Seeking Alpha
Long only, portfolio strategy, transportation, growth
Profile| Send Message|
( followers)  

Individual Investor Fund - November 2012 Monthly Update And Review

The month of November serves as the kickoff for the fall and winter holidays. Hopefully all of you found yourselves well this Thanksgiving.

Over the course of the past month, the Fund has continued to underperform the broader market's trends. The Fund has been mostly impacted by significant volatility from a handful of the portfolio's holdings. Just fewer than 20% of the Fund's holdings have declined between 6 to roughly 50 percentage points, with the leading laggard being Velti Plc (VELT). Just fewer than 25% of the Fund's holdings have increased greater than 21 percentage points with the leader being TripAdvisor, Inc. (NASDAQ:TRIP). The other 55% of the Fund's holdings have fluctuated between roughly a decline of 3 to an increase of 8 percentage points. Detailed information regarding each company's performance is listed below in the Year-To-Date and Previous Month Performance and Management Activities sections.

All of the information regarding the Fund's performance from month to month is compared by a percentage point basis. For example, if a stock is up 25% year-to-date in September, and then is up 20% in October, the stock has decreased by 5 percentage points. All market capitalizations are as of the last trading day for the month of November.

Current Holdings as of November 30, 2012

  • Clean Harbors, Inc. (NYSE:CLH); market cap - $3.06 billion; industrial goods sector/waste management industry
  • Discovery Communications, Inc. (NASDAQ:DISCA); market cap - $22.08 billion; services sector/ CATV systems industry
  • LinkedIn Corporation (NYSE:LNKD); market cap - $11.62 billion; technology sector/Internet information providers
  • Laredo Petroleum Holdings, Inc. (NYSE:LPI); $2.42 billion; basic materials sector/independent oils & gas industry
  • Liquidity Services, Inc. (NASDAQ:LQDT); market cap - $1.27 billion; services sector/catalog & mail order houses industry
  • MercadoLibre, Inc. (NASDAQ:MELI); market cap - $3.18 billion; services sector/business services industry
  • SAP AG (NYSE:SAP); market cap - $92.99 billion; technology sector/application software industry
  • Scripps Networks Interactive, Inc. (NYSE:SNI); market cap - $8.85 billion; services sector/broadcasting TV industry
  • TripAdvisor, Inc.; market cap - $5.44 billion; technology sector/Internet information providers industry
  • Velti Plc; market cap - $222 million; technology sector/business software & services industry
  • The WhiteWave Foods Company (NYSE:WWAV); market cap - $2.62 billion; consumer goods sector/dairy products industry
  • Zipcar, Inc. (ZIP); market cap - $339 million; services sector/consumer services industry

YTD and Previous Month Performance as of November 30, 2012

  • KYAK - YTD 26.9%; previous month 23.2
  • SAP - YTD 21.8%; previous month 7.9
  • DISCA - YTD 20.6%; previous month 2.8
  • TRIP - YTD 17.7%; previous month 24.3
  • LNKD - YTD 16.3%; previous month 0.4
  • MELI - YTD 15.4%; previous month (9.1)
  • LQDT - YTD 14.2%; previous month (0.4)
  • CLH - YTD 10.7%; previous month (2.0)
  • SNI - YTD 10.2%; previous month (3.1)
  • ZIP - YTD (4.2%); previous month 21.9
  • WWAV - YTD (8.2%); previous month (7.9)
  • LPI - YTD (10.3%); previous month (6.0)
  • VELT - YTD (30.8%); previous month (50.1)

Benchmark Comparison and Performance

The holdings within II Fund have returned 5.9% YTD. Including the cash balance, the Fund has returned 4.5% YTD. Both measures are used to compare to indices as well as the professionally managed funds. The performance of the Fund's holdings is comprised primarily of unrealized gains representing roughly 67% of the return and realized gains representing roughly 33% of the return. The overall fund performance was flat from the previous month. Comparatively, the S&P 500 has returned 12.3%, a 0.3 percentage-point increase from the previous month, and the Russell 2500 has returned 11.8%, a 1.5 percentage-point increase from the previous month. The VMGMX fund has returned 10.8%, a 2.3 percentage-point increase from the previous month, and the FMCSX fund has returned 10.5%, a 0.3 percentage-point increase from the previous month.

Management Activities

Recent transactions where positions were sold only included Kayak:

The entire Kayak position was sold in November for a gain of 26.9%. Kayak was recently acquired by Priceline.com Incorporated (NASDAQ:PCLN) for $40.00 per share. As of the acquisition announcement, Kayak has traded above $40.00 per share on three separate days. The decision to sell prior to the acquisition closing was made to take advantage of selling at a higher price than the acquisition offer from Priceline. Due to the nature of Priceline's acquisition being split between cash and stock, and the portfolio's objectives, the decision to sell is justified.

