.07% 43.84% 1.06% Pilgrim’s pride Corp 1.63% 0.6% 43.71%
Top Contributions to Return (Period Two) December 31, 2018 to March 31, 2019 Security % of Return Period 1 Portfolio Contribution to Return Five Below 7.2% 21.43% 1.44% LAM Research Corp 4.63% 32.27% 1.28% Hanesbrands Inc 3.07% 43.84% 1.06%
Worst Performers (Period Two) December 31, 2018 to March 31, 2019 Security % of Return Period 1 Portfolio Contribution to Return Universal Insurance 6.4% (1.24%) (17.83%) Holdings CVS Health Corp 4.06% (0.73%) (17.06%) Newell Brands Inc 3.1% (0.48%) (16.33%)
Bottom Contributions to Return (Period Two) December 31, 2018 to March 31, 2019 Security % of Return Period 1 Portfolio Contribution to Return Universal Insurance 6.4% (17.83%) (1.24%) CVS Health Corp 4.06% (17.06%) (0.73%) Newell Brands Inc 3.1% (16.33%) (0.48%)
McClain Torch Fund Period Two Report
Best Performers (Trailing 6 Months) September 30, 2018 to March 31, 2019 Security % of Portfolio Return Trailing 6 Month Contribution to Return Pilgrim’s Pride Corp 1.56% 23.22% 0.35% LAM Research Corp 4.3% 19.6% 0.82% PAYPAL Holdings Inc. 2.47% 18.21% 0.44%
Top Contributions to Return (Trailing 6 Months) September 30, 2018 to March 31, 2019 Security % of Return Trailing 6 Month Portfolio Contribution to Return LAM Research Corp 4.3% 19.6% 0.82% Visa Inc. 4.05% 16.74% 0.76% PAYPAL Holdings 2.47% 18.21% 0.44% Inc.
Worst Performers (Trailing 6 Months) September 30, 2018 to March 31, 2019 Security % of Portfolio Return Trailing 6 Month Contribution to Return Universal Insurance 7.04% (35.39%) (2.94%) Holdings CVS Health Corp 3.17% (32.74%) (1.64%) Farmer Bros Co 2.1% (24.2%) (0.5%)
Bottom Contributions to Return (Trailing 6 Months) September 30, 2018 to March 31, 2019 Security % of Return Trailing 6 Month Portfolio Contribution to Return Universal Insurance 7.04% (35.39%) (2.94%) Holdings CVS Health Corp 3.17% (32.74%) (1.64%) Acadia Healthcare 4.08% (16.73%) (0.75%) Company Inc
McClain Torch Fund Period Two Report
Portfolio Market Capitalization Weights
McClain Torch Fund Period Two Report
McClain Torch Fund Period Two Report
McClain Torch Fund Period Two Report
Purchase and Sales
UT - McClain Torch Fund
From 12-31-18 To 3-31-19
Date Quantity Price Company Ticker Amount
Purchases
3/12/2019 50 $98.81 Electronic Arts Inc. EA $4940.36 Laboratory Corp of 3/12/2019 70 $150.96 America Holdings LH $10566.94
3/27/2019 100 $69.64 Johnson Outdoors Inc. JOUT $6964.10 Marathon Petroleum 3/27/2019 100 $62.14 Corp. MPC $6214.00
Sales
1/28/2019 825 $16.10 Bojangles’ Inc. HDSN $14087.50
McClain Torch Fund Period Two Report
Returning Fund Managers
Raman Lal joined the McClain Torch Fund in August of 2018. He is a junior majoring in finance with a minor in mathematics at the University of Tennessee. Raman is currently participating in the Chancellors Honors Program and in first cohort of Heath Integrated Business and Engineering Program. Raman is also part Financial Management Association (FMA) and UT Investment Group (UTIG), has had internships at NWQ Investments and Capital Bank, and was a Normandy Scholar at UT. Raman is also a brother and a member of the Investment Team in Alpha Kappa Psi: Zeta Lambda Chapter. Raman loves to invest in his personal time and read about Finance and WWII history. He hopes to pursue a career in commercial banking or business brokering.
Shane Gatti joined the McClain Torch Fund in August of 2018. He is a senior in the Haslam College of Business from Cleveland, OH, majoring in Finance with a concentration in Business Analytics. After interning in Taiwan and China for a trading firm in 2016 he worked for a Private Equity firm in Knoxville, Towanda Capital, conducting research and analysis on companies as investment opportunities. This past summer, he completed an internship for UBS a.g. in Nashville working with their cash management and FX teams. Upon graduation, Shane plans to pursue a career in investment banking.
Zachary Rebels joined the McClain Torch Fund in September 2018. He is currently a Senior majoring in Finance with a collateral in Business Analytics. He is a member of the Tennessee Capital Markets Society, Co-President of University of Tennessee Investment Group, and works as a Senior Bloomberg Analyst at the Masters Investment Learning Center. This Summer of 2018, Zachary completed an Internship with Izar Capital Group, a small investment bank, in Washington D.C. Prior to being enrolled at UT, Zachary served in the U.S. Marines Corps for 5 years and 10 months where he worked as an Embassy Guard for the Department of State. As an Embassy Guard, Zachary was able to learn about different cultures and customs from traveling to numerous countries and interacting with locals in those countries. Zachary would like to pursue a career as a Financial Analyst.
McClain Torch Fund Period Two Report
Charles West joined the McClain Torch Fund in January of 2018. He is a junior in the Haslam College of Business majoring in Marketing and Finance with collateral in International Business. In 2017, he was a summer research analyst for Rayburn West Financial Services focusing on value investing. In 2016, he was a varsity athlete on the football team at the University of Tennessee and is currently a brother of the Sigma Alpha Epsilon Fraternity. Last summer, he studied abroad at the London School of Economics and has an interest in global markets. He hopes to pursue a career in investment banking or value investing.
New Fund Managers
Madeline Hoops joined the McClain Torch Fund in January of 2019. She is currently a junior majoring in Finance with a collateral in International Business at the Haslam College of Business. Madeline is also pursuing a minor in Spanish Language at the University of Tennessee. In 2018, she contributed as a columnist for the UT Daily Beacon and was a member of Delta Sigma Pi, a professional business fraternity. During the summer of 2017, she served as a legal intern for a criminal defense lawyer. The following summer she spent the summer in Spain studying Spanish language. Madeline aspires to pursue a career in investment banking or financial analysis.
