Tag Archives: the-traveling-investor

The V20 Portfolio Week #10: Almost There

Summary The search for a hedge continues. Dex Media’s new deadline is Monday, but it could be extended again. With all major events now behind us, it should be smooth sailing ahead. 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 bears are back just before we wrap up the year. The V20 Portfolio claimed another victory over the S&P 500 this week, staying virtually flat (-0.4%) versus the index’s decline of 4% this week. With oil hitting historic lows recently, having broken the $40/bbl mark and now testing $35/bbl, there seems to be no end to this commodity slump. Update On Hedging Those of you that follow my weekly updates probably remembered that I was looking for an energy stock to offset the position in Spirit Airlines (NASDAQ: SAVE ). I still have not found any energy stock that would be worthwhile to include in the V20 portfolio, and it looks that I got lucky with this delay. I want to stress the word “luck” because I had every intention to find a good energy company, it’s just that I have been successful thus far. Had I taken a position then, it sure wouldn’t have been pretty. Given the current outlook for oil, has my objective changed? The answer is no. I remain committed to find an offsetting position for Spirit Airlines. Keep in mind that this is not limited to a long on energy stocks, it could also be a short on a less impressive airline, or even futures for a more direct hedge for fuel prices. The reason why I am more inclined to find a long position is simply the result of better risk/reward of a long position on an undervalued energy company. Ideally, the company would earn money during the current downturn, and will hence perform even better when oil rises. So in other words, I don’t want the value of this hedging position to completely offset any gains or losses that I make on Spirit Airlines. Outlook With Conn’s (NASDAQ: CONN ) earnings now behind us, we’ve officially wrapped up Q3 earnings. Going forward, Conn’s will continue to report monthly sales data. Through Q3 earnings, we already know that November sales were up 8% on a same store basis, so growth continues to be strong. Previously there were worries that tightening credit policies would impact sales, this is clear evidence that points to the contrary. There is also the curious case of Dex Media (NASDAQ: DXM ). As always, the stock fluctuated wildly during the week, and I expect this trend to continue going forward. However, because the stock is such a minute portion of the V20 Portfolio, any downside volatility will not significantly impact overall results at all. Even if equity holders lose everything post-restructuring, the V20 Portfolio will only decline by 0.7%. On the contrary, if the restructuring outcome is favorable to equity holders, then its value will skyrocket. As of right now, all stakeholders are still negotiating. Having extended the forbearance period once already, I wouldn’t be surprised if it is extended once again after the deadline passes on Monday. With major events now behind us, the V20 Portfolio is looking to have a strong finish in 2015. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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 – Relative Calm

Summary The V20 Portfolio declined by 0.51%, less than S&P 500’s gain of 0.04%. The share repurchase program will continue to support Conn’s. I wouldn’t worry too much about MagicJack. Despite lower activation, the company continued to produce good cash flow. 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 was essentially flat this week, rising only 0.04%, beating the V20 Portfolio’s performance of -0.51%. While the V20 Portfolio didn’t beat the index, considering its historical volatility, the “decline” was inconsequential. Portfolio Update Our biggest position, Conn’s (NASDAQ: CONN ), continued to rally, rising 5% from $25.72 to $27.02. This echoes my sentiment in my previous update, that the company’s share repurchasing activity will continue to buoy the share price. As the company inches closer to its Q3 earnings in December, it would appear that investors are quite optimistic (or at least more optimistic than before). Month to date, shares have risen by 42% from its low in October. Last week I also mentioned that we should pay attention to the consumer sentiment index, which could impact investor expectations, especially for the retail sector. Recently we’ve seen several retail stocks fall (e.g. Walmart, Best Buy). The final consumer sentiment index for November was 91.3, which was higher than October’s reading of 90.0. This hasn’t stopped investors from dumping retail stocks however. Fortunately for us, Conn’s buyback program will offset this near-term downward pressure. MagicJack (NASDAQ: CALL ), previously our largest position, continues to account for a substantial portion of the entire portfolio (~20%). It was quite surprising when I heard of news of a short attack on the stock. MagicJack can possibly take the title for the worst short candidate in the world with its high cash balance and high cash flow generation. These are the reasons why I still want the V20 Portfolio to get some exposure to the stock in the first place. I haven’t bothered to write a piece rebuking the short pitch, since it doesn’t reveal anything that we don’t all know already. The facts are right, but everyone is entitled to their own interpretation. Ever since day one, I believed that MagicJack’s value is derived from a core group of customers that will renew year after year. Now that shares have appreciated from a few months ago, more value has to come from growth. But this doesn’t change the fact that the company still has a good business (albeit declining) that is generating cash flow year after year. Furthermore, growth opportunities come at almost no cost to MagicJack. There aren’t expensive projects that would require a truckload of cash or any upfront commitments that would put a drag on the company’s current operation if things don’t go their way. In other words, the company can’t really lose with these expansions Looking Ahead Conn’s will report Q3 earnings next month. From a sales perspective, we know that Q3 numbers will experience a boost from new stores. The company releases monthly sales data, so the revenue increase should be expected. The determining factor will be the company’s bad debt expense, which forecasts future delinquency rates. The company has made significant improvements in its credit policy, so I believe that the number could improve. After all, the company is now lending to more credit-worthy customers. Dex Media (NASDAQ: DXM ) is still undergoing restructuring negotiations. The forbearance period was supposed to expire on Monday, but it was extended since the negotiation is still ongoing. It would seem that the forbearance period is really just a legal nuisance, and could be dragged on while negotiations take place. Nevertheless, I do believe that Dex Media is very close to its end-game, and shareholders will soon know the results of the restructuring. The amended forbearance period expires on December 14th, so keep your eyes peeled for any new developments. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.