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Thor Industries: Well-Managed Leader in Oligopolistic, Rational Industry

January 17, 2023 in Audio, Best Ideas 2023, Best Ideas 2023 Featured, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Javier López Bernardo of BrightGate Capital presented his in-depth investment thesis on Thor Industries (US: THO) at Best Ideas 2023.

Thesis summary:

Thor Industries is a US-based manufacturer of recreational vehicles (RVs), both trailers and motorhomes. After a decade in which the company has pursued a well-executed acquisition policy to consolidate the industry, THOR is the undisputed leader by market share and product breadth. The RV manufacturing industry presents attractive characteristics for investors with a long-term time horizon. In addition, the management team (along with the company’s chairman emeritus) is aligned with shareholders and has extensive experience in the industry.

Main points of the investment thesis

Although a cyclical industry, the RV sector is a niche market with a stable oligopolistic structure, a long and consistent history of strong shareholder value creation and virtually no competition from foreign producers. These characteristics have meant that THOR has not posted a loss-making year in the past three decades.

THOR has leading positions in both the towable and motorized vehicle segments, with market shares in 2022 of 41% and 48%, respectively. Although the RV manufacturing process is not highly automated, so economies of scale from higher production levels are modest at best, the size helps in dealing with distributors and suppliers and establishing best practices. THOR also has a leading position in the European market thanks to the acquisition of Erwin Hymer Group (EHG) in 2019. The European market is much more fragmented than the U.S. market and could be a source of future growth for THOR.

THOR has a strong balance sheet and an attractive shareholder remuneration program, consisting of a growing dividend and a $600 million share repurchase authorization through 2025 (approximately 15% of current market cap).

THOR’s stock valuation discounts very pessimistic scenarios going forward. At $75 per share, the company has an EV of approximately $5.5 billion, implying EV/NOA’22 and EV/NOI’22 multiples of 1.1x and 5.7x, respectively. On a leveraged basis, THOR trades at a P/BV of 1.1x and a P/E’22 of 4.4x. Given that THOR’s average return on net operating assets (RNOA) has been around 20% over the past decade (ROE of 19%), and residual earnings have grown at a good pace, the level of discount at which the shares are trading is excessive. Assuming an 8% discount rate (EV), a 2% growth rate in residual earnings and much lower future RNOA (14%), would yield a target price of $160, implying a return on equity of 15.4% in perpetuity.

Downside risks

  • Long-term demand in the US stabilizes below 350k units, either due to lack of interest or because the economic slowdown is longer than expected.
  • The RV components industry has become very consolidated in the last decade (LCI Industries, Patrick Industries), and while the relationship is good, further consolidation could erode THOR’s bargaining power.
  • Although the RV distribution industry is currently highly fragmented, there is being a flurry of consolidation by some players (RV Retailer, Camping World) that could weaken THOR’s bargaining power in the long run.
  • In the long term, the introduction of autonomous RVs may spark interest from auto OEMs to participate in the RV industry, increasing competition.

Upside drivers

  • Share repurchases at (or below) these levels.
  • THOR keeps acquiring European companies at reasonable valuations to consolidate the industry.
  • Additional upstream acquisitions components at reasonable valuations.

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About the instructor:

Javier López Bernardo is currently Portfolio Manager (equities and high yield) at BrightGate Capital SGIIC, an independent asset management boutique company based in Madrid, Spain.

He holds a Bachelor in Business Administration (major in finance) by the Universidad Complutense de Madrid, a Master in Corporate Finance and Investment Banking by the IEB and a Master in Economics by Kingston University, where he also earned a Ph.D. in Economics. His academic research on equity markets and growth theory has been published in leading international journals.

