Project $1M: May Performance Review

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Includes: CELG, CSLLY, FB, MELI
by: Integrator

Summary

Project $1M is my concentrated, active management approach to grow $275k to $1M within a decade.

May was another strong performance month for Project $1M, with outperformance over the S&P 500.

I review the outperformers and laggards for the month of May.

It was a strong month for Project $1M, the concentrated portfolio that I am running with the aim of growing a ~$275k base into $1M over a 10 year period.

My focus with Project $1M is a clutch of high growth, cash generating businesses that are powered by secular tailwinds. The advantage of these secular tailwinds should be to allow the selected businesses to grow under any economic conditions that may be experienced over the life of the Project $1M portfolio (a decade or more).

While share prices may move in any direction given the changing moods of the market, I am looking for businesses that will display consistent evidence of revenue, cash flow and earnings growth over a long period of time. For those that are new to the Project, here are Part 1, Part 2 and Part 3 of the initial investments in the portfolio.

May continued the trend of strong performance for the fund. Project $1M recorded a contribution of 3.55% in May about over 1% the 2.5% contribution recorded by S&P 500 in May. Since inception, the fund is up almost 20% on an annualized basis, compared to S&P 500's performance of 13.55%. So far, this project has met expectations as an alternative to investments that I would have made in the S&P 500. I expect the outperformance to level out over time, but still think Project $1M is placed to perform well over the next 8 years or so, the remaining lifetime for the project.

Key Highlights for the month

A biotech exit

The writing was on the wall for my investment in Celgene (CELG), and has been for a couple of months. Revised long term guidance, an incorrect filing and longer term Revlimid concerns have conspired to whack the share price, and sent Celgene down almost 50% within the last year. This also brought an end to my investment in the business. I just couldn't convince myself that there was a high likelihood that Celgene would replace 60% of its business revenues in Revlimid over the next 5 years. I swapped out Celgene with one of my old favorites, CSL (OTCPK:CSLLY), in which I have already accumulated a significant holding. While this was a decision that I was comfortable with, it was nevertheless a negative development for me, as I had hoped to have no turnover in the portfolio this year. Ultimately, I believe the switch to CSL will pay long term dividends at the conclusion of this project.

Facebook (FB) bounces back

I always suspected the mark down that Facebook received on the back of the Cambridge Analytica scandal wouldn't last. In less than 2 months, the stock has bounced back over 25%. I was slow to the mark in taking action on Facebook's temporary price decline. I likely could have added to my position but I was both a little lazy and a little greedy and wanted a better price than where I had established my holding, which is ultimately where it fell to.

Nonetheless, Facebook roared back strongly last month, and was up almost 12%. The business has become too important for brands and advertisers who have few choices to access a broad base of global users via a single platform, which Facebook provides. It was largely on this basis that I concluded it wouldn't suffer longer term harm. I also believe that Facebook users have largely ignored the data scandal and are comfortable with the implicit covenant of giving up their data in exchange for the value of being to easily connect with friends.

Facebook is still undervalued at these levels and expect it to be materially higher in the next 18 months.

Mercadolibre (MELI) gets taken to the woodshed

MELI, the Amazon of Latin America, got spanked last month, and the share price was down almost 13%. Much of the panic is unjustified in my opinion. MELI reported some fairly ordinary earnings in its latest report. Top line revenue growth was very healthy, coming in at over 50%. The effect of ongoing free shipping, combined with the increase in carrier transportation charges served to hit the bottom line harder than was anticipated. This isn't a business for the faint of heart. However there is a very real possibility that MELI emerges as the leader in the LATAM ecommerce market, and is able to shut out the competition within the next 3 years.

Mercadolibre is playing a long game in an attempt to achieve long term domination of the market. I don't believe there is much risk of a permanent impairment of capital in this investment, but this will certainly be a volatile investment to hold over time.

Overall a satisfactory result, with Project $1M up about 13.3% YTD as we head into the traditionally slow summer time market and I look forward to a wrap of Q2 next month.

Disclosure: I am/we are long ALL STOCKS MENTIONED.

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.

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