Tuesday, June 30, 2015

Mid Year 2015 Portfolio Review

It's been a busy last few months for me personally, as a result I haven't spent a lot of time on developing macro thoughts (not that I'm good at it anyway) and instead have just tried to avoid making any big mistakes.  So far so good in 2015 on that front:
There are a lot of spinoffs happening this week, there might be some attractive ones in there but it's clear the theme is too popular and its late in the cycle, buying any and every spinoff is not likely a good strategy at this point.  Two types of ideas have been working especially well for me in the last 6-9 months: former NOL shells (GRBK, PARR) and spinoff transactions that are paired with another deal creating additional synergies (ATK/ORB/VSTO/OA, SSP/JRN/JMG), I'll be looking for more of both in the next few months.

The thesis remains intact for most of my current holdings, instead of just repeating those ideas, below are some additional thoughts on previously mentioned companies that I've sold/passed on:
  • Comdisco Holding (CDCO): Comdisco made its first liquidation payment in several years on 3/12/2015, the price jumped up to the point where it made sense to sell because I think the remaining liquidation payments will drag out longer than expected.  The market might have overreacted to the switch to liquidation based accounting and the word "imminent", but later in their 10-Q they mention its projected that all regulatory filings to wrap things up would be completed within "the next few years".  Based on the current estimated liquidation value of $4.55, the current price of $4.30 is pricing distributions coming sooner than later.
  • Exelis (XLS): Harris Corporation (HRS) announced the acquisition of Exelis on 2/6/2015 for $23.75 per share, unfortunately I missed this deal by a few weeks as my calls expired in January.  I exercised, sold, and moved on.  As they say, with options you need to get both the price and timing the right.  Exelis in hindsight was a good example of the parent in a spinoff shedding an underperforming segment (Vectrus) that was obscuring the true value of the business.  Lesson, especially in the current market, is to pay just as much attention to the parent as savvy management can take advantage of the market's appetite for spinoffs to streamline their business.
  • Real Industry (RELY) (f/k/a Signature Holdings):  Based on the current market price of $11.35, I've clearly missed this one, I even took another look at it after the rights offering was completed and it briefly went back below $6.00 per share and passed again.  I still have questions about management and their promotional style, but it's clearly worked so far, its been the perfect combination of an NOL shell, cyclical business hitting its stride, and the recent love for anything SPAC/roll-up.  Green Brick Partners (GRBK) has a few of these qualities and done fantastically since the rights offering too - I have 1 or 2 others in mind that could follow a similar playbook.
  • Retail Holdings (RHDGF): I sold Retail Holdings earlier in the spring, it was one of my smaller holdings and I just decided to purge it instead of adding to it as the delayed liquidation up against the backdrop of a big bull market has tested just about anyone's patience.  In June, they made two sales of the more liquid holdings under the Singer Asia umbrella leaving the controlling stakes in Bangladesh, Sri Lanka, India, and Pakistan.  The question for me still remains, why couldn't they get the deal done in 2013?  Did someone look under the hood and find something they didn't like?  What's changed since then?  I still believe in the general thesis, just decided to move on and pursue other higher conviction ideas.
Current Portfolio:
*TGNA calls haven't traded since they were adjusted for the spin; current price is the underlying value with no premium
Disclosure: Table above is my blog/hobby portfolio, its a taxable account, and a relatively small slice of my overall asset allocation which follows a more diversified low-cost index approach.  The use of margin debt/options/concentration doesn't represent my true risk tolerance.