Additionally, he has been a full-scholarship holder for two years by the Ramón Areces Foundation and he is a CFA charterholder. He is a lecturer for the CFA program and he also regularly delivers lectures in commodities, value investing and behavioral finance.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Three NCAV Bargains: Car Mate Mfg, Daiken Co, Playmates Toys

January 17, 2023 in Audio, Best Ideas 2023, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Juan Matienzo of Mercor Investment Group presented his investment theses on Car Mate Mfg Co Ltd (Japan: 7297), Daiken Co Ltd (Japan: 5900), and Playmates Toys Limited (HK: 0869) at Best Ideas 2023.

Snapshot:

Car Mate and Daiken Co. are profitable Japanese manufacturers that trade for large discounts to their liquidation values.

Playmates Toys is a Hong Kong toy seller that trades for less than the value of its cash and securities minus all liabilities.

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About the instructor:

Juan F. Matienzo is the Managing Partner of Mercor Investment Group, where he is responsible for the portfolio. Juan follows deep value principles, and prefers companies that trade for less than liquidating value. He is also an amateur painter. He has a BBA and a Master of Clinical Psychology from UDLAP, and an MBA from the Harvard Business School.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

HDFC Bank: Sustainably Growing Market Share Leader in India

January 17, 2023 in Audio, Best Ideas 2023, Best Ideas 2023 Featured, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Krish Mehta of Enam Holdings presented his investment thesis on HDFC Bank (India: HDFCB, US: HDB) at Best Ideas 2023.

Thesis summary:

HDFC Bank is India’s largest private sector bank with an unparalleled track record in terms of book quality, ROA, ROE, and consistent growth.

Krish views HDFC Bank as a leveraged play in the consumption space with a robust balance sheet and best-in-class asset quality that has proven its resilience over three decades across cycles. It has proven its resilience amidst adversity as seen during COVID-19 when it was one of the only large banks globally that navigated the turbulent times without raising capital while maintaining low credit costs. Given the deeply underpenetrated market in India in terms of GDP per capita vs. loan penetration, as well as the structural tailwinds for the country, HDFC Bank is poised to capitalize in this credit and business cycle in addition to its intrinsic business strength and moat.

The recent de-rating in the stock has been driven by concerns around the announced merger with HDFC Limited, India’s premier housing finance company. Krish believes these concerns are short-term in nature and ignore the long-term value accretive nature of this merger that will improve the quality of HDFC as a combined entity. The merger uncertainty has presented an opportunity to buy HDFC Bank at historically low valuations and own a best-in-class business that will compound consistently without raising capital in the foreseeable future.

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About the instructor:

Krish Mehta is a value investor from Mumbai, India. He is an Investment Analyst at Enam Holdings in Mumbai, a reputed family office. Enam runs a concentrated book and takes five- to ten-year views on businesses, practicing a long-term value-focused investment philosophy. Krish’s role at Enam is conducting bottom-up, fundamental research of Indian and global equities across sectors, portfolio management, and covering global macro. Krish graduated from the NYU Stern Undergraduate School of Business in 2019 with a BS in Finance and Accounting and interned at a long/short hedge fund in London, Theleme Partners, for two summers prior to joining Enam.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Heritage-Crystal Clean: Wide-Moat Route Density Business

January 17, 2023 in Audio, Best Ideas 2023, Best Ideas 2023 Featured, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Sam Sheldon of Punch & Associates Investment Management presented his investment thesis on Heritage-Crystal Clean (US: HCCI) at Best Ideas 2023.

Thesis summary:

Heritage-Crystal Clean provides parts cleaning and waste collection services to the industrial and vehicle maintenance sectors. With 91 branches across 48 states and Ontario, this route density business has a wide moat that continues to increase the company’s competitive advantage as it adds branches, services, and expands geographically. The company also owns and operates the second-largest re-refinery in North America. Historically, the high-margin recurring services segment’s results were masked by the lower-margin refinery business, but new environmental regulations created a structural change that has improved the re-refinery margin profile.

Heritage-Crystal Clean is led by a proven and aligned management team that is utilizing the underlevered balance sheet and significant cash flow to roll up the fragmented services industry. As the oil business becomes more stable, and the collection services grow in scale, there is meaningful share price upside, driven by both organic and inorganic growth as well as multiple expansion.

