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Tucows: Niche Communications Provider with Strong Leadership

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Jockey Stocks, North America, Small Cap

Michael Lee of Hypotenuse Capital Management presented his in-depth investment thesis on Tucows (Nasdaq: TCX) at Best Ideas 2018.

Tucows provides simple, useful services that help people unlock the power of the internet. The company runs the second-largest internet domain registration platform in the world, a leading MVNO operator in the U.S., and is also building Fiber-to-the-Home networks in communities around the U.S. The company provides great customer service at bargain prices, maintains an excellent employee culture, and has a capable leadership team. With plenty of room to grow in the mobile and fiber businesses, Tucows’ recent ~$700 million market cap is attractive relative to the company’s future earnings growth potential.

For additional background on Tucows, access this conversation between Shai Dardashti and Tucows CEO Elliot Noss as well as this session at Latticework 2017, featuring Elliot Noss and John Lewis of Osmium Partners.

About the instructor:

Michael J. Lee is the founder of Hypotenuse Capital Management, an investment management firm based in Los Angeles, CA. Hypotenuse seeks to invest intelligently in exceptional leaders running extraordinary companies that deserve to win. Prior to founding Hypotenuse, Michael was a partner at Royal Capital Management in New York, a private equity associate at Parthenon Capital in Boston, and an investment banking analyst at Bear Stearns. He sits on the board of directors of the P.F. Bresee Foundation, a non-profit organization devoted to breaking the cycle of poverty and violence in Central Los Angeles. Outside of investing and philanthropy, Michael enjoys rock climbing, swimming and playing board games with his wife and two children.

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Continental Building Products: Strongly Cash-Generative Gypsum Wallboard Manufacturer

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, GARP, Ideas, Materials, North America, Small Cap

Stephen Dodson of Bretton Fund presented his in-depth investment thesis on Continental Building Products (NYSE: CBPX) at Best Ideas 2018.

Continental Building Products is a Virginia-based manufacturer of gypsum wallboard. Housing starts, wallboard, and building products in general are in the middle of a long recovery cycle, with many of years of above-average growth ahead. The wallboard industry has consolidated post-crisis, leaving a handful of competitors per market, and implemented pricing discipline, with much of the industry producing attractive margins and returns on capital. Due to a depreciation-capex mismatch, Continental Building Products produces more free cash flow than net income, and management has been on a pace of retiring 5-6% of shares per year. The company is trading at 13x free cash flow and 11x EBITDA-capex.

About the instructor:

Stephen Dodson founded the Bretton Fund in 2010 and serves as its president and portfolio manager. Prior to founding Bretton, Stephen was with Parnassus Investments, a San Francisco–based investment manager. Stephen was with Parnassus from 2002 to 2008 and served in a number of areas within the firm, including portfolio manager and president. In 2008, Institutional Investor News named him one of the 20 Rising Stars of Mutual Funds. Prior to Parnassus, he worked for the venture capital group of Advent International, a private equity firm, and was an investment banker for Morgan Stanley in New York and Menlo Park. He holds a BS in business administration from the University of California, Berkeley.

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Bridgepoint Education: To Benefit From Improved Regulatory Environment

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Deep Value, Equities, GARP, Ideas, Micro Cap, North America, Small Cap

Shawn Kravetz of Esplanade Capital presented his in-depth investment thesis on Bridgepoint Education (NYSE: BPI) at Best Ideas 2018.

Bridgepoint is priced for distress but poised for success thanks to a dramatically improved regulatory environment for its postsecondary education offerings and a fortress balance sheet that has enabled it to survive the regulatory scrutiny and eroding fundamentals of the Obama years. While most peers have seen their stocks soar 50%+ since the election, BPI has languished as they turn around their business – with some self-inflicted headwinds now easing – and continue to buy back shares aggressively. They have remained profitable and cash flow positive, yet trade at less than 2.5x Shawn’s pro forma 2018 EPS and less than 1.5x EV/EBITDA. With overhangs removed and catalysts in play, BPI presents 90+% upside potential with undemanding assumptions about 2018 operations.

