A Post-Brexit Market: Portfolio Growth Drivers

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Includes: AAPL, AMZN, CPG, CRM, DPS, FIT, JCP, KMB, MNST, PEP, SAAS, TWTR, UL, UVXY, VUZI
by: Seth Golden

Summary

Brexit has seemingly come and gone with markets recovering most of their losses.

JCP may deliver capital returns at the right price.

3TL.com offers investors value with strong revenue growth and fundamental outperformance.

Fitbit shows hardware companies struggle to achieve a growth valuation.

Investors who are considering deploying capital for long-term returns may have perceived the recent Brexit equity breakdown to be a great opportunity. European equity markets were rocked by the Brexit surprise vote to leave the European Union and after a reversal of course, the trend lower may once again ensue. In the United States, equities sold-off on July 5 th in light of European equities giving up nearly 2% on the trading day. But since that day, equity markets have recovered most of their Brexit losses, especially in the United States.

There is a great deal to consider regarding the implications of Brexit and U.S. equities and I'm sure there are a great deal of articles explaining the pros, cons and unintended consequences that may be felt down the road. It's for that reason that I'd like to simplify the narrative to outline my shopping list and share acquisitions in this macro-environment. My shopping list is small as I have a great majority of my capital in only a few positions at any given time, while the rest of my capital is in cash. I would also like to outline that I'm not looking to catch a bottom in any particular investment/trading vehicle, but rather participate where I see value and future opportunities for strong returns on my capital. So let's get started!

The first stock I would like to dedicate capital to is J.C. Penney (NYSE:JCP). Although the company missed its sales estimates during the 1 st quarter of 2016, I believe the company is taking the right steps toward correcting its shortcomings and doing so in a more profitable manner. Most recently, the company completed the refinancing of its $2.25 billion five-year senior secured term loan credit facility entered into in 2013 with an amended and restated $1.688 billion seven-year senior secured term loan credit facility, and the issuance of its previously announced $500 million of 5.875% Senior Secured Notes due 2023. "B. Riley says the refinance was completed on schedule and is one in a series of events in which JCP continues to make progress in reducing debt and interest expense, with the sale-lease-back of HQ real estate the next major transaction, keeping the company on track to pay down another $400M-$500M in debt this fiscal year." The firm also reiterated their Buy rating and $15 price target on shares of JCP on June 24 th. While I can appreciate that J. C. Penney is not immune to the troubles of brick & mortar retailers, they have largely outperformed their peers and taken market share in recent years. Given the risk/reward scenario with shares of JCP, I believe if the stock should fall below $8 a share it is a buying opportunity.

The next stock I'm looking to increase my exposure to in this risk-off environment is Fitbit (NYSE:FIT). You can follow my trades in real-time via my Twitter (NYSE:TWTR) feed. I recently bought shares at $12.35 and sold those shares at $13.20 a share, lowering my cost average to $13.67 a share. I bought my first position in FIT at roughly $15 after the company reported Q1 2016 results.

Seth Golden‏@SethCL

$FIT sold shares purchased yesterday at $12.35 for $13.20.

This is the 5 th trade on Fitbit this year with the previous 4 trades generating healthy profits. Admittedly it is taking longer to deliver a profit on this 5 th trade, but in keeping with most every trade I've participated YTD, I believe it is just a matter of time before FIT rewards me with a healthy return. The stock has exhibited lower prices since reporting a beat on both top and bottom line during the 1 st quarter, but 2 nd quarter guidance fell short of analysts' estimates. Additionally, the company is embattled in a class-action lawsuit based on the efficacy of its heart rate monitor sensor reliability. As if it wasn't bad enough already for the company and its shareholders, Apple's (NASDAQ:AAPL) revamp of the Apple Watch is designed to model some of the functionality of Fitbit's fitness trackers. The sentiment concerning the latest iteration of Apple Watch reads: Fitbit buckles under the threat of competition.

In Q1 2016, Fitbit garnered 85% of North America fitness tracker sales, even with competing against the Apple Watch. Price matters and with the Apple Watch priced well above Fitbit products, the consumer has chosen Fitbit a vast majority of the time over the Apple Watch. This is most easily viewed through amazon.com (NASDAQ:AMZN) ratings for smartwatch devices.

Fear and loathing has begotten shares of FIT, but the expectation is for the company to have another strong quarter and deliver upon analysts' estimates. Heading into the back half of the year investors and analysts will be valuing the stock on forward looking earnings rather than trailing earnings. When this factor is combined with strong results, the stock should lift and reward investors/traders of record. For a look at my most recent analysis on Fitbit, please follow the linked article titled "Fitbit CEO Battling Negative Analyst Research".