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About the instructor:

Sam Sheldon joined Punch & Associates in June of 2016. In his role as Research Analyst, he focuses on the firms small, micro and nanocap portfolios. During his free time, Sam enjoys boating on White Bear Lake, cheering for the Green Bay Packers and playing an occasional round of golf.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Medifast: Weight Loss Manager Undergoing Temporary Slowdown

January 17, 2023 in Audio, Best Ideas 2023, Best Ideas 2023 Featured, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Steve Gorelik of Firebird Management presented his in-depth investment thesis on Medifast (US: MED) at Best Ideas 2023.

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About the instructor:

In addition to being Head of Research at Firebird Management, Steve Gorelik is the Lead Fund Manager of Firebird U.S. Value Fund as well as portfolio manager of Firebird’s Eastern Europe and Russia Funds. He joined Firebird in 2005 from Columbia University Graduate School of Business while completing education from a highly selective Value Investing Program. Prior to business school, Steve was an operational strategy consultant at Deloitte working with companies in various industries including banking, healthcare, and retail. He holds a BS degree from Carnegie Mellon University as well as a CFA (chartered financial analyst) charter and a membership in Beta Gamma Sigma honor society. Steve serves on the number of supervisory boards of listed and private companies in the Baltics. He speaks Russian, English and his native Belarussian.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

IWG: FCF-Generative, Growing Leader in Flexible Workplace Solutions

January 17, 2023 in Audio, Best Ideas 2023, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Yaron Naymark of 1 Main Capital presented his in-depth investment thesis on International Workplace Group (UK: IWG) at Best Ideas 2023.

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About the instructor:

Yaron Naymark is the founder and portfolio manager of 1 Main Capital, a boutique investment firm founded in 2018 that seeks to make concentrated investments in high-quality, reasonably valued businesses with long reinvestment runways, and special situations undergoing an element of change or temporary dislocation that will cause investors to revalue an investment in the near term. Prior to founding 1 Main Capital, Yaron spent over a decade analyzing businesses professionally, including at multi-billion-dollar value-oriented public and private equity firms. Yaron is a South Florida native, a lover of the outdoors, and currently lives in Connecticut with his wife and dog.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

S3E09: Private Equity and the Game of Volatility Laundering

January 17, 2023 in Audio, Podcast, This Week in Intelligent Investing

It’s a pleasure to share with you Season 3 Episode 9 of This Week in Intelligent Investing, co-hosted by

  • Phil Ordway of Anabatic Investment Partners in Chicago, Illinois;
  • Elliot Turner of RGA Investment Advisors in Stamford, Connecticut; and
  • John Mihaljevic of MOI Global in Zurich, Switzerland.

Enjoy the conversation!

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In this episode, co-hosts Phil Ordway, Elliot Turner, and John Mihaljevic discuss the private equity asset class and the dangerous game of “volatility laundering”, a concept popularized by Cliff Asness.

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This Week in Intelligent Investing is available on Amazon Podcasts, Apple Podcasts, Google Podcasts, Pandora, Podbean, Spotify, Stitcher, TuneIn, and YouTube.

If you missed any past episodes, you can listen to them here.

About the Podcast Co-Hosts

Philip Ordway is Managing Principal and Portfolio Manager of Anabatic Fund, L.P. Previously, Philip was a partner at Chicago Fundamental Investment Partners (CFIP). At CFIP, which he joined in 2007, Philip was responsible for investments across the capital structure in various industries. Prior to joining CFIP, Philip was an analyst in structured corporate finance with Citigroup Global Markets, Inc. from 2002 to 2005. Philip earned his B.S. in Education & Social Policy and Economics from Northwestern University in 2002 and his M.B.A. from the Kellogg School of Management at Northwestern University in 2007, where he now serves as an Adjunct Professor in the Finance Department.