About the instructor:

Shawn Kravetz is President and Chief Investment Officer of Esplanade Capital LLC, an investment management company he founded in 1999. Esplanade Capital LLC manages capital for a small number of like-minded families, private investors, and institutions. Esplanade’s value orientation, driven by patient capital and proprietary research/analysis, has generated substantial outperformance versus benchmarks since inception. The firm specializes in smaller companies, out of favor & below the radar companies, special situations, and turnarounds. Prior to founding Esplanade, Shawn was a corporate executive and strategic advisor, including: Principal at The Parthenon Group, a leading strategy consulting boutique, where he advised chief executives on corporate strategy; Director of Strategic Planning and Corporate Development at The CML Group (NYSE traded), where he oversaw activities at subsidiaries including NordicTrack, The Nature Company, and Smith & Hawken; Consultant with Monitor Company, a leading strategy consulting firm. Shawn received an MBA with High Distinction from Harvard Business School in 1995, where he was awarded: The Thomas M. and Edna E. Wolfe Award; The Henry Ford II Scholar Award; and a Baker Scholarship. Shawn received an A.B. in Economics from Harvard University, magna cum laude, in 1991. Shawn has also been active in his community, having served as: Steering Committee Vice Chairman of The Museum of Fine Arts Council at The Museum of Fine Arts Boston; Member of the Steering Committee of The Vilna Center for Jewish Heritage; and Treasurer of the PTO for the Frances Jacobsen Early Education Center. Shawn currently serves on the Finance Committee at Temple Israel, Boston. Shawn currently serves on the board of directors of Nevada Gold & Casinos, Inc. where he is Chairman of the Corporate Governance and Nominating Committee and a member of the Compensation Committee. As an investor, advisor, board member, and executive, Shawn has a demonstrated record of creating value for his investors, clients, and companies.

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Asset-Based Investing and BR Properties: Brazilian CRE Leader at NAV Discount

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Deep Value, Equities, Ideas, Mid Cap, Real Estate, South America

Amit Wadhwaney of Moerus Capital Management discussed asset-based investing and presented his in-depth investment thesis on BR Properties (Brazil: BRPR3) at Best Ideas 2018.

BR Properties is a leading commercial property company in Brazil, with a focus on prime, high-quality AAA office buildings in Brazil’s two largest cities, Sao Paulo and Rio de Janeiro. The investment opportunity stems from the downturn in the Brazilian economy, which exposed the overbuilding in the commercial property market, resulting in vacancy rates rising to multi-decade highs and rents falling roughly 25-40% in a variety of markets in real terms over the past four to five years. Piquing Amit’s interest was the transfer of control of BRP in 2016 from its then-distressed controlling shareholder to GP Investments, the original founder of BRP, which had brought it public in 2010, before totally divesting its holdings in 2012. This purchase of BRP was made in conjunction with a sovereign wealth fund at a per-share price of BRL 11, below the third-party appraised range of BRL 12.20-14.13 per share. BRP raised a further BRL 950 million in mid-2017 to fund its plan to acquire properties in the depressed market. The shares recently traded at 20+% and 30+% discounts to tangible and stated book values, respectively, with said book values reflecting assets written down to reflect depressed market conditions.

About the instructor:

Amit Wadhwaney is a Portfolio Manager and Co-Founding Partner at Moerus Capital Management LLC, and the founding manager of the Moerus Worldwide Value Fund. Mr. Wadhwaney has over 25 years of experience researching and analyzing investment opportunities in developed, emerging, and frontier markets worldwide, and has managed global investment portfolios since 1996. Prior to founding Moerus, Mr. Wadhwaney was a Portfolio Manager and Partner at Third Avenue Management LLC. Mr. Wadhwaney founded the international business at Third Avenue and was the founding manager of the Third Avenue Global Value Fund, LP, the Third Avenue Emerging Markets Fund, LP, and the Third Avenue International Value Fund, an open end mutual fund. Earlier in his career, Mr. Wadhwaney was first a securities analyst, and then Director of Research at M.J. Whitman LLC, a New York-based broker-dealer. Prior to joining M.J. Whitman, Mr. Wadhwaney was a paper and forest products analyst at Bunting Warburg, a Canadian brokerage firm. He began his career at Domtar, a Canadian forest products company. Mr. Wadhwaney holds an M.B.A. in Finance from The University of Chicago. He also holds a B.A. with honors and an M.A. in Economics from Concordia University; at Concordia, he was awarded the Sun Life Prize and the Concordia University Fellow in Economics, and he subsequently taught economics classes there. He also holds B.S. degrees in Chemical Engineering and Mathematics from the University of Minnesota.

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Tiffany & Co.: Iconic Luxury Brand at Discount to Private Market Value

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Consumer Discretionary, Equities, GARP, Ideas, Large Cap, Mid Cap, North America, Wide Moat

Chris Swasbrook of Elevation Capital Management presented his in-depth investment thesis on Tiffany & Co. (NYSE: TIF) at Best Ideas 2018.

Tiffany is an American heritage luxury brand, operating 315 stores in 30 countries. The Tiffany brand is one of the most iconic luxury brands, with a storied history that started in New York City when Charles Tiffany founded it in 1837. Based on Interbrand’s ranking, Tiffany is one of the most valuable global luxury brands, ranked fifth among global luxury players. Tiffany is the #1 American luxury brand. Tiffany was immortalized by the 1961 movie “Breakfast at Tiffany’s”. Tiffany is one of few jewelers that has established a vertically integrated business model that provides a perception of quality and luxury. Even though the stock has recovered from recent lows to ~$95, it trades at a discount to global peers and a discount to Chris’s estimate of private market value.

About the instructor:

Christopher Swasbrook is the Founder and Managing Director of Elevation Capital Management Limited a global investment manager based in Auckland, New Zealand. He was previously a Partner of Goldman Sachs JBWere Pty Limited and Co-Head of Institutional Equities at Goldman Sachs JBWere (NZ) Limited. Christopher is a member of the NZX Listing Sub-Committee (since 2008) and a member of the NZ Markets Disciplinary Tribunal (since 2013). He is also Chairman of Bethunes Investments Limited (BIL). Christopher graduated from The University of Auckland with a BCom (Economics) in 1996, having started his career in financial markets as an analyst in November 1995.

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Allison Transmission: Technological Leadership and High Switching Costs

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Capital Goods, Equities, GARP, Ideas, Mid Cap, North America, Transportation, Wide Moat

John Heldman and David Hutchison of Triad Investment Management presented their in-depth investment thesis on Allison Transmission (NYSE: ALSN) at Best Ideas 2018.

Allison is the world’s largest manufacturer of fully-automatic transmissions for medium and heavy-duty commercial vehicles (primarily Class 6,7 & 8) including on-highway, off-highway, buses, motorhomes, and defense vehicles. Allison has 60% global market share of the on-highway (~2/3 of revenue) fully-automatic transmission market. Founded in 1915, bought by General Motors in 1929, sold by GM in 2007 to Carlyle Group to shore up a weak balance sheet, ALSN went public in 2012. Fully-automatics are most cost-effective and primarily used in metro markets where many stops and starts are performed. Benefits of fully-automatics include fuel savings, higher vehicle productivity, lower lifecycle costs, easier driving training and retention, and driver comfort. With current and anticipated driver shortages and rising driver pay, ALSN customers will have incentives to retain drivers however possible. ALSN enjoys favorable characteristics such as brand name recognition, technological leadership, high switching costs, a large installed base, diversified end markets by truck type and geography, longstanding OEM customer relationships, strong profitability and FCF, and capable management with excellent capital allocation. Allison possesses good long-term organic growth opportunities, including hybrid, electric, alternative fuels and emission-reducing technologies. In addition, a large opportunity exists in international markets, particularly emerging economies where fully-automatic transmissions have low market share. ALSN recently traded at ~10x John and Dave’s 2018 EBITDA estimate. They believe the company can grow revenue and EBITDA at a high single-digit rate over the next three to five years, which combined with smart deployment of FCF could lead to the share price doubling over that time frame.