Dani Faragi joined the McClain Torch Fund in January of 2019. He is a junior in the Haslam College of Business, pursuing a double major in Finance and Accounting with a concentration in Business Analytics. Prior to being enrolled at UT, Dani served in the Israeli Intelligence Corps, under the jurisdiction of the IDF Directorate of Military Intelligence, and was responsible for collecting and disseminating information, and forming tactical and strategic assessments. Upon graduation, he hopes to pursue a career as a Financial Analyst.
McClain Torch Fund Period Two Report
Luke Coscia joined the McClain torch fund in January of 2019. He is a junior in the Haslam College of Business majoring in Finance with a concentration in International Business. He is a member of the Greg and Lisa Smith Global Leadership Scholars Program, Chancellor’s Honors Program, Tennessee Capital Markets Society, and works in the Master’s Investment Learning Center as a Junior Bloomberg Analyst. During the summer of 2018, Luke completed an internship for Sedgwick Claims Management in Memphis, TN as an Accounting and Finance Intern. Luke studied abroad in London in the spring 2018 semester with the Greg and Lisa Smith Global Leadership Scholars Program where he took classes and worked at Mercer Consulting as an intern. Luke would like to pursue a career in equity research.
Acadia Healthcare Co. Inc (ACHC) Purchased Nov. 11, 2016 at $46.42 and Nov. 29, 2016 at $37.70
Market Price Target Price Market EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return Capitalization $29.34 $51.06 $2,595.0 $2.18 12.96 14.11% Description: Acadia Healthcare operates a network of multinational behavioral health centers. The company provides psychiatric and chemical dependency services, inpatient psychiatric hospital, residential treatment centers, outpatient clinics, and therapeutic school-based programs. It operates 585 behavioral healthcare facilities with 17,900 beds in 39 States, the United Kingdom, and Puerto Rico. Its five main revenue streams consist of: commercial, Medicare, Medicaid, NHS, and Self-Pay. Investment Thesis The behavioral healthcare market is highly fragmented, which creates acquisition opportunities. During 2017, Acadia added a facility with 750 new beds. Acadia has also grown organically. For example, it has averaged same- facility revenue growth of 6.3% over the past ten quarters. This increased growth allows for economies of scale and integrated marketing. Roughly 18% of American adults have a Source: Investor Presentation diagnosable mental illness with 4% of American adults having a serious mental illness. The mental abuse treatment market is projected to increase to $42.1B in 2020, up from $24.3B in 2009. Also, the inpatient treatment market is estimated to grow to $36B by 2023. The market opportunities available to Acadia show significant potential, but we have doubts about Acadia’s ability to capture this market. Their growth metrics have slowed substantially over the past few years. We currently believe that Acadia can return to their prior growth. Upon earnings release in February, we will re-evaluate our Source: Investor Presentation position in Acadia.
1 and 5 Year Returns Compared to Related Indices 140% 250% 120% 100% 200% 80% 150% 60% 100% 40% 50% 20% 0% 0%
ACHC SPX Index S5COND Index EA SPX Index S5COND Index
Source: Bloomberg 1 Booking Holdings Inc. (BKNG) Purchased April 26, 2018 at $2108.96
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Returns $1744.91 $1,879.09 $78,543M $100.67 18.28 1.31% Description: Booking Holdings Inc. operates as an online travel company. The Company offers a platform that allows customers to make travel reservations with providers of travel services. Booking began as Priceline.com, but has since added companies such as booking.com, Agoda, KAYAK, RentalCars, and OpenTable to their portfolio, providing an all-around online travel booking destination for customers.
Source: Gecko Routes Source: Market Realist Investment Thesis The online travel booking industry is only 45% penetrated as of 2018. With a variety of online accommodations companies under their umbrella, Booking is poised to be the one-stop shop for customers and all of their travel needs. Booking has invested $2B in Ctrip, a Chinese travel company. With an expected increase from 100M middle class Chinese households today, to 300M middle-class households by 2030, Booking Holdings will be prepared to capture and capitalize on this growth in upward mobility. Booking has experienced consolidated gross bookings of 12% year-over-year in U.S. dollars and has recently begun ramping up their brand advertising mainly on digital channels. As of Sept. 30th , Booking.com has received a 21% increase in reported listings year-over-year with 5.7 million reported. We believe Booking Holdings is undervalued and will continue to see increased revenue growth, better operating margins, and beneficial acquisitions in the Chinese markets. 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg 1 CVS Health Group (CVS) Purchased Nov. 13, 2018 at $80.34, Purchased Nov. 27, 2018 at $78.65
Market Price Target Price Market EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return Capitalization $52.81 $125.27 $68.57B $6.84 7.72 -19.391% Description: CVS is an integrated provider of pharmacy and health care services. Specialize in pharmacy benefits management, distribution of pharmaceuticals via mail order, retail, and specialty pharmacies, retail clinics and disease management programs. CVS has a presence in multiple countries and 49 U.S. states, owning over 9,800 retail stores and over 1,100 retail clinics through their MinuteClinic program. Investment Thesis A majority of sectors in the healthcare industry are fragmented. CVS believes that by vertically integrating and controlling the process from the first to the last step, they can minimize patient costs and streamline the process. Over the past years, CVS has slowly positioned themselves into being a “one-stop-shop” for all needs healthcare. With the acquisition of Aetna $AET, they are hoping to transform CVS-Aetna into an industry titan with an insurmountable competitive Source: 10-k advantage.
At its core, CVS is a fundamentally healthy company. Over the past 10 years they have consistently opened and acquired new retail stores, averaging over 162 annually. In addition, CVS has demonstrated consistent growth in EPS, revenue, net income, as well as their customer loyalty program. We believe CVS is slated to maintain their organic growth for the foreseeable future. Assuming the integration of CVS-Aetna is a smooth process with little obtrusion, results should be seen starting in two years (source: investor Source: Bloomberg presentation). In it’s current position, CVS boasts a great value opportunity with a large margin of safety. 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg 1 Electronic Arts Inc. (EA) Purchased March 12, 2019 at $98.81
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Returns $102.67 $130 $30,759M $3.90 22.34 -16.17% Description: Electronic Arts Inc. develops, publishes, and distributes branded interactive entertainment software worldwide for video game consoles, personal computers, handheld game players, and cellular handsets. The company also provides online game-related services. Its leading titles are Madden NFL, FIFA, Apex Legends, and Star Wars and its own Battlefield, Mass Effect, and The Sims. EA also provides online social games licensed from Hasbro and many others.