Elliot Turner is a co-founder and Managing Partner, CIO at RGA Investment Advisors, LLC. RGA Investment Advisors runs a long-term, low turnover, growth at a reasonable price investment strategy seeking out global opportunities. Elliot focuses on discovering and analyzing long-term, high quality investment opportunities and strategic portfolio management. Prior to joining RGA, Elliot managed portfolios at at AustinWeston Asset Management LLC, Chimera Securities and T3 Capital. Elliot holds the Chartered Financial Analyst (CFA) designation as well as a Juris Doctor from Brooklyn Law School.. He also holds a Bachelor of Arts degree from Emory University where he double majored in Political Science and Philosophy.

John Mihaljevic leads MOI Global and serves as managing editor of The Manual of Ideas. He managed a private partnership, Mihaljevic Partners LP, from 2005-2016. John is a winner of the Value Investors Club’s prize for best investment idea. He is a trained capital allocator, having studied under Yale University Chief Investment Officer David Swensen and served as Research Assistant to Nobel Laureate James Tobin. John holds a BA in Economics, summa cum laude, from Yale and is a CFA charterholder.

The content of this podcast is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this podcast. The podcast participants and their affiliates may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on this podcast. [dkpdf-remove]
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Unit Corporation: Substantial FCF, Cheap Valuation, Uplisting Catalyst

January 16, 2023 in Audio, Best Ideas 2023, Best Ideas 2023 Featured, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Michael Melby of Gate City Capital Management presented his investment thesis on Unit Corporation (US: UNTC) at Best Ideas 2023.

Thesis summary:

Unit Corp. is Mike’s top pick for the second consecutive year (access last year’s presentation). Unit’s stock price increased over 90% in 2022, but due to robust FCF growth, non-core asset sales, and opportunistic share repurchases, the company’s enterprise value increased by just 22% over the same period.

Unit recently had a market cap of ~$540 million and, with ~$180 million of net cash, has an enterprise value of ~$360 million. Mike’s price target of $88 per share provides investors with ~57% upside with limited downside risk.

Unit operates as an integrated oil and natural gas company with two segments: (1) oil and natural gas and (2) contract drilling. The oil and natural gas segment, operating as Unit Petroleum Company, develops and produces oil and natural gas primarily in Oklahoma and Texas. Unit Petroleum should continue to generate significant FCF in the years ahead, benefiting from low operating costs, relatively low decline rates, and the runoff of below-market hedges.

The contract drilling segment, operating as Unit Drilling Company, owns and operates 21 drilling rigs. Unit Drilling’s prospects have improved dramatically as tightness in the onshore drilling rig market has caused dayrates and profitability to increase substantially.

Unit also owns 50% of Superior Pipeline Company, which owns and operates pipeline infrastructure assets used to gather, process, and treat natural gas.

Since declaring bankruptcy in May 2020, Unit shed over $650 million in debt, installed an experienced management team focused on FCF, cut costs and capital spending, and divested non-core assets. In 2021 and through the first three quarters of 2022, Unit generated almost $300 million in operating cash flow, sold almost $150 million in non-core assets, and spent only $55 million on capital expenditures. The robust cash flow generation has allowed Unit to grow the net cash balance to ~$180 million while repurchasing over $75 million of stock at attractive prices. Mike expects Unit to generate robust profitability and FCF for the foreseeable future.

Unit recently traded at less than 2.5x EV/EBITDA and has an unlevered FCF yield of nearly 25%. Mike also expects Unit to continue to return capital to shareholders. Unit has opportunistically repurchased stock and also announced that it is conducting a tax earnings and profits analysis to determine whether cash distributions can be made to shareholders in a tax-efficient way.

Unit is traded OTC, has no sell-side coverage, and does not conduct investor conference calls. An uplisting to an exchange or the initiation of additional investor relations functions could attract new investors to the company.

