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Long Term GARP Portfolio August 2012 Update

The Long Term GARP portfolio performed well during July, (up until the last two days) and seven companies in the portfolio reported results. Naturally, some performed better than others. There is an old investing maxim which says, "There are two kinds of businesses, those that have problems, and those that are going to have problems." You guessed it, the Long Term GARP portfolio has both. However, the word 'problems' needs to be put into context. If a business has 13 billion in sales, and generates over 2 billion dollars a year in cash flow, has a globally powerful brand, and a cash rich balance sheet, if they miss their earnings estimate one quarter, do they really have problems? No, this is not a trick question, but one which actually involves a holding in the portfolio. Anyway, I suspect August will see more of the same in the market with volatility and low volumes the current modus operandi.

The Reasons for Owning the Portfolio Holdings

1. Liberty Interactive- Owner of QVC, Provide Commerce,,,, 40% of, 34% of Home Shopping Network, 26% of, 26% of, 30% of Interval Leisure Group, and 25% of Lending Tree. Lots of great assets here, and the company generates approximately 1.5 billion dollars per year of EBITDA, and its debt is at low rates with some of it maturing in 2029 and 2030. The business is not capital intensive and generates a great deal of free cash flow. Management has indicated over the next 3 years it will have about 5 billion dollars of cash to find places to allocate, either through buying back shares, buying other companies, or adding to existing ownership positions. (Liberty Interactive Presentation-slide 17, Liberty Investor Day, 11/17/2011

Liberty Interactive opened a new market in Italy just last year and it is starting to gain traction, as revenues will likely exceed 50 million dollars in only the second year of operations, which is consistent with the development of current large markets like Japan, the UK, and Germany. Growth internationally has been a development focus over the last few years but no announcements for new countries have taken place, but on the latest earnings call, QVC President Mike George said he expected an announcement on that front in the next few months. Target markets include China, France, Brazil, Spain, Canada, and Mexico. In fact, Liberty Interactive announced a joint partnership to open QVC in China with China National Radio-

In addition, Liberty Interactive owns 4 internet based e-commerce businesses (Provide Commerce,,, and Celebrate Express (,, the Right Start)) which have over one billion dollars of revenue combined and almost 150 million of EBITDA per year. Look for management to add e-commerce businesses when they find an attractive candidate with good growth opportunities.

Another interesting development is Liberty management has bought back almost 20% of the shares outstanding in the last three years while reducing debt dramatically, and recently upped their share buyback authorization to $1 billion. (

The management team at Liberty decided to break LINTA up into two tracking stocks, and that should take place by July 4, 2012, according to the conference call. Investors currently owning LINTA will get both tracking stocks upon issuance and when they start trading. Here is a link to the announcement, and which assets will comprise each tracking stock:

Liberty Interactive will report earnings on August 8, 2012.

Here is another link to their most recent presentation-

Finally, the split off is on track for early August and LINTA refinanced some of their debt with QVC-

2. ICONIX (NASDAQ:ICON)- Owner of a broad range of well known brands like OP, Mossimo, Joe Boxer, Peanuts, and Sharper Image. They have a business model which out-sources everything except licensing to the largest retailers in the world. In addition, they have partnerships set up to expand and grow their businesses in the largest emerging markets in the world-China, India, and Brazil. They also grow through acquisitions and by using debt wisely. It will be interesting to see how the stock does as I would not be surprised If the company uses some cash to buy back shares- it has authorization to buy up to $200 million worth. The company also announced the closing of their joint venture in India.

The company announced earnings on July 25, 2012 which met expectations

Here is the most recent announcement of their buyback:

Here is the link to the India Joint Venture Closing:

3. Quest Diagnostics- Quest Diagnostics is the largest health care diagnostic testing company in the United States, and the company's announced earnings on July 19 which were not as good as what wall street expected- (

The company generates over a billion dollars per year in cash and has a non capital intensive business, which allows for management to search for acquisitions, make share repurchases, and raise the dividend.

