It’s been a while since I did a portfolio update, and there has been enough interesting news this week to do one now.
Hack Wall St. Portfolio – Buy Whole Foods and Sell half of Third Point Re
The portfolio looks like it is generally doing well. Seven positions have 15%+ returns and one has more than doubled. Unfortunately, old losses and a being down over 20% in Third Point Re put the portfolio at an 11% gap between its return and the S&P.
So, this week we’re going to cut the Third Point position in half to raise cash for Whole Foods. Somehow, even down 23.5%, Third Point is still 15% of the portfolio. We will use the 7.5% of it and some of the cash to make a new 10% position.
I wrote about Under Armour in the newsletter last week (reprinted below) and the problem with owning great companies that are always seemingly overvalued.
Whole Foods has historically been one of these companies. Its margins and returns are far higher than any other grocery because it can charge more for its organic and otherwise “healthy” food. Pair that with its intense growth in developing new stores and buying out competitors and its stock price rose from a split-adjusted $5.60 at the turn of the millennia to over $63 in 2013.
That was the high. Since then, normal grocery stores and the WalMart/Targets of the worlds have added substantial organic choices to their stores and Whole Foods’ growth has stumbled and then finally, over the past year, has gone negative as far as same stores go.
This past week, Jana Partners, an activist fund, announced that it had built an 8% position in the company to attemot to aid a turnaround and eventually enocurage a potential sale of the business.
After a boost from the annoucnement, Whole Foods trades for about 7.5x EBITDA; it would not be surprising for a buyer to pay 10-12x EBITDA or more. A prominant fund manager I respect values the company at at least $40 right now. A turnaround that make the company more profitable and potentially higher valued could bring even more gains.
Market Timing Portfolio – All Good; Asset Allocation Portfolio – Meh
The market timing portoflio continues to ax murder the makret – with a 11.5% relative to 6.4% from the market. Short bonds is the only down position.
The asset allocaiton portoflio is still slumping, up just 1.1%. Down positons in real estate and commodities have killed performance.
Stocks for 2017 – Endless Tesla Madness
It seems I am destined to structure portfolios with mostly good performers and a few stinkers that kill everything good in the world. In the Stocks for 2017 portoflio a 43% gain in Tesla (which we are short, so that’s bad) and a 27% loss in Fitbit are dragging down the returns.
A Business Insider post this week higghlighted the insanity of Tesla’s current valuation. Its valuaiton has now eclipsed both Ford and GM – despite the fact that it has delivered 76k vehicles in 2016 for revenue of $7B and an $800MM loss, while GM has delivered 10mm vehicles for revenue north of $150B and almost $10B in net income and Ford has hit 6.5mm vehicles, $151mm revenue and $5mm net income.
The article says the stock is not valued on these current numbers but the (fantastical) possibilities of what the company could do.
Tesla has a reckoning coming at some point, we may, unfortuantely, get stopped out before it happens.
Personal Portfolio – Under Armour Shenanigans