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About the instructor:

Michael Melby is the founder and portfolio manager of Gate City Capital Management, a micro-cap value focused investment firm. Before starting Gate City Capital, Michael worked as a research analyst at Crystal Rock Capital Management where he covered the consumer, restaurant, retail, and gaming sectors. Michael previously worked at Deutsche Bank Securities in their Debt Capital Markets group and at the University of Notre Dame Investment Office where he focused on natural resources, fixed income, and risk management. Michael earned an MBA from the University of Chicago Booth School of Business where he graduated with Honors and a BBA in Finance from the University of Notre Dame where he graduated Summa Cum Laude. Michael is a CFA Charterholder and has earned the Financial Risk Manager designation.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

ITV plc: Disappointing, Ugly, Troubled, Hated, and Misunderstood

January 16, 2023 in Audio, Best Ideas 2023, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Simon Caufield of SIM Limited presented his investment thesis on ITV plc (UK: ITV) at Best Ideas 2023.

Thesis summary:

ITV, founded in 1955, is the UK’s first and largest free-to-air commercial TV broadcaster. The stock is hated for its cyclical, advertising-based business model and the secular decline of TV broadcasting due to the growth of streaming.

However, broadcast TV revenues are at all-time highs despite the market’s expectation of a decline. In addition, 45% of group revenue comes from the Production Studios business, which is not advertising-based. Finally, ITV owns a valuable back catalog of shows.

Simon’s sum-of-the-parts valuation estimate is 140% above the recent share price. The dividend yield recently amounted to 6.7%.

The CEO is reportedly “fed up” with the stock price performance and may be considering a transaction to unlock value.

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About the instructor:

Simon Caufield is Managing Director at SIM Limited, a UK-based investment firm. Simon founded the firm in 2007 after selling his stake in Nomis Solutions, a B2B enterprise software company he founded in 2002. His circle of competence is deep value, cyclicals and deceptively cheap compounders amongst the industrial and consumer discretionary sectors.

Previously, Simon was a management consultant for more than a decade, including at Mercer Management Consulting. Simon has an MA in Engineering from Cambridge University and an MBA from London Business School.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Crossroads Impact: Advantaged Leader in Growing, Massive Market

January 16, 2023 in Audio, Best Ideas 2023, Best Ideas 2023 Featured, Best Ideas Conference, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Rimmy Malhotra of Nicoya Capital presented his in-depth investment thesis on Crossroads Impact (US: CRSS) at Best Ideas 2023.

Thesis summary:

Rimmy first presented Crossroads Systems in January 2019 at approximately $7 per share. Since then, it has paid a $40 per share special dividend.

The company has rebranded to Crossroads Impact and has repositioned itself as the largest publicly traded Community Development Financial Institution (CDFI). Crossroads Impact operates as a specialty finance company focused on “impact” investment within low to moderate census tracts (LMI) and to women and minority entrepreneurs as an originator of SBA loans.

Given its structurally lower cost of capital, coupled with government incentives, Crossroads appears poised to deliver double-digit growth rates, with target ROEs in the high-teens, all within a low-leverage and low-risk framework.

In 2023 the company should uplist to a major exchange, as the first catalyst in closing the valuation gap. Rimmy estimates the equity will be worth $30 per share within three years, as compared to the recent price of $11 per share.

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About the instructor:

Rimmy Malhotra is Portfolio Manager at Nicoya Capital. The Nicoya Fund is an investment partnership with limited investing constraints. Coupled with a stable of very long-term oriented partners we invest in a concentrated and deliberate fashion across a wide variety of industries, and company sizes. Currently, Rimmy serves on the board of HireQuest (ticker: HQI) , Infusystem (ticker: INFU) & Optex Systems (ticker: OPXS), and previously served on the board of Peerless Systems. Rimmy served for three years as a United States Peace Corps Volunteer in Central America. He earned an MBA in Finance from The Wharton School and a master’s degree in International Affairs from The School of Arts & Sciences at the University of Pennsylvania where he is a Lauder Fellow. Mr. Malhotra holds undergraduate degrees in Computer Science and Economics from Johns Hopkins University.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.
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