Source: Bloomberg Source: Bloomberg Intelligence Investment Thesis: EA is the premiere video game publisher in sport games for consoles, computers, mobile games, and live services and they have exclusive rights from the NFL, FIFA, Disney, and NHL to develop games. Their sport games have a very high levels of engagement and micro transactions (90% gross margins). Longer play times generally translate into higher digital revenue. The more a gamer spends, the longer the gamer plays the game, which makes it more likely that they spend more money—a virtuous cycle. EA’s price had decreased 30% due to market overreaction to earnings miss, however, their core user base still remains intact with high levels of ARPU. At a 23 P/E and ROE of 25%, is a bargain compared to Activision, Take-Two Entertainment, and Ubisoft. Their subscription model and Apex Legends success will drive digital revenue growth which consistently which have been helping with increasing margins. Due to the lack luster success in titles this year (effect seen in price), the outlook for 2019 and 2020 looks much better with the release of Star Wars: Jedi Fallen Order, Anthem, Apex Legends, and non-sports mobile games along with relaunches of core sport games. eSports and live services continue to grow by double digit YoY. Other upsides can be seen with data play from payment and gaming behavior, Live Services, and subscription models. 1 and 5 Year Returns Compared to Related Indices
150% 600% 500% 100% 400% 300% 50% 200% 100% 0% 0%
EA SPX Index S5COND Index EA SPX Index S5COND Index
Source: Bloomberg 1 EQM Midstream Partners LP Purchased April 25, 2017 at an average price of $24.76 (as RMP)
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $46.17 $53.87 $9.5B $4.49 8.92 9.39%
Description: EQM Midstream Partners is a fee-based, growth-oriented limited partnership formed by Rice Energy Inc. to own, operate, develop, and acquire midstream assets in the Appalachian Basin. Their initial assets consist of gathering, compression and dehydration assets that service high quality producers in the rapidly developing dry gas core of the Marcellus Shale. Investment Thesis EQM acquired a 60% stake in Eureka Midstream and a 100% stake in Hornet Midstream March 2019 with the Distribution intention of increasing their assets in the Marcellus and Growth Utica region. These purchases allow EQM to expand their fresh water services to a new producer customer base, as well as increase their overall scale, which will reduce unit operating costs.
EQM has rapidly expanded its assets in the Ohio, Pennsylvania, and West Virginia area primarily through debt. EQM has yet to realize the long term gains associated with its acquisition of RMP, but these two
Source: Company Presentation new acquisitions could help maximize the water business sector, which is projected to be profitable for EQM in 2019.
EQM stock price has been negatively impacted by delays and increasing costs of their Mountain Valley Pipeline (MVP) project, which has now cost the company $4.6 billion, and has been pushed back until 4Q of 2019. Pending lawsuits and protests by environmental activists have routinely plagued the project. Possible synergies between the recent acquisitions bode well for the future of EQM, but the looming pressure of completing the MVP project on time makes EQM a hold. Source: Zacks 1 Year and 5 Year Returns Compared to Related Indices
250% 200% 150% 100% 50% 0%
EQM SPX Index S5COND Index
Source: Bloomberg 2 Facebook Inc. (FB) Purchased Nov. 15, 2016 at $116.75 and Nov. 29, 2016 at $121.38 Partially sold Oct. 17, 2017 at $175.74
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $166.69 $195.00 $511,212M $7.55fa 23.70 27.16%
Description: Facebook Inc. is a technology company with a strong focus on social media and communication. Facebook Inc. owns Facebook, Instagram, Facebook Messenger, WhatsApp, and Oculus. The company receives nearly all their revenue through selling advertising placements to third parties. This is similar to other companies in this field (Alphabet Inc., Yahoo! Inc, etc.). Facebook is one of several companies that make up the large social media and search conglomerates, and as such, remain in competition with these companies. Investment Thesis Since its IPO in 2012, Facebook’s revenue has increased 1100%, and free cash flow has increased from .4B to $19B. As a percent of revenue, U.S. and Canada have remained roughly steady at 50%. Instagram revenues have made up 18% of mobile ad revenue in 2018. We expect this to expand and to push 24-26% in 2020.
Facebook has spent a significant amount of money expanding into other areas of social media. In April of 2012, before the company even reached their IPO, they bought Instagram for $1B. In 2014 it bought WhatsApp for $19B to improve their messaging service. It bought Oculus the Source: Bloomberg same year, hoping to get ahead of expansion in the virtual reality market.
The market has been skeptical of future growth opportunities for Facebook. Given that the company earns nearly all revenue from advertising, the announcement that ad revenue was likely to level off was not met with optimism. But we believe that Facebook’s revenue deceleration is manageable as core Facebook’s user base is strong and Instagram revenue is growing fast ($8 to $14 YoY). During 3Q18 results, FB guided its GAAP expenses to grow 40%-50% in 2019—down from 50%-55% growth in 2018—but still quite heavy. Facebook’s expenses will Source: Bloomberg grow but will be better aligned with revenue. 1 and 5 Year Returns Compared to Related Indices
150% 400% 300% 100% 200% 50% 100% 0% 0%
FB SPX Index S5COND Index FB SPX Index S5COND Index
Source: Bloomberg Farmer Brothers Co. (FARM) Purchased April 25, 2017 at $35.32
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $20.01 $25.14 $336.8M $0.28 69.53 -14.23%
Description: Farmer Brothers Company originated on the west coast and operates as a coffee foodservice company. The company roasts, packages and distributes coffee, tea and roughly 300 other foodservice products to restaurants, hotels, hospitals, convenience stores, and fast food outlets.
Investment Thesis Farmer Brothers is a national coffee roaster, wholesaler and distributor of coffee, tea, and culinary products. Its primary brands include Farmer Bros. Superior, Metropolitan, Cain's, McGarvey and China Mist. The company continues to launch new products within the coffee and tea markets, while further penetrating the growing cold brew coffee market. The company is working towards 100% production of Boyds Brands, which increased revenues FY2018 by 14%. Farmer Brothers expect to increase inventories in Source: 10-K order to compensate for the slowdown that will take place when this production switch occurs. The company is looking for new opportunities in the specialty coffee market to appeal to the younger generation, a market that is up 12.5% in the past year. The first half of 2019, as expected, has continued to remain sluggish with the loss of a major customer and continued softness of two others major customers. The second half of the year being better than the first as it completes integration of Boyd’s Brands. We hope to see Boyd’s contribution to the increase in revenues be transferred to the bottom line as integration continues to move into the later stages.
