Investing 501 And Volte-Face Investments: This Week's Outstanding Performance Award Winners

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 |  Includes: IRG, TPL
by: SA Editor Daniel Shvartsman

Summary

Two authors with buyside backgrounds earn $2,500 for great calls on small-cap companies.

The first call was a 'buy and hold forever' tag for Texas Pacific Land Trust, which provided an outsized return in a slightly shorter timeframe.

The second call highlighted the struggles at Ignite Restaurant Group that could lead to a potentially profitable short; it played out that way over 3+ months.

Dear readers,

This week's Outstanding Performance award winners are both great calls on small caps, but each comes from a different angle. While one was a long idea on a land-based company that the author called a 'buy and hold forever stock', the other was a short idea on a restaurant company that only took a few months to play out spectacularly. Each award comes with a payment of $2,500 for doing an outstanding job of helping Seeking Alpha readers find alpha.

This week's Outstanding Performance Award winners are:

  1. Investing 501 for their Top long idea on Texas Pacific Land Trust (NYSE:TPL) published in May 2013. Return to date: +148%
  2. Volte-Face Investments for his short idea on Ignite Restaurant Group (NASDAQ:IRG) published in May 2014. Return to date: +52%

Investing 501 updated their thesis in a new article, which will be available to all readers tomorrow, while Volte-Face Investments updated his thesis in the comment stream of the original article linked above. Both articles are part of the SA PRO equity research archive available exclusively to SA PRO subscribers, but we have unlocked the winning articles to all readers for the next 48 hours in honor of their winning the award.

About the winners

Investing 501 is the writing vehicle for two authors with over 60 years of investment analysis experience on both the buy side and sell side. The authors' approach is long-term value. That approach has paid off repeatedly for readers, with highlights including several strong calls in the restaurant space (available only to PRO subscribers), a hidden deep value play in A.H. Belo (NYSE:AHC) that more than doubled (available only to PRO subscribers), and a contrarian call on Allegheny Technologies (NYSE:ATI). The author has also written several great general articles on investing (for example).

The TPL call was both a simple one and an unusual pick. Investing 501 called it the ultimate buy and hold stock. While the company's Permian basin acreage left it exposed to potential oil royalty growth, the value in the company's shares was also backed due to the trust's unique nature. The balance sheet carried TPL's land at zero cost, and the company's nature as a passive trust led it to buy back shares continuously. The winnowing share count and rising oil royalty flow made for an attractive valuation, Investing 501 argued. Which is what played out - oil and gas royalty rose 67% in 2013 and is up another 46% in the first half of 2014 on a year over year basis. Meanwhile shares outstanding shrunk 3.8% in 2013 and another 1.9% so far this year. Oh, and the stock is up 148%.

Volte-Face Investments represents the writings of a small, independent investment manager, who manages a long/short equity fund. The author worked for a major Wall Street firm for 12 years, and his investment strategy focuses on uncovering "opportunities where we anticipate a positive or negative sentiment change with a particular equity", as per the author bio. A sentiment change saw his Top long idea on Coastal Energy return 35% in about six months due to a buyout.

The IRG call took less time to ignite. Citing high quality analysis from other SA authors, Volte-Face Investments succinctly explained why he disagreed with the bull case. While the challenges integrating Macaroni Grill were well known, the issues plaguing Joe's Crab Shack were less covered - the author cited the poor Q1 comp, the company's decision to pull marketing dollars from Joe's Crab Shack, and a balance sheet that didn't afford much room for capex to transform restaurants into the company's more successful chain, Brick House Tavern + Tap. Given those challenges and a 29x2015 earnings multiple that was "highly aggressive for a turnaround that has yet to materialize," the author suggested the share price had "to go lower before it can go higher." The stock drifted downward over the next 2+ months, and then the Q2 report came out: IRG posted negative same-store sales comparables for Macaroni Grill and Joe's Crab Shack, and the company mentioned the possibility of refinancing to accelerate their capex process (the company subsequently announced a new credit facility). The share price drift has continued through the end of August, leaving the short call with a return of +52%.

Congratulations to this week's winners! Look out for a new pair of Outstanding Performance award winners next Monday, and each Monday following.

And here's a page with all previous winners.

More about Outstanding Performance awards

Seeking Alpha aims to help investors outperform the markets. In awarding authors of outstanding stock ideas that played out, we hope contributors will be motivated to share more outstanding long and short ideas with our readers - which benefits everyone.

Every week, we'll be searching through our long and short ideas archives looking for outstanding stock ideas that played out, and awarding two $2,500 "Outstanding Performance" prizes.

Here's what we'll be looking for:

  1. Performance: Above all, we're looking for ideas that made SA readers money. Risk matters, so we'll be looking at the stock's market cap, Sharpe ratio, etc. as well.
  2. Confluence: Every idea has a thesis. Did the idea play out for the reasons proposed or not?
  3. Compelling: For an idea to be outstanding, it needs to be sufficiently convincing that a reader would have been compelled to take a deeper look at the stock and potentially take a stake. In assessing compellingness, we'll be looking at a number of factors including article comments (how did readers react?), historical performance (does the author have a track record of well-thought-out stock ideas?), voice of expertise (does he/she come across as someone who has unusual insight into the stock?), and how thoroughly the article covered key issues (reasons for market mispricing, catalyst(s), competitive landscape, company management, key risks, etc.). In other words, we'll be looking for the same things readers look for when assessing an idea.

To qualify for an award, the idea needs to have been submitted exclusively to Seeking Alpha. We will also be asking award winners to publish an update to their thesis, either as a comment to the article or as a standalone article.

Generally, we'll be looking for longer-term ideas that offered meaningful upside to readers. We'll be going back as far as two years or even further. We may also reward ideas that played out outstandingly over a shorter timeframe. But we will not be using Outstanding Performance awards to reinforce extreme short-term price volatility.

To get exclusive access to these articles after they are selected, as well as early and archival access to many of our top performing ideas, subscribe to SA PRO.

We'll be announcing Outstanding Performance award winners in Wall Street Breakfast, in the Today in SA PRO newsletter, and in a standalone article like this one.

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