Tag Archives: conn

The V20 Portfolio Week #5: Realizing Value And Nearing The End Of Earnings

Summary The V20 portfolio appreciated by 8% vs. S&P 500’s gain of 1%. Individual weights have not shifted, although there could be changes next week. magicJack’s Q3 earnings next week will impact portfolio return over the short term. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! It was a good week for the market, but it was even better for the V20 portfolio. As always, some of our holdings fluctuated wildly during the first week in November, but overall, the portfolio’s gain of 8% completely smashed S&P 500’s return of 1%. With my fifth week of coverage, I thought it might be a good idea to see how we’ve done over the past little while. Since the inception of the portfolio in January, the V20 portfolio is currently up 94% while the S&P 500 only achieved a return of 5% over the same period. (click to enlarge) A huge difference indeed! While the V20 portfolio has been much more volatile (as explained in the introduction), it is a necessary sacrifice that we must make in order to achieve better results over the long term. On Allocation Weights have been more or less the same. No shares have been purchased or sold. I’ve already written about my method for choosing when to allocate more capital to Conn’s (NASDAQ: CONN ) during last week’s update (so feel free to review it if this section doesn’t make much sense to you). Although I believe that the shares are still significantly undervalued, our largest holding, magicJack (NASDAQ: CALL ), did not outperform this week (-0.5%), hence no additional capital was made available for Conn’s. Nevertheless, Conn’s current allocation of 28% means that the entire portfolio will be significantly exposed to the stock’s appreciation in the future. Portfolio News Perion Network (NASDAQ: PERI ) reported earnings this week. The company remains undervalued. The company currently has $129 million in cash and generated $25 million of operating cash flow this year; meanwhile, the stock only has a market cap of $174 million. Although the management does not deploy capital optimally (as evident by the significant cash balance), a high level of dry powder means that our downside is fairly limited. The market seems to agree with my optimism, as the stock soared 13% after earnings. Conn’s also had a piece of noteworthy news this week. On November 2nd, the management announced that they’ve amended the credit facility, providing additional liquidity to the company while relaxing some covenants. The new covenants will allow the company to take on more leverage than before (something I’ve advocated since the very beginning ), allowing additional capital to be returned to shareholders or be used for expansion without having to worry about balance sheet restrictions. The previously announced $75 million repurchase program was used up and the management announced a new buyback program worth $100 million. With increased leverage covenants and more liquidity, I believe that the company will continue to quickly execute and institute new share repurchase programs in the future. Thus far, the strategy has been working, as shares have appreciated 26% over the past week. Whether this is the result of new buying pressure from the share repurchase program or a shift in market sentiment I cannot say. However, one thing is certain, the buyback program will at least decrease the downward pressure in the near term. The Week Ahead Next week marks the conclusion of earnings season for the V20 portfolio. However, it will also be the portfolio’s biggest test over the short term. Currently, magicJack accounts for 39% of the current portfolio, and Q3 results on Monday could dramatically impact our overall return. The stock has appreciated substantially over the past several weeks (19% in four weeks) without any news; clearly, the market sentiment has shifted for the company. Personally, I am not too worried; the company remains undervalued (though not as undervalued as before) when we consider the substantial cash balance, high cash flow generation, and the optionality of the Mexico expansion. If magicJack’s shares rise substantially next week without any change in fundamentals (e.g. new development in Mexico), the position will most likely be trimmed to increase the capital available for other positions, as suggested in last week’s recap.

The V20 Portfolio Week #4: New Position, And A Bumpy Road Ahead

Summary The V20 Portfolio underperformed the index. Weight has not shifted from MagicJack to Conn’s, although it could happen after Q3 earnings. Spirit Airlines was added to the portfolio. Oil companies could be on the radar in the future. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! Unfortunately it was another week of underperformance for the V20 Portfolio. Over the past week, the V20 Portfolio declined by 2.1% versus S&P 500’s minute gain of 0.17%. The biggest contributor to the decline was none other than Conn’s (NASDAQ: CONN ), the repeat offender. Its shares dropped from $23 on Monday to $19 at Friday’s close. Considering that the stock represented 28% of the V20 portfolio, a 17% decline definitely put a dent in our returns. Still No Shift In Portfolio Two weeks ago I mentioned that our position in MagicJack (NASDAQ: CALL ) was getting a bit bloated. You may be wondering, why did I not shift some of the weight to Conn’s. There are two reasons. The first one is that I don’t think the stock declined enough to warrant additional purchases. From the last purchase price of $23, the stock “only” declined by 21%. I say “only” because Conn’s has been so volatile that these movements don’t surprise me at all. As the company won’t have much news (other than sales releases) between now and Q3 earnings (December), the stock may continue to fluctuate wildly, meaning that there could be more headwinds for the stock over the short term. Secondly, MagicJack remains undervalued. Although it is not as attractive as before due to the substantial increase in share price (~40%) over the last little while, its Q3 earnings may serve as a strong catalyst for the market to push its shares to fair value. Considering that Q3 results are only a bit over a week away (November 9 th ), holding MagicJack still makes sense. That being said, if MagicJack appreciates substantially (20%+) without any change in fundamentals, then the weight should shift towards Conn’s as planned in the near future. New Position The new position is Spirit Airlines (NASDAQ: SAVE ) and you can read my analysis here . This investment is a rather unconventional one as value investors typically don’t like airlines. As Richard Branson puts it: “If you want to be a millionaire, start with a billion dollars and launch a new airline.” However, I think that the stock’s post-Q3 decline was completely unwarranted and the company still has a lot of growth potential as evident by its fleet expansion. One of the concerns was that the company’s revenue growth declined (driven by pricing pressure). It seems that investors underestimated competitive forces in the market and didn’t realize that if revenue growth stayed constant, the company would’ve earned 70% more than 2014, a quite unrealistic number in a competitive market. For that reason, I believe that what had transpired was very normal, hence the post-earnings crash provided an excellent opportunity for the V20 Portfolio to get some exposure to the airline industry. The Weeks Ahead Perion Network (NASDAQ: PERI ) will be releasing Q3 results on November 3rd. While not as significant as MagicJack, the stock still makes up a healthy chunk of the portfolio (> 10%), so I do expect some volatility on Tuesday. As mentioned earlier, MagicJack, which accounts for over 30% of the portfolio, is set to release Q3 results in less than two weeks. No matter the outcome, it will have a large impact on the overall portfolio. Unfortunately, high volatility is one of V20’s characteristics, an idea which I’ve emphasized since the beginning of this series . Because the V20 Portfolio now includes a fairly cyclical position (Spirit Airlines) that is prone to external shocks (i.e. oil), I will be looking at commodity investments that can offset movements in oil. I’ve debated about whether I should include oil stocks in the V20 Portfolio, as I’ve never considered them to be core holdings. However, now that Spirit Airlines exist in the portfolio, I believe some commodity exposure can be justified, as it can be treated as a hedge against the airline industry.