Source: Bloomberg 1 and 5 Year Returns Compared to Related Indices
7 FedEx, Inc. (FDX) Purchased 30 shares April 5th, 2018 at $238.98
Market Price Target Price Mkt. Cap Earnings Per Share P/E (Curr. FY Est) 2019 YTD Return
$181.41 $205.70 $47,270M $15.36 $12.73 12.87%
Description: FedEx delivers packages and freight to multiple countries and territories through an integrated global network. The Company provides worldwide express delivery, ground small-parcel delivery, less-than-truckload freight delivery, supply chain management services, customs brokerage services, and trade facilitation and electronic commerce solutions Investment Thesis The goods transportation market is consistently growing as eCommerce and door delivery ramp up year over year. During the next 12 months, will invest $5.9 billion into modernizing and acquiring a new generation of aircraft for superior national and international delivery compared to rivals (DHL, UPS). FedEx has also grown organically, they saw 7% revenue growth in 2017 due to increased package volume. FedEX has aligned with Walmart and anticipates adding 500 FEDEX Office locations by May 2020. The TNT Express acquisition is still streamlining into the Source: Bloomberg business, but will work with FedEx over the coming years to grow in international markets. FedEx has a diversified payer base with 4 primary services. Also, Fedex has low marginal cost and will take great advantage of increasing volume year over year. 2018 had a disappointing financial result due to the NotPetya cyberattack and an increased fuel expense of 21%. However, FedEX expects revenues to increase due to higher international volumes and U.S. domestic yields. FedEX has also focused on enhancing their safety protocols to limit chances of another cyberattack in the future. With increasing facility growth, international expansion, Source: Bloomberg operating margin growth, and acquisitions, we believe that FedEx was undervalued at year end, relative to our estimate of value. 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg 6 Five Below (FIVE) Purchased Feb. 28, 2017 at $38.99; Partially sold September 18, 2018 115 shares at $129.33
Market Price Target Market EPS (Curr. FY P/E (Curr. FY Est) 2019 YTD Price Capitalization Est) Return $134.97 $143.96 $7.531B $3.07 43.99 31.91% Description: Five Below is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the teen and pre-teen customer. It offers an assortment of products, all priced at $5 and below, including select brands and licensed merchandise. It seeks to transform the shopping experience of its target demographic with a unique merchandising strategy and high-energy retail concept that appeals to teens and pre-teens.
Investment Thesis: While Five Below uses a business model similar to Dollar General, etc., it is uniquely focused on the teen and tween demographic. This allows them to more effectively market, as well as giving them a smaller set of trends to follow. That said, the trends that they follow are more quick to change, which gives them a strong edge if they’re able to keep up. While the business models are similar, the target demographic and marketing strategies are different enough that there is little crossover.
Source: Bloomberg Five Below has been expanding quickly, but at a far slower rate than comparable low-cost retailers in order to ensure that forecasting and logistics Teens in the US: 26.9M are able to keep up. They have moved steadily westward, but still have the West Coast open Teen spending 2016: $258.7B before them. % of US girls (12-18) who Five Below grew with very little debt, and currently identify shopping as a has no outstanding debt. More importantly, they “hobby and activity”: 79% continue to hit their own projections for sales, even in an extremely seasonal and economically sensitive market. Their internal accuracy speaks to both their ability to read trends and to manage Source: Piper Jaffray & US Small Business their supply chain, even with 4,000+ SKUs. Administration 1 Year and Lifetime Returns Compared to Related Indices
Source: Bloomberg 6 Grand Canyon Education Inc. (LOPE) Purchased Nov. 1, 2016 at $43.80
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $117.49 $130.49 $5.67B $5.07 23.2 9.14%
Description: Grand Canyon Education, Inc., operates GCU, a comprehensive regionally accredited university that offers over 225 graduate and undergraduate degree programs across nine colleges both online and on ground at their 275+ acre campus in Phoenix, Arizona, at leased facilities, and at facilities owned by third party employers of our students.
Investment Thesis Grand Canyon Education managed to disentangle itself from its peers in the for-profit education sector. In the same period that Grand Canyon Education’s competitors’ enrollment was cut in half, GCU saw its enrollment double.
The company’s stock performance has been bolstered by the election of Donald Trump, which marked the beginning of a deregulation sentiment factoring into the market, allowing the company to improve its already advantageous position in the industry.
On January 22, 2019, Grand Canyon Education, Inc. announced that it had completed the acquisition of Orbis Education Services, LLC, a Delaware limited liability company (“Orbis Education”). Orbis Education is an education services company that supports Source: 10-K healthcare education programs for 17 universities across the United States. As a result of the Merger, Orbis Education became a wholly owned subsidiary of Grand Canyon Education, Inc.
1 and 5 Year Returns Compared to Related Indices
7 Hanesbrands Inc. (HBI) Purchased Dec. 5, 2017 at $20.80
Market Price Target Price Market EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return Capitalization $18.62 $37.24 $6.730B $1.75 10.91 44.01% Description: Hanesbrands Inc. is a leading marketer of innerwear and activewear apparel in the Americas, Europe, Australia, and Asia/Pacific under a number of brands including: Hanes, Champion, Maidenform, DIM, Bali, Playtex, Just My Size, Nur Die/Nur Der, L’eggs, Lovable, Wonderbra, Alternative, Gear for Sports and Berlei. Hanesbrands primarily operates its own manufacturing facilities and sells mostly bras, panties, shapewear, hosiery, men’s underwear, children’s underwear, socks, T-shirts, and other activewear. Investment Thesis Through non-U.S. acquisitions, Hanesbrands has expanded their sales growth into international sales. Since the last two quarters Hanesbrands has grown 23% in their international sales by business segment. They have recently acquired the company Alternate Apparel and are looking to expand their athletic line. In addition to growth through acquisitions, Hanesbrands has effectively created brand loyalty Source: 10-K by producing high quality products at a price point that is difficult to be beat by competitors. Their main consumer is Walmart. The 2017 EPS decreased significantly due to a second quarter earnings miss and Target announcing they will not be renewing an activewear contract when it expires. Hanesbrands still believes to see sales continue to grow despite the lost contract. We believe that Hanesbrands is undervalued and will continue to see increasing international growth as well as sustained domestic sales through their Source: Bloomberg new acquisition.
1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg
1 IAC/InterActiveCorp (IAC) Purchased Mar. 27, 2018 at $161.06
Market Price Target Price Market Capitalization EPS (2019 Est) P/E (2019 Est) 2019 YTD Return $210.11 $223.00 $18,095.6M $6.47 33.40 14.79%
Description: IAC is a leading media and Internet company composed of widely known consumer brands such as Match, Tinder, PlentyOfFish and OkCupid, which are part of Match Group’s online dating portfolio, and HomeAdvisor and Angie’s List, which are operated by ANGI Homeservices, as well as Vimeo, Dotdash, Dictionary.com, The Daily Beast, and Investopedia. Investment Thesis With the largest portion of revenue coming from the Match Group and ANGI Homeservices business segments, IAC’s focus has been on growing those two segments as well as Video, which has been receiving the largest portion of firm investment.
