Winter 2021

DXC Technology is seen as a compelling investment opportunity due to its potential for recovery and growth in the post-pandemic environment.

Live Nation is considered an attractive investment as it is poised for recovery following the impacts of COVID-19, benefiting from the resurgence of live events.

RealPage is viewed positively due to its strong market position and growth potential, making it a favorable long-term investment.

DXC Technology is undervalued due to the market not recognizing the growth potential of its Luxoft segment, which has a significant total addressable market. The company is trading at a deep discount compared to peers and historical valuations, and the turnaround under new management is expected to stabilize operations and improve financial performance.

Live Nation is poised for a strong recovery post-COVID, with expectations of event attendance rebounding to pre-pandemic levels. The company's strong balance sheet and market position provide a solid foundation for growth, and the current valuation presents an attractive risk/reward scenario for investors.

RealPage is positioned to gain significant market share in the underpenetrated property management market, supported by a strong M&A strategy that enhances its service offerings. The company's high retention rates and competitive moats, including a sticky ERP system and strong data analytics capabilities, further bolster its growth potential. With a 1-year price target of $85, this reflects a 41% upside and a 15% IRR over a 4-year investment horizon.

Crown Holdings' stock price collapsed after its acquisition of Signode, allowing investors to buy the stock at a lower multiple than the acquisition cost. The company is also benefiting from secular trends like sustainability and a favorable supply/demand imbalance, which are being overlooked by the market.

Euronext was initially invested in due to its potential as an independent entity post-spinoff, with expectations of margin improvements through cost-cutting and efficiencies. The company has since exceeded expectations with its acquisition strategy and synergies.

Avalara is a high gross margin business with a sticky product and a large underpenetrated total addressable market (TAM). The management team is reinvesting in sales and marketing, which is viewed as growth capital, and the company is expected to grow significantly over the next few years due to favorable market conditions and a high retention rate.

Valvoline, trading at approximately 9x forward EBITDA, has shown strong operating performance since its spinoff and has a significant growth opportunity in its quick lubes business. The company is expanding its total addressable market and profitability is expected to exceed initial models, making it an attractive investment despite its current valuation.

Dick's Sporting Goods is positioned to thrive despite industry disruptions, having a strong balance sheet and a strategic advantage from the closure of competitors like Sports Authority. The company has learned from past retail disruptions and has adjusted its lease terms to benefit from favorable market conditions, making it a compelling investment opportunity.

Valvoline's investment thesis is informed by private equity insights, particularly regarding unit economics, which enhances the understanding of its market position and potential for growth.

Keraben Grupo was acquired at an attractive valuation of approximately 4.9x EBITDA, significantly lower than its competitor Mohawk at 11.5x. The investment involved a turnaround plan that led to substantial revenue growth and margin expansion, yielding a >6x return over a three-year holding period.

Recommendation to long DXC Technology with a 3-yr target price of $70 due to ongoing earnings stabilization led by the new CEO, an undervalued Luxoft segment representing a $5 Bn valuation opportunity, and attractive current valuations given DXC’s earnings stabilization and asset-light, cash generative operations.

Live Nation is expected to recover strongly post-COVID due to its dominant position in the arena business and the anticipated increase in ticket sales as events resume. The company has a robust cash flow and can make strategic acquisitions of distressed promoters and venues, enhancing its market position. The bull case suggests a target price of $125, reflecting a 119% upside based on long-term growth potential and increased pricing power.

Copart is an example of a company that exhibits characteristics of a compounder, with high returns on capital and a long growth runway, allowing it to reinvest capital effectively.

Facebook is mentioned as a company with high returns on capital and a strong growth potential, characteristic of today's compounders that can scale rapidly due to their digital nature.

Walmart is cited as a classic example of a company that was able to reinvest capital into new store locations at high returns for a long time, demonstrating the characteristics of a compounder.

Home Depot is referenced as a historical compounder that achieved high rates of compounding through effective capital reinvestment in new store locations.

Starbucks is mentioned as a classic example of a company that could reinvest capital effectively, leading to high compounding rates over time.

John Huber believes Apple is a great brand with a highly sticky ecosystem and a strong retention rate in hardware, which creates recurring revenue similar to a subscription model. He acknowledges that while Apple is no longer compounding its intrinsic value at a high rate, it still possesses a strong moat and generates enormous free cash flow, making it a valuable long-term hold.

John Huber mentions owning NVR due to its well-managed business model that reduces risks inherent in the homebuilding industry. He appreciates its cost-efficient operations and strong culture, which make it a compelling investment despite having observed it from the sidelines for years before investing.

John Huber describes VeriSign as the 'toll road of the internet' due to its monopoly on .com and .net domains, which provides high-margin, recurring revenue. He acknowledges that he sold the stock too early, as his valuation was too conservative despite the company's strong business quality.

Etsy is a two-sided marketplace that specializes in handmade products, benefiting from trends towards individualism and supporting small businesses. With a small market share in a large eCommerce market, Etsy has a strong growth potential and a developing moat.

Etsy is positioned to benefit from strong network effects and data feedback loops, which enhance its profitability as it grows. With a current valuation of around $25 billion and potential for $10 billion in revenue in five to six years, the company could generate $3-4 billion in free cash flow. The growth in gross merchandise sales and the potential increase in take rates suggest significant upside for investors.

Schwab is considered the most interest rate sensitive stock, and while the market has adjusted to interest rate expectations, the potential for higher marginal returns makes it an attractive long-term investment.

Roper has a unique culture and business model that focuses on cash flow and sensible acquisitions, making it a strong long-term investment choice.

We believe Analog Devices is undervalued following its acquisition of Linear Technology, which initially caused the stock to decline. The market's perception of it as 'dead money' due to regulatory delays presents a buying opportunity, especially as we anticipate significant cost synergies and improved cash flow per share over time.

Aon is acquiring Willis Towers Watson, and we see this as a strong opportunity given the cash flow characteristics of insurance brokers. We believe that the cost synergies from this acquisition could exceed management's estimates, potentially doubling free cash flow per share over the next four to six years.

Keysight has been a great investment for Central, especially after the spin-off from Agilent. Despite my initial hesitation to add to the position, its significant appreciation since then indicates its strong fundamentals and growth potential.

Cogent generates organic growth but lacks the ability to redeploy all its free cash flow back into the business. The unique CEO, who owns 10% of the company, is focused on maximizing capital returns, making it an attractive investment opportunity.

Star Group is a fuel oil distributor with a management team focused on improving cash flow per share over time, despite not having positive organic revenue growth. This focus on cash flow makes it a unique investment opportunity.

Alphabet is under-earning in certain areas due to cyclical factors, such as travel, and investments through the income statement in projects like Waymo and Verily.

Plymouth Rock has a strong entrepreneurial culture and is well-managed for shareholders, focusing on long-term growth and capital allocation, which positions it well in the fragmented insurance market.

Although Kinsale has a strong management team and is gaining market share, the stock price is starting to reflect expectations of becoming a larger underwriter, which may require raising capital and could limit future growth.

Intel's competitive position has changed as AMD's server chips can outperform Intel's on power efficiency, leading to concerns about Intel's future market share.

Progressive has been an extraordinarily good investment over the years, and the investors should have owned more of it due to its strong performance in the insurance market.