Quest Diagnostics presented at the Wells Fargo Health Care Conference-

4. Intuit- Owner of the Quickbooks, Turbotax,, and GoPayment businesses, INTU generates over a billion dolllars per year in cash and almost all of it is free cash flow. The company is expanding its different businesses in different geographic regions, including the U.K., India, Canada, and Asia. The company instituted a 15 cents per quarter dividend in the 3rd quarter of 2011. The balance sheet is strong with debt and cash of about one billion each.


Intuit is another holding which has excellent growth possibilities, especially internationally. The payments and software as a service cloud architecture is really the focus, especially with the emergence of mobile devices. Businesses like (web hosting), Quickbooks, and GoPayment all should be able to slowly attract more businesses as each of them provides an entry to the Intuit platform, where additional services are usually attractive.

Here is the most recent interview with CEO Brad Smith-

5. Starbucks - Largest coffee and tea company in the world, expanding the business into juice, as well as growing the presence in China.) The stock released earnings which disappointed Wall Street and the stock suffered its worst day in 12 years- I believe it would be the biggest gift in the world if the stock fell to attractive levels again to buy more shares.

Growth Prospects of Other Holdings

Liberty Media - Another stock of Liberty Media, the assets inside the holding company structure include Starz Media, the Atlanta Braves, 40% ownership of Sirius Satellite (NASDAQ:SIRI), almost 20% ownership of Live Nation (NYSE:LYV), 16% ownership of Barnes & Noble, and a few other non controlling positions of small public and private. Starz generates about 300-400 million dollars of cash flow per year and has little debt, and LMCA has almost 2.5 billion dollars of cash (after debt considerations, $1 billion), so there is much to be speculated as LMCA has plenty of firepower to do what it wants to do. (

Liberty announced it planned to take control of Sirius-

Liberty Media will announce earnings on August 8, 2012.

VCA Antech- Second largest owner of animal hospitals in the United States, also owns the laboratories for diagnostic testing of animals. The most recent earnings report disappointed Wall Street and the stock has retreated quite a bit since the last earnings report- Still, a very strong company and the stock is a candidate for more purchases.

Here is a link to their most recent presentation:

IAC Interactive- Owner of,, Meetic, Service Magic, Vimeo,, and the Daily Beast, among other web sites. The company reported another excellent quarter:

The company bought back more shares and doubled the dividend at the most recent earnings report.

Moneygram International- Second largest money transfer and bill payment company behind Western Union. The position is really a private equity strategic investment as Goldman Sachs and Thomas Lee Partners own 75% of the common equity and eventually will want a much better return than where the stock price currently trades at. Management has been growing distribution points of presence almost 20% per year and now has over 200K locations to offer services in all areas of the world, particularly in emerging markets like Russia, Brazil, India, and the Middle East. Management has also added mobile transfer to the portfolio. The stock has done very little for the last three years but the business is not capital intensive, is growing 5-8% per year, and at some point the majority owners would like to be able to monetize their positions. They reported another good quarter last week.

Here is a link to the most recent Moneygram earnings report

Here is a link to their most recent presentation at the JP Morgan Conference:

British Petroleum- An ownership position in the second integrated oil company in the world. Largest explorer in the Gulf of Mexico and has exploration activities all over the world. The stock has been hammered on declining oil prices and concerns about their near term outlook. However, oil usage shows no signage of diminishing with China and India growing the number of cars on the road at rapid rates. The developed world is still 99% dependent on fossil fuels for energy, and the situation probably will not change for 30-40 years, so this is a company which is in a good situation for the future. The company recently announced it increased the dividend by 14%. Here is a link to their most recent earnings report: (

Quidel Corporation: Health care and diagnostic company which makes influenza tests and is expanding their product line into strep throat, graves disease, and other molecular assays. Their most recent earnings report was better than expected-

Quidel has recently had a few diagnostic tests receive CE approval, and all of these tests should help improve their revenues significantly over the next few years:

Unilever: A massive food company based in the UK that gets over half of its nearly 50 billion dollars of sales in the emerging markets of Asia and Africa. The company pays a dividend of 3.7% and has the goal of doubling its sales by 2020. Here is a link to their most recent earnings report, which showed very good top line growth for a company as large as Unilever-

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Disclosure: I am long LINTA, LMCA, IACI, BP, QDEL, WOOF, SBUX, DGX, ICON, LYV, UL.