The company owns controlling interests in MTCH and ANGI. Despite the growth and expectation of future profitability in the Video segment, the market is currently assigning a negative value of over $2 billion to the Video, Applications, and Publishing segment based on the market cap of IAC and the market value of IAC’s shares in MTCH and ANGI. Source: 10-K Starting this quarter, within the Applications segment IAC now provides the revenue split between Mobile & Desktop. Mobile revenue grew 77% Y/Y organically in 3Q, is profitable, & has 2.5M+ subscribers. Next quarter, Dotdash & Vimeo each become stand-alone segments with revenue & profit disclosure.
While the Match Group and Angie’s Homeservices businesses are industry leaders with strong growth opportunity, buying IAC allows us to take advantage of the growth and success of these segments while also gaining exposure to Video business. Meanwhile, this also takes advantage of the overly negative view the market is Source: Investor Presentation placing on the three smaller business segments. 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg Johnson Outdoors (JOUT) Purchased Mar 27, 2019 at $69.59
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $71.36 $91.93 $720.3M $4.96 14.46 2.23%
Description: Johnson Outdoors is a leading global manufacturer and marketer of branded outdoor products used primarily for fishing from a boat, diving, paddling, hiking, and camping. Investment Thesis Johnson Outdoors continued increase of production innovation and technology, and the integration of all their brands will continue to lead them to success in the upcoming years. Their main fishing brands, Minn Kota and Hummingbird, are sold primarily across North America and continue to drive top line growth. Their feature, 1-Boat, gives their products the ability to send and receive real time data to other connected products. This means that a hummingbird fish finder is able to take data from a Minn Kota tolling motor and use autopilot to keep the boat where the fisherman wants. Source: 10-K The company has products at all prices ranges, but puts a focus on the mid-range price with a focus on ease of use. Industry information also looks favorably for Johnson Outdoors, consumers have been spending more time and money on leisure and outdoor activities, reflected in around 5 percent increase in new boat sales in each of the last two years, as well as a 2 billion dollar increase in total fishing expenditures in the last two years. They also have a clean balance sheet with no debt and ample cash on hand that is being used to continue to innovate the technology of their products. As the economy continues to be strong, and leisure activities continue to increase, we expect Johnson Outdoors to continue to see top-line Source: U.S. Fish and Wildlife Association growth. 1 and 5 Year Returns Compared to Related Indices
1 3 Laboratory Corporation of America Holdings (LH) Purchased Mar. 12, 2019 at $150.89
Market Price Target Price Market EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return Capitalization $157.61 $183.44 $15.55B $11.21 14.06 4.45% Description: LabCorp is a manufacturer and administrator of over 5,000 clinical laboratory tests. LabCorp is responsible for the production and administration of various tests including but not limited to pathologic and anatomical imaging and analyses, alongside specialty tests such as genetics and coagulation. LabCorp also owns Covance Drug Development, a consulting/R&D company that assists in the process of drug development for biotech and biopharmaceutical companies. Annually LabCorp sees 115 million patient encounters, and Covance has been involved with the development of all top 50 drugs by sales revenue. Investment Thesis Industry Lab Testing Revenues (in LabCorp is a vertically integrated business. For billions) clinical laboratory testing, LabCorp controls the process end-to-end. With a proprietary software network and interface and an in-house courier system, LabCorp is able to minimize costs in an environment where rising healthcare expenditures are attracting the attention of nearly everyone. In addition, LabCorp has minimal exposure to PAMA cuts, further differentiating themselves from other Source: Investor Presentation medical testing companies.
As rising healthcare costs are gathering attention, biotech and biopharmaceutical companies are exploring all possible avenues to streamline and expedite the process of drug development. Covance Drug Development is able to assist these biotech and biopharmaceutical companies in all stages of drug development from the discovery stage all the way through the final phase of clinical and safety trials. By taking on a consulting and R&D role Covance is able to isolate themselves from the risks commonly associated with Source: Investor Presentation pharmaceutical development, yet still realize revenues and sales from the development process. 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg 1 Marathon Petroleum Corporation (MPC) Purchased March. 27, 2019 at $62.14
Market Price Target Price Market Capitalization EPS (2019 FY Est) P/E (Curr. FY Est) 2019 YTD Return
$59.85 $76.68 $40,258M $5.97 10.54 -3.76%
Description: Marathon Petroleum Corporation is a leading, integrated, downstream energy company that deals with refining, supplying, and transporting petroleum products to customers in the United States. MPC stretches across the United States with 16 refinery locations that house more than 3 million barrels of crude oil capacity per day. MPC operates through three segments: Refining and Marketing, Retail Convenience Stores (Speedway, Marathon, ARCO) and Midstream.
Free Cash Flow Yield * Investment Thesis On October 1st 2018, MPC acquired Andeavor, an industry rival, for a 23.3 billion dollar agreement adding 10 refinery locations for MPC making them the largest refinery company in the United States. MPC is now strategically placed throughout the United States expanding their foothold in the Permian Basin near the gulf coast and extending their reach throughout the Western United States.
Recently, The International Maritime Organization (IMO) has released new global fuel standards which will * (as of February 5, 2019 based on last 12mo of data) come into effect January 1st 2020, capping sulfur Source: Investor Presentation emissions to .5%. This action is expected to dramatically increase demand for diesel fuel putting MPC in the driver seat to acquire a big chunk of the expected demand since they have the largest capacity for oil capacity and refineries in the United States.
Since the acquisition, MPC has taken on a lot debt which could be a worry to investors, but with increasing projected demand and free cash flows, we believe MPC should be able to handle their debt and create increasing future wealth for their shareholders.