About the instructors:

John Heldman brings over 30 years of experience to the management of investment portfolios. Prior to founding Triad, he was a Senior Vice President and Portfolio Manager with Neuberger Berman. John has also managed institutional and individual investment portfolios for Deutsche Bank, Scudder Investments and Bank of America, including managing equity funds and serving on the Equity Strategy Committee. He obtained his Bachelor of Science degree in Finance and Master of Business Administration from California State University, Long Beach. John is a CFA charterholder, and a member of CFA Institute and CFA Society Orange County.

Dave Hutchison has 23 years of experience in investment management. Prior to joining Triad, he served as Investment Strategist for Chamberlain Group, directing investment manager research. Dave also founded and managed Hutchison Capital, a registered investment advisor. He holds a Bachelor’s degree in Political Science from Macalester College and a Master of Business Administration from the University of Southern California’s Marshall School of Business. Dave is a CFA charterholder, and a member of CFA Institute and CFA Society Orange County.

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Disney: Attractive Entry Point into Long-Term Compounder via FOX

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Large Cap, North America, Special Situations, Wide Moat

Niraj Gupta of GCI Partners presented his in-depth investment theses on Walt Disney (NYSE: DIS) and Twenty-First Century Fox (Nasdaq: FOXA) at Best Ideas 2018. Niraj outlined a compelling opportunity to become a long-term shareholder in Disney at an attractive implied valuation through FOX shares.

About the instructor:

Niraj Gupta has over 25 years of experience analyzing and investing in publicly traded companies as a buy-side analyst/portfolio manager and a sell-side research analyst, with particular expertise in the technology, media and telecom industries. Prior to starting GCI Partners in 2008, Niraj was associated with Pequot Capital, Citigroup, Schroders and Goldman Sachs.

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TripAdvisor: Myopic Investor Focus on Hotel Business Provides Opportunity

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Information Technology, Mid Cap, North America, Wide Moat

Artem Fokin of Caro-Kann Capital presented his in-depth investment thesis on TripAdvisor (Nasdaq: TRIP) at Best Ideas 2018.

Both the sell-side and buy-side are myopically focused on challenges facing TRIP’s hotel business in areas such as cost-per-click, “instant booking” rollout, and Priceline’s marketing budget re-allocation. Over the past three-and-a-half years TripAdvisor has successfully built two platform businesses with winner-take-all dynamics – “attractions” and “restaurants” – and TripAdvisor is the winner. These two businesses make TRIP an attractive company regardless of how TRIP’s hotel business evolves. The non-hotel business alone would soon justify the recent market valuation of the entire TripAdvisor. Artem believes Mr. Market is “missing an elephant in the room and is throwing us a fat pitch”. While Artem views TripAdvisor shares as a double in four to five years, he notes open-ended upside optionality. Artem sees 15+% IRR well beyond five years.

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About the instructor:

Artem Fokin is the founder and portfolio manager of Caro-Kann Capital LLC, a hedge fund based in San Francisco. Prior to founding Caro-Kann, he was a principal at Outrider Management LLC. Before entering the investing industry, Artem was an attorney with Greenberg Traurig LLP in New York City. Artem earned an MBA from the Stanford GSB (Arjay Miller Scholar), a Master of Laws degree from NYU School of Law (Newman Scholar) and a bachelor of law from the Higher School of Economics (Presidential Scholar) in Russia. Artem is admitted to the practice of law in the State of New York and is a dual citizen of the United States and Russia. Caro-Kann Capital LLC is the general partner of an investment partnership based on the principles of value investing that focuses primarily on special situations and compounders. Caro-Kann Capital is named after a chess defense that emphasizes building safety and defensible position before contemplating an offensive strategy. The Founder’s substantial legal experience brings a greater ability to analyze complex corporate documentation accompanying extraordinary corporate events. The Fund’s core investment principles include: (1) concentration when properly compensated, (2) risk is not equivalent to volatility, (3) non-economic selling can lead to attractive opportunities; (4) capital allocation is often underappreciated by the market, and (5) incentives and insider ownership are paramount.