Positions were added to only Velti in November:

Velti continues to be highly volatile, and has lost a considerable amount of value for the previous two months. The stock fell roughly 34% after the November 14th financial report and set a new all-time low on November 30th at $3.41 per share and is the Fund's current leading laggard. The stock also has a high short interest percentage at just fewer than 41%. Most followers of Velti to this point are aware of the competitive threats as well as the pending lawsuit with Augme Technologies, Inc. (AUGT.OB). Following Velti's third quarter financial report, the company provided initial guidance on its plans to divest receivable assets in order to facilitate the company's objectives to improve days sales outstanding and cash flows. Despite the current volatile downtrend, Velti continues to provide robust revenue growth and patient investors may find a hefty reward in the upcoming quarters. The company will provide further guidance regarding its progress towards more stable cash flows as well as more insight into the $27 million U.S. contract and other contract pipelines at the January 30th Investors' Day in New York City.

All existing positions that had no buying or selling activity included Clean Harbors, Discovery, LinkedIn, Laredo Petroleum, Mercadolibre, SAP, Scripps Networks, TripAdvisor, WhiteWave Foods, and Zipcar:

Clean Harbors has remained fairly stable after its 18% spike on October 31st following the announcement to acquire Safety-Kleen. To aid the funding of the acquisition, Clean Harbors has priced a common stock offering at $56.00 per share and is expected to receive $320.2 million in proceeds. Additionally, the company priced a private placement of $600 million of Senior Notes due in 2021. Clean Harbors will also see an added increase to revenues from the recent demand for services from Hurricane Sandy. The company's long-term outlook remains positive as the deal with Safety-Kleen is expected to be accretive.

Stock performances for Discovery and Scripps Networks have begun to move in opposite directions. Both companies continue to provide and create strong content for television and internet viewing. Discovery has been mentioned along with Providence Equity Partners as a bidder on ProSiebenSat.1's Nordic TV channels valued at around $1.3 billion. Discovery has also seen its show "Gold Rush," climb to the fifth highest U.S. cable television rating as of November 25th.

While the recent passing of Edward W. Scripps has yielded speculation of a buy-out of the Scripps Networks, no offers have been made. Discovery was previously mentioned as was Walt Disney Co. (NYSE:DIS) and Time Warner, Inc. (NYSE:TWX). With Disney's recent acquisition of Lucasfilm Ltd., for $4.05 billion and Discovery in potential bidding negotiations, it appears that some of the speculative suitors may not be in the running immediately for Scripps Networks.

Both Discovery and Scripps Networks provide solid cash flow generation and growth prospects, and they continue to develop premium content.

LinkedIn has come down from its all-time highs in September. The company is positioned very strongly with respect to its financials. The skeptics continue to feel that LinkedIn is significantly over-valued and at risk of competition, however, the company is generating solid cash flows, has a strong cash position, minimal liabilities, and excellent organic growth. There are two sides to human capital, efficiently placing prospective employees into the labor market and the management of employees once they are within the labor market. LinkedIn has the potential to provide a globally connected professional social network with services to add value to these dynamics.

Laredo Petroleum has seen its stock price decline over the past two months primarily resulting from the disclosure of Warburg Pincus LLC selling roughly 14 million shares in mid-October and its miss on last quarter's revenues and net income. The stock sale transaction was specifically related to Warburg as a shareholder of Laredo and the negative reaction to this transaction was overdone. The company has now missed income estimates the previous four quarters in a row. Laredo has been heavily investing in oil and natural gas properties spending just under $700 million over the past nine months. Operating cash flow has been increasing well, but the company has continued to increase debt adding $500 million in Notes due in 2022. These investments in proven properties are expected to pay off and investors need to pay attention to debt levels.

Liquidity Services continues to be volatile throughout 2012. Since June, the stock price has ranged from $36 to $63 per share. Speculative publications have surfaced regarding insider stock sales and contractual relationships. The company has experienced significant net income growth for 2012, reflecting the Jacobs Trading acquisition. The company provided guidance slightly lower than analyst expectations after its earnings report on November 29th. While the acquisition of GoIndustry DoveBid was initially expected to be accretive for 2013, management stated that they will need to invest more into this business in the first half of the year impacting earnings. The impact, while more than analyst expectations, still allows for robust earnings growth in 2013. The stock maintains a high short interest ratio around 20%. It will probably continue to be volatile in the near-term as the last two days of November displayed.

Mercadolibre's stock price has been volatile ranging from $66 to $91 since June. Concerns remain primarily for growth prospects in South America and competitive threats from Amazon.com, Inc. (NASDAQ:AMZN) in Brazil. The company continues to grow financial strength well despite these concerns. The Fund took profits in the low $80s and is looking at a re-entry point in $65 or below range.