Source: Investor Presentation 1 and 5 Year Returns Compared to Related Indices
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MPC US Equity SPX Index S5COND Index
Source: Bloomberg 14 Molson Coors Brewing Co. (TAP) Purchased Nov. 22, 2016 at $98.66 and Nov. 29, 2016 at $100.41
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $59.65 $133.46 $13.09B $5.02 12.04 6.92%
Description: Molson Coors Brewing Company is one of the world’s largest brewers and have a diverse portfolio of owned and partner brands, including: Carling, Coors Light, Miller Lite, and Molson Canadian, as well as craft and specialty beers such as Blue Moon, Creemore Springs, and Doom Bar. They are committed to producing the highest quality beer and their largest markets are the United States, Canada, and Europe. They have 21 breweries and 3 distribution centers in the U.S., Canada, and MCI. Investment Thesis Molson Coors’ United States segment is MillerCoors. Miller Coors is the second largest brewer in the U.S., with 26% of total brewing industry shipments. During 2015, it acquired 58% economic interest and 50% voting interest in MillerCoors. Molson Coors Brewing Company saw a sales jump of 37% in 2016 largely due to this acquisition. We expect this move to continue to provide both revenue and cost synergies while driving growth and increasing the value of the company. Lastly, the company is improving sales of its high quality and high margin beers in the U.S.. Annually, MCBC produces over 1.2 billion US gallons of beer. Source: Bloomberg The international brewery market has generally been fragmented with lots of exports, licenses, and partnerships. However, as the brewery market becomes more consolidated with global players, Molson Coors can leverage the scale, depth of product portfolio, and knowledge of the industry to continue to lead the market.
The beer market in the United States declined after 2009 due to unemployment, low consumer confidence, and poor economic conditions. However, we expect the current market to continue to be strong along with the economy. Source: 10-K 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg 11 National Presto Industries, Inc. (NPK) Purchased Feb. 28th, 2017 at $101.40
Market Price Target Price Market Capitalization EPS (T12M Dec-187 P/E (Curr. FY Est) 2019 YTD Return $108.55 $140.19 $757M $6.00 18.01 -2.19%
Description: National Presto Industries Inc. is a business consisting of three segments: Housewares/Small Appliances, Defense, and (formerly) Absorbent Products. As of December 31, 2015, Housewares/Small Appliances comprised about 29% of net sales, while Defense made up 54% and Absorbent Products took 17%. The Housewares/Small Appliances segment primarily consists of kitchen appliances targeted at consumers. The Defense segment provides ammunition and other essential materials to the government, while the Absorbent Products segment is mainly focused on private label adult incontinence products. Investment Thesis The Absorbent Products segment has been problematic for Presto for a considerable amount of time. The business is capital intensive, with significant time needed to both install the complex equipment and train employees to use it efficiently. Further, the industry is characterized by high volume and low margin, and product costs are noticeably affected by commodity prices. On January 3, 2017, Presto announced it had sold its Absorbent Products business to Drylock Technologies Inc. for $71M. This has allowed Presto to focus on its higher margin segments while offloading the barely-profitable segment.
In August 30, 2017, the Army awarded AMTEC, as the sole prime contractor, a five-year 40mm system contract covering FY17-21 requirements. The value is approximately $79,000,000 for FY17, with deliveries scheduled to commence in late 2018. The actual annual and cumulative dollar volume with the Army over the balance of the contract will be dependent upon military requirements and funding.
We believe National Presto provides stable constant growth to the portfolio and is currently undervalued. Source: Bloomberg Data 1 Year and 5 Year Returns Compared to Related Indices
Source: Bloomberg 12 Newell Brands Inc. (NWL) Purchased March. 23, 2017 at $47.84
Market Price Target Market EPS (Curr. FY est) P/E (Curr. FY est) 2019 YTD Return Price Capitalization $15.39 $43.00 $6,511.2 $1.52 10.16 -17.21% Description: Newell Brands Inc. retails consumer products. The company offers housewares, home furnishings, office supplies, tools and hardware, hair accessories, and various other products. Newell Brands markets its products worldwide. Among its brands are Sunbeam, Calphalon, Oster, Rubbermaid, Sharpie, Paper Mate, Loew Cornell, Coleman, Marmot, Contigo, Graco, Aprica, Ball, Tablelux, Eco, Jostens, Jarden, First Alert, Rawlings, Parker, Waterman and Rotring.
Investment Thesis: Prior to its 2016 merger with Jarden Corporation, Newell Rubbermaid was a large organization with an extremely diverse portfolio of brands that were competitive internationally, but whose growth had stagnated.
The merger with the larger, strongly expanding Jarden changes the outlook of the renamed Newell Brands corporation significantly. Jarden began to see certain problems during international expansion, which the leadership of Newell understands from their own experience growing Source: Bloomberg their company. Also, Jarden’s central governance was not as strong or lean as it could be, while Newell had already completed much of that process in order to cut costs in the last four years.
The growth of Jarden’s brands and the consistency of Newell Rubbermaid’s made for two solid companies. The current price of the combined Newell Brands reflects an assumption that Newell’s leadership will not substantially change the profitability of brands formerly under Jarden, but we believe that it has already begun the task of leaning Source: 10-Q those businesses, and will continue to do so more swiftly and effectively than the previous company’s leadership could have. 1 and 5 Year Returns Compared to Related Indices
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NWL US Equity SPX Index S5COND Index
Source: Bloomberg 13 Owens Corning. (OC) Purchased March. 31, 2017 at $60.85
Market Price Target Price Market Capitalization EPS (2018 FY Est) P/E (Curr. FY Est) 2019 YTD Return $47.12 $55.11 $5,163M $4.96 $10.51 8.18%
Description: Owens Corning produces residential and commercial building materials, glass-fiber reinforcements, and engineered materials for composite systems. The company offers its products globally to various industries. OC makes insulation, roofing, and fiber-glass composites. OC is organized into three business units: composites, insulation, and roofing. Investment Thesis Free Cash Flow Yield Within Sector OC has positioned itself well to continue growth into the future by harnessing the increased infrastructure growth in the U.S. and around the world. With the recent acquisition of Paroc, the largest insulation manufacturer in Europe, OC has high growth potential outside the U.S..
During the housing market collapse, OC saw their margins in insulation and composites dip negative for the first time in 11 years. As the housing market continues to return to its same level before the collapse, its margins continue to increase. With its new position in Europe, we can expect this more geographically Source: Investor Presentation diversified company to be better equipped for any future market corrections.
OC is a financially healthy company with a 1.62 current ratio. OC is able to consistently turn revenue into cash because of their increased margins and diversified consumer base across four continents. Their management team has focused on implementing sustainable cost reductions across their business and driving substantial organic growth in their roofing and insulation markets. OC is pursuing acquisitions for sustainable growth and earnings for future wealth for their investors and we feel OC is equipped to expand Source: Investor Presentation their business successfully in emerging global markets. 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg 14 PayPal (PYPL) Purchased December 5, 2017 at $72.08
Market Price Target Price Market Capitalization EPS (2019 Est) P/E (2019 Est) 2019 YTD Return $103.84 $108.60 $126,831.2M $2.88 37.53 23.49%
Description: PayPal Holdings Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies or convert across currencies. PayPal Holdings Inc. was founded in 1998 and is headquartered in San Jose, California.
