peri – Scalper1

The V20 Portfolio Week #9: A Great Week, But Potential Chop Ahead

Summary The V20 Portfolio rallied by 5%, beating the S&P 500, which ended the week flat. Investor sentiment has shifted for Spirit Airlines. Perion Network made a significant acquisition. Conn’s will report earnings on Monday. 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 ! The S&P 500 (NYSEARCA: SPY ) was salvaged on Friday, jumping 2% and ended the week flat. The V20 Portfolio completely smashed the index and started December with a bang, rising 5% for the week. Year to date, the portfolio is now up by 98%. Portfolio Update There were two major contributors to this week’s performance: Spirit Airlines (NASDAQ: SAVE ) and Perion Network (NASDAQ: PERI ), which appreciated 23% and 19%, respectively. There were no material news coming from Spirit Airlines, so it would appear that the market sentiment has shifted. About three weeks ago, hedge fund manager Whitney Tilson pitched the stock , perhaps investors are finally recognizing the company’s value after a figurehead on value investing speaks out. Another possible factor contributing to the recent rally is falling crude prices. Perhaps you’ve heard that oil has recently dipped below $40 and OPEC decided to hold production quota constant. These negative events are great news for the airline industry overall, as airline companies will continue to benefit from cheap fuel in the near term. However, I believe that this was only a minor contributor to Spirit Airlines’ rise. In the graph above we can see that the stock has greatly surpassed the performance of the airline index, whose performance is driven mostly by macro movements such as oil. As for Perion Network, the company recently got an investment from JP Morgan , significantly boosting investor confidence. In addition, the company also acquired an adtech company for $180 million. The management has a history of making acquisitions, so I’m not too surprised. The management also disclosed that undertone was profitable (15-17% EBITDA) and has a good growth trajectory. While I would’ve preferred a large share repurchase program since that way the return would’ve been more certain, this acquisition could work out in the long run. About Conn’s Our largest holding, Conn’s (NASDAQ: CONN ), actually fell this week, declining 5% from $27.02 to $25.64. With earnings on Monday, clearly the market is still uncertain. Couple weeks ago I mentioned that the share repurchase program instituted by the management will buoy the stock in the near term. Thus far, this prediction rings true. We can observe the price movement since the $100 million buyback program was announced in the chart below. Of course, now that the company is reporting earnings, this effect will be nullified on Monday. Outlook Since next week our biggest position will report earnings, expect significantly higher volatility. In the past, Conn’s has achieved 15% swings in a week without batting an eye. Of course, as I’ve outlined in the introduction of the V20 Portfolio, volatility is a necessary part of our concentrated style of investing, and we should accept it as opportunity instead of shying away from it. In any case, we should continue to focus on the fundamentals regardless of where the stock ends up on Monday .

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.