Sears Hometown and Outlet: Deeply Undervalued Retailer on Verge of Inflection Point

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Consumer Discretionary, Deep Value, Distressed, Equities, Ideas, Jockey Stocks, Micro Cap, North America

Ryan O’Connor of Crossroads Capital presented his in-depth investment thesis on Sears Hometown and Outlet (Nasdaq: SHOS) at Best Ideas 2018.

About the instructor:

Ryan O’Connor is the President and Portfolio Manager of Crossroads Capital, LLC. Prior to founding Crossroads, Ryan was a portfolio manager at Three Arch Opportunity Fund, a value-centric investment partnership based in San Francisco. Prior to that, Ryan co-managed portfolios at Whetstone Capital and CUSH Capital, two Kansas City based investment partnerships focused on public equities investing. Before life as a securities analyst, Mr. O’Connor studied Economics at Indiana University (Bloomington), spent time as a top producing financial advisor for AG Edwards & Sons (now Wells Fargo) and an options trader on the Chicago Mercantile Exchange. Ryan’s proven history of generating compelling risk-adjusted returns has led to his membership in several elite investing associations, including Joel Greenblatt’s Value Investors Club, a highly selective idea-sharing site where global membership is capped at 500 buy-side analysts. He has also been recognized by SumZero, the world’s largest community of professional investors, as being in the top 1% of the approximately 12,000 buy-side analysts active on the site.

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O’Reilly Auto Parts: Leading Retailer of Automotive Parts with Distribution Advantage

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Consumer Discretionary, Equities, GARP, Ideas, Large Cap, Mid Cap, North America, Wide Moat

Abhay Deshpande of Centerstone Investors presented his in-depth investment thesis on O’Reilly Auto Parts (Nasdaq: ORLY) at Best Ideas 2018.

O’Reilly is a leading retailer of automotive aftermarket parts in the U.S. Its stock price has recently languished due to cyclical headwinds and concerns over the competitive threat from e-commerce players. O’Reilly operates a dual market strategy that enables it to efficiently serve both do-it-for-me and do-it-yourself customers. The dual market strategy enables it to leverage its retail distribution and distribution infrastructure. The company has a best-in-class distribution infrastructure that provides it with industry leading parts availability and store in-stock levels. While growth has recently slowed due to cyclical headwinds, Abhay believes O’Reilly can continue to take market share in a fragmented industry and generate strong same store sales growth. As O’Reilly has increased its scale, profitability and returns on invested capital have increased. O’Reilly has a distribution advantage and can grow intrinsic value over time.

Listen to this session:

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About the instructor:

Abhay Deshpande founded Centerstone Investors and serves as the Chief Investment Officer. He has more than 25 years of experience researching and investing in businesses globally. Prior to establishing Centerstone, Mr. Deshpande was a Portfolio Manager at First Eagle Investment Management, advisor to the Global and Overseas strategies that comprised the vast majority of the firm’s approximately $100 billion in assets under management. During his 15-year tenure, his responsibilities included hiring and training analysts along with leading the research team during times of market turbulence. He spearheaded the research efforts during both the 2001 technology and 2008 credit crises, and in both cases his direct efforts helped clients minimize losses, and ultimately thrive, during his career at First Eagle. Previously, Mr. Deshpande was a Research Analyst with Harris Associates, advisor to Oakmark International Fund and other International and Global products. He also was an Analyst for Morningstar responsible for following a variety of International mutual funds. He began his career at a boutique investment advisor in Louisville, KY. Mr. Deshpande holds a BS in Finance from the University of Louisville. He is a CFA Charterholder and a member of the New York Society of Security Analysts.

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