Investment Thesis: Given the secular trend of payments moving from cash to alternatives and a current trend of online payments, PayPal is in a good place to capture a large share in this growing market. They are able to safely transfer funds within or across currencies to aid in economic advancement, earning recurring revenue streams along the way.
PayPal is able to capture both sides of the market: the merchant and the consumer, with their end-to-end interface. The company offers a robust API, with offerings Source: Bloomberg such as express checkouts, invoicing, marketplace platforms, and instant payouts.
Certain recent acquisitions such as iZettle, HyperWallet, and Simility make the Company stand out as a strong purchase. These companies allow customers to easily set up payment collections for their store or online marketplace – thus creating recurring revenue streams through payment processing. Others were created to give customers the ability to autopay for things like rent, utilities, and more – another source of recurring revenue. As E-commerce increases, PayPal will be able to take advantage with its payments solutions. Source: 10-Q 1 Year and since Inception Returns Compared to Related Indices
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PYPL US Equity SPX Index S5COND Index Source: Bloomberg Pilgrim’s Pride Corporation (PPC) Purchased March. 20, 2018 at $25.18
Market Price Target Price Market EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return Capitalization $22.29 $28.73 $5,898.9M $1.30 18.20 43.71%
Description: Pilgrim’s Pride Corporation produces prepared and fresh chicken products in the United States and Mexico. Through vertical integration, the Company controls the breeding, hatching, and growing of chickens and the processing, preparation, and packaging of its product lines. Pilgrim’s Pride exports its products to Canada, Eastern Europe, the Far East, and other world markets. Source of Net Sales (in millions of USD) 2018 2017 Percent Change Source: Bloomberg United States 7,425.7 7,443.2 -0.24% Source: 10-K U.K. and Europe 2,148.7 1,996.3 7.63% Mexico 1,363.5 1,328.3 2.65% Total Net Sales 10,937.8 10,767.9 1.58% Ten years ago, Pilgrim’s Pride was struggling and overwhelmed by debt. Since then, it has totally restructured, hiring a new CEO with longstanding in the industry and experience at Tyson. The company now holds 18% of the market share for chicken, second to only Tyson, and have plans for continued growth.
In 2017, it acquired Moy Park, a company based in the U.K.. This company then contributed 18.2% to net sales. Pilgrim’s Pride plans to continue this international growth, as sales continue to increase in all geographic sectors. Recently, the company has faced volatility in the commodity market amidst tariff fears, including an import ban on chicken between U.S and China. However, the company has looked to expand their portfolio with a move into fresh food and expansion of gluten-free products.
The company also received some scrutiny in early 2019 from the Humane Society of the United States for misleading consumers about the companies’ high standards of care of chickens. The company plans to make a change in advertising to reduce their liability, which should diminish the backlash from consumers.
The company experienced short term losses in 2018 due to a difficult pricing environment for commodity chicken in the United States in this past year. However, the expansion of the company’s product portfolio and continued geographic growth should set them up to experience gains in the upcoming years as volatility declines in commodity chicken. 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg 13 Smart and Final Stores Inc. (SFS) Purchased Nov. 1, 2016 at $12.01 and April 10, 2018 at $5.30
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $4.94 $6.11 $417.1M $0.06 96.44 4.22%
Description: Smart & Final Inc. is a high-growth, value oriented food retailer serving a diverse demographic of household and business customers through two complementary and highly productive store banners. It has a differentiated merchandising strategy that emphasizes high quality perishables, a wide selection of private label products, products tailored to business and foodservice customers, and products offered in a broad range of sizes. It maintains Smart&Final branded stores that focus on household and business customers, as well as Cash&Carry stores which focus solely on professional foodservice customers. Investment Thesis Smart & Final has 324 stores that are located in western and northern United States. It continues to transform its Smart & Final stores to the Extra! Format.
The format offers a larger, one-stop shopping experience with 16,000 SKUs, 4,000 more than the original store type. During the first three quarters of 2018, the company opened 3 new Extra! Stores, and relocated two legacy stores to the new format. The company plans to expand using both new stores and the conversion of legacy stores into the Extra! format.
Food retailers experienced deflation during the last year, Source: Investor Presentation especially in dairy products. We do not believe this deflation is likely to be long-term, and we expect to see inflation help profits recover.
Smart & Final has a unique business model that strives for lower prices than both grocers and large discount competitors. Smart & Final differentiates itself by having no membership fee requirement. Furthermore, Smart & Final focuses on integrated marketing for high quality perishable goods and private label products with higher margins. In 2018, it had a portfolio of 3,100 private labels items, which made up 28% of Smart & Final banner sales. Source: Investor Presentation 1 Year and Lifetime Returns Compared to Related Indices
Source: Bloomberg 15 Super Micro Computers Inc. (SMCI) Purchased April 25, 2017 at $25.13
Market Price Target Price Market Capitalization EPS (2018 Est) P/E (2018 Est) 2019 YTD Return $21.13 $24.00 $1.029B .16 15.71 53.10%
Description: Super Micro Computer designs, develops, manufactures, and sells high- performance server products based on open standard components (including Intel, AMD, and NVIDIA processors). They have over 7,000 offerings including motherboards, server boards, blade servers, rackmounts, chassis, and network adaptors. The Company sells primarily through distributors, resellers, and systems integrators (about 55% of sales), but they also market to OEM’s and directly to end users. The Company generates 55% of its sales within the U.S. with Europe and Asia contributing 23% and 20%, respectively. Investment Thesis: Super Micro Computers is a global leader in high performance, high efficiency server technology, and innovation. Their advanced technology in “green” servers leads the industry in power saving technology. Their server solutions optimize power consumption and manage heat dissipation in a server industry that is expanding quickly. The thermal management technology allows lower energy costs as well as reduces the risk of server malfunctions caused by overheating.
Super Micro servers are designed to maximize computing power, while minimizing the physical space utilized. They offer server systems with up to 4x the density of conventional solutions. This high density design is well suited for customers that require highly space efficient solutions. Rapid time-to-market also allows them to reduce the design and development time required to incorporate the latest technology into the newest generations of their products.