SAP continues to produce solid growth each and every quarter. The company has made significant social and cloud-related acquisitions over the past year including Successfactors and Ariba. The continued demand for significant enterprise management and supply chain systems provides SAP with a unique opportunity to continue to leverage its legacy systems while at the same time develop innovative solutions such as customer relations management, or CRM, to provide long-term value for investors. SAP has had a significant run-up in 2012. If the stock price breaks through the $80 level, the Fund will consider taking some profits.

TripAdvisor offers a business model focused on travel user-generated content. The main difference between TripAdvisor and Priceline.com Inc. or other similar operations is that TripAdvisor does not directly receive commissions for merchant bookings, but rather primarily relies upon click-based advertising revenues. Risks for TripAdvisor include Priceline and Expedia, Inc. (NASDAQ:EXPE) competing for travel use content, among other items. TripAdvisor's stock performance has fluctuated from $30 to $46 per share since June. The company has been under pressure based upon growth concerns. The company is continuing to strengthen its financial position and generates excellent free cash flow. In the event the company approaches the $45 level, the Fund will consider trimming its position. TripAdvisor is the premier market leader for internet-based travel content and also provides a significant listing of apartment rentals.

WhiteWave provides an opportunity to gain exposure to a portfolio of packaged food and beverage products with the potential for solid growth. Revenues have grown roughly 14% and net income has grown roughly 7% over the past four years. Over the past 9 months, the company has grown revenue by 13% and net income by 37%. Company products include plant-based foods and beverages, coffee creamers and beverages, and premium dairy, with products and sales to North America and Europe. The company has generated decent free cash flow over the past 9 months. Investors need to pay attention to goodwill and intangible assets and debt levels as the company moves forward.

Based on Zipcar's financial report on November 8th, Zipcar's stock price has rallied significantly from a low of $6.00 to just over $8.00 per share. Zipcar is well positioned for both international growth and technological developments with its operations in Europe and North America, and its equity stake in Wheelz, who just recently has entered the peer-to-peer car-sharing market in San Francisco. The company has continued to display consistent positive trends of membership growth, and seasonal revenue, net income, and free cash flow growth. While competitive threats still remain, Zipcar is on track and if it can continue to grow and perform financially, the stock price should continue to appreciate. The company may also be acquired if this positive trend continues. I would look for companies like Ford Motor Co. (NYSE:F) or Enterprise Rent-A-Car as possible suitors.

There were no newly added individual company positions to the portfolio in November.

Cash Balance

The II Fund is currently holding a 28% cash allocation ratio of which 11% is designated for MercadoLibre. The fund will be adding cash this year and next year. Significant economic uncertainties remain in the near-term and the fund will continue to position itself aggressively to take advantage of buying opportunities regarding existing positions.

Companies Being Considered

Kinder Morgan Inc. (NYSE:KMI); market cap - $36.10 billion; basic materials sector/oil and gas pipelines industry

Dr Pepper Snapple Group Inc. (NYSE:DPS); market cap - $8.9 billion; consumer goods sector/beverages - soft drinks industry

Based on recent research and screening two companies which will be considered for near-term additions to the portfolio include Kinder Morgan and Dr. Pepper Snapple Group. A majority of the current holdings of the portfolio provide for aggressive growth potential. Kinder Morgan has excellent exposure to the potential for natural gas distribution via its pipeline networks in North America, and Dr. Pepper Snapple Group provides a diverse set of products and production facilities and could possibly be considered as an acquisition target. A primary for Kinder Morgan include the company's debt levels. Kinder Morgan and Dr. Pepper Snapple Group would allow for fixed income opportunities, as well as further diversification into additional industries. A position may be entered into either of these companies in the near future.

Radar Screen

AMC Networks Inc. (NASDAQ:AMCX); market cap - $3.4 billion; services sector/CATV systems industry

JB Hunt Transport Services, Inc. (NASDAQ:JBHT); market cap - $6.9 billion; services sector/trucking industry

News Corp. (NASDAQ:NWS); (spin-off); market cap - TBD; services sector/entertainment diversified industry

SINA Corporation (NASDAQ:SINA); market cap - $3.6 billion; technology sector/Internet software & services industry

Sohu.com Inc. (NASDAQ:SOHU); market cap - $1.4 billion; technology sector/Internet information providers industry

These companies are being watched for potential consideration for the fund. AMC Networks provides an opportunity to gain additional content/media exposure for the fund. AMC's market valuation is low compared to its peers, risks include over-reliance on debt and recent stock price run-up. JB Hunt provides a great opportunity to get into the transportation and logistics area. JB Hunt's stock price has recovered from its recent decline and is trading at a premium. NWS offers an interesting spin-off investment opportunity with its entertainment segment. SINA and SOHU are varying examples of risky China plays with upside potential.

Next Update

The next II Fund update and review will occur at month-end of December 2012. This will also serve as the completion of the Fund's first fiscal year of performance.

Source: 'Individual Investor Fund' More Appetizing Than The S&P 500 Turkey, It Just May Take A Little Longer To Cook