The next stock I am acquiring is a lesser priced stock with what I believe has strong start-up potential. I try to locate one low-valued and low price point stock every year that has the ability to generate strong capital returns based on the company's fundamentals. Last year my stock pick was Vuzix Corp (NASDAQ:VUZI). I bought VUZI at $4.60 in 2015 and sold it just recently at $8 a share. The stock has since pulled back in the last couple of trading sessions and I'm presently reassessing the potential of the company.

Most recently I attended the SeeThru Equity Microcap Conference and found the opportunity I was looking for in 3 Tier Logic Corporation (TTMFZ). The company is traded on the OTCQB® Venture Marketplace. This exchange is for entrepreneurial and development stage U.S. and international companies that are unable to qualify for OTCQX. 3 Tier Logic is the developer of PLATFORM³, a cloud-based, Software as a Service (NASDAQ:SAAS) digital marketing platform. It enables CPG companies and consumer brands to engage shoppers through their mobile device and influence their purchasing decisions while achieving deep data mining statistics of consumers. At the SeeThru Equity Conference I struck a conversation with the CEO, Robert Craig, of 3 Tier Logic and he gave me a rundown of his business before presenting to the group of investors in attendance. As a seasoned retail and consumer goods research analyst, 3 Tier Logic struck me as a business model worth vetting further and for an investment opportunity.

Through the CEO's presentation and a follow-up Q&A with the company's executive team I found a digital mobile marketing platform that was growing sales at an accelerating pace year-over-year. The company launched its PLATFORM³ SaaS mobile marketing platform last year and garnered roughly $300K for fiscal 2015. Already in 2016, the company has surpassed that revenue achievement and is likely to achieve over $2mm in sales for 2016. The company's technology and mobile marketing product is a disruptive platform that consumer package goods (NYSE:CPG) companies like Unilever (NYSE:UL), Red Bull, PepsiCo, (NYSE:PEP), Monster Beverage Corp. (NASDAQ:MNST) and so many other companies have licensed this year. Some of their clients, like Dr. Pepper Snapple Group (NYSE:DPS) and Kimberly Clark (NYSE:KMB) have come back for multiple licenses (2 month or annual licenses available) as the mobile marketing platform has proven so effective with generating sales, consumer data and consumer-to-consumer brand influencers. The photograph below depicts a mobile marketing campaign utilized by Dr. Pepper's, 7-UP brand during Q4 2015:

Click to enlarge

What I appreciate most about 3 Tier Logic's potential is not just the sales the company is generating at greater than 75% profit margins, but also the market share they are capturing. What I've learned from speaking with some of the advertising agencies using 3 Tier Logic's mobile marketing platform is that they left a competitor in favor of 3 Tier Logic.

In the company's most recent press release, 3 Tier Logic announced a major, multi-year licensing deal with NBC Universal's Fandango brand. In the near future I will be publishing a full-scale analysis on 3 Tier Logic Corp. I believe that the current stock price reflects a deep value for a rapidly growing company. At present I own shares of TTMZF for $.0439 a share. I will likely find myself acquiring more shares in the coming weeks and ahead of the company's next earnings report. I'm looking to see shares climb to $.30 over the next 6-9 months. I've witnessed what Salesforce.com (NYSE:CRM) has done with its SaaS technology and product and the potential lay within 3 Tier Logic's PLATFORM³ to develop their business along similar lines.

In addition to these long positions I will, as always, look to participate with a greater short position in ProShares Ultra VIX Short-Term Futures ETF ( UVXY). After peeling some of my short position off in recent weeks at $13.50 and $11.50 a share, I have ample cash dedicated to this ETF in the event it should move higher. And higher it did move on the Brexit vote recently and before crashing as I forecasted.

For those interested in my various articles on UVXY, it would behoove you to read through my winning trades with the ETF including my latest one titled "UVXY: Trading The Brexit Environment Continues". This article recaps my previously issued sentiment regarding how to position oneself through Brexit and outlines how well the trade worked, delivering a roughly 25% profit in less than 2 trading sessions.

With these stocks/ETF on my shopping list I will continue to scour for other opportunities. I can't say or suggest that I know how Brexit will affect equities long-term. But what I do know is that value and growth will be highly sought after in this environment and I believe all investing/trading instruments mentioned offer such opportunity for investors.

Disclosure: I am/we are long FIT, TTMZF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.