The sharp price decrease was due to the Bloomberg article claiming hidden chips on manufactured motherboards contained spy-chips. The claims were rejected by Apple, Amazon, and other companies as well as the US and UK security agencies. 1 and 5 Year Returns Compared to Related Indices Universal Insurance Holding Co. (UVE) Purchased Dec. 5, 2016 at $24.76
Market Price Target Price Market Capitalization EPS (2018 FY Est) P/E (Curr. FY Est) 2019 YTD Return $37.92 $106.07 $1,019.7M $3.69 7.93 -17.83%
Description: Universal Insurance Holdings Inc. is an insurance holding company. It holds Universal Property and Casualty Insurance Company (UPCIC), one of the leading property and casualty insurers in Florida, with licensing in North Carolina, South Carolina, Hawaii, Georgia, Massachusetts, Maryland, Delaware, Indiana, Pennsylvania, Minnesota, Michigan, Alabama, and Virginia. It also holds American Platinum Property and Casualty Insurance Company, which writes homeowners insurance on Florida homes in excess of $1M. Investment Thesis Universal Insurance Holdings takes pride in its strategy for organic growth in originating policies. Many of the company’s main Floridian competitors take on citizen policies. Universal, uniquely, does its own marketing and underwriting, taking on zero policies from citizens since a small transaction in 1998. This allows Universal to be more selective in whom it chooses to cover.
The company has expanded outside of the state of Florida. As of December 31, 2017, these policies outside the state account for 12% of direct premiums written. Source: 10-K Through this geographic expansion, the company hopes to decrease its reinsurance costs. Furthermore, Universal acts as its own reinsurance intermediary, allowing the company to restructure its reinsurance program often to accommodate its evolving needs.
2018 was a tough year for Universal Insurance, with two large hurricanes hitting the state of Florida, causing an unexpected rise in losses. However, diversification of geography and a more normal year for weather should help the company return to its normal levels.
Universal is effectively vertically integrated, avoiding the use of intermediaries or third party adjusters. The company should continue to capitalize on this by Source: 10-K retaining fees that would have otherwise been paid to external entities. 1 and 5 Year Returns Compared to Related Indices
Source: Bloomberg 17 US Concrete Inc. (USCR) Purchased April 25, 2017 at $63.90 and April 10, 2018 at $58.67
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $41.42 $77.35 $747.5M $3.00 $14.99 17.40%
Description: US Concrete Inc. supplies concrete and related products. The Company supplies ready- mixed concrete, precast concrete, concrete blocks, aggregates, and concrete building materials. US Concrete serves the construction industry throughout the United States. Their customers include contractors for commercial and industrial, residential, street and highway, and other public works construction. They operate principally in Texas, New York/New Jersey, and northern California, with those markets representing approximately 38%, 31%, and 25% of their consolidated revenue for the year ended December 31, 2017 . Investment Thesis US Concrete operates in states that represent 26% of the demand for ready- mix concrete in the US. With the deterioration of U.S. infrastructure coupled with the growth in home building, US Concrete is prime to capitalize on these opportunities that have bipartisan support for investment. Ready- mix concrete requires producers to be located within 100 miles, which benefits the Company, so they have less worry of competitors entering the market.
US Concrete’s strong customer base across sectors and Source: Investor Presentation regions points to the satisfaction of its customers with their leading cost and concrete technology. They have a top 3 position in every market they serve, as well as being the low- cost producer in many of these markets due to the vertical integration of their business with the aggregates segment. Successful projects include Facebook, LaGuardia, Toyota, and Google.
Industry leading ROIC with multiple acquisitions over the past 10 years prove managements abilities in utilizing synergies in an industry that requires successful acquisition, and with US Concrete’s stock price rising in the P5Y, they have proved they’re up for the challenge.
1 and 5 Year Returns Compared to Related Indices
13 Visa Inc. (V) Purchased September 24, 2018 at $136.75
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $156.19 $166 $267.17B $5.33 34.21 18.59%
Description: Visa Inc. is a world leader in the industry of payments technology companies. They provide financial services that expedite the transfer of electronic funds through Visa-branded credit and debit cards. The company is driven by their mission to allow access to their world class brand of convenient and reliable digital payments anywhere in the world.
Investment Thesis Visa Inc dominates the credit card payment in the United States, based on its robust payments volume and number of issued cards. The company’s value continues to be heavily driven by its transaction fees revenue made possible by its global processing platform, VisaNet. VisaNet allows for its customers to quickly initiate electronic payments, with a processing capability of 2 trillion transactions per year.
Source: Visa Investor Relations Visa has aligned itself with PayActiv, an app that allows employees to access a portion of their earnings before payday. Visa anticipates gains from this deal as PayActiv feeds the rise in demand of quick access to earned funds.
For Q1 of FY19, Visa Inc.’s earnings report reflected a 13% YOY growth, as their revenue reached $5.5B . Their growth from digital transactions is projected to continue as Analysts suggest that 50% of payment volumes are still expected to become electric.
The continuing shift towards electronic payments bodes well for Visa Inc., as it will experience revenue growth proportional to payment volume growth as transactions Source: Visa Investor Relations become digitized.
1 and 5 Year Returns Compared to Related Indices Walt Disney Co. (DIS) Purchased Dec. 6, 2018 at $111.66
Market Price Target Price Market Capitalization EPS (Curr. FY Est) P/E (Curr. FY Est) 2019 YTD Return $111.03 $162.72 $237.12B $6.93 19.03 1.26%
Description: The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media. Investment Thesis Walt Disney Company is a global entertainment business that focuses on integrating business segments with its most successful brands and intellectual property. The company continues to expand through acquisitions of major entertainment companies, the most recent being 21st Century Fox for $71.3 billion in 2018. The acquisition gave them ownership to many successful franchises including X- Men, Fantastic Four, Deadpool, and Avatar. Disney continues to be driven by the constant success of its theme parks, with strong pricing power and park demand, the company has been able to increase prices while still maintaining positive attendance growth. The parks and resorts segment is the company’s 2nd largest, bringing in $20 Source: 10-K billion in revenue in 2018. With traditional cable network platforms have suffering losses, Disney hopes to increase growth with the introduction of ESPN+ and Disney+, to be released in November of 2019 for $6.99. Along with those platforms, Disney currently owns a 60 percent stake in Hulu, the third largest streaming platform. They hope they can use their intellectual property to have success over competitors like Netflix and Amazon Prime. Disney stock is expected to remain steady due to continued success of Parks and Resorts, Studio Entertainment, and Consumer Products and Interactive Media segments. Incremental revenue growth will begin to occur throughout the year as they continue to gain traction with ESPN+ and Source: UBS eventually release Disney+. 1 and 5 Year Returns Compared to Related Indices
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