Fall 2020

Farfetch is positioned to benefit from the growing trend of online luxury shopping, especially as consumer preferences shift towards digital platforms. The company's unique marketplace model allows it to connect consumers with a wide range of luxury brands, enhancing its competitive advantage in the e-commerce space.

Hanesbrands is well-positioned for growth due to its vertical integration, which allows it to capture downstream profits and innovate new products. The new CEO, Stephen Bratspies, has a strong track record in merchandising and is incentivized to drive long-term growth. The market is underestimating the potential of HBI, especially with the rise of athleisure and its strong brand equity.

Hanesbrands is undervalued based on a sum-of-the-parts (SOTP) valuation, with a target price of $25.65, representing a significant upside from the current price of $17.21. The analysis suggests a total enterprise value of $10.335 billion, with a strong potential for a 3-year total return of 49% and an internal rate of return (IRR) of 14%.

TJX is well-positioned to capitalize on counter-cyclical opportunities due to its resilient business model and strong market presence. The company is expected to achieve a target price of $93.98 over three years, driven by its efficient supply chain, strong vendor relationships, and expansion opportunities in underpenetrated markets. The investment thesis highlights the potential for significant growth as retail dynamics shift post-COVID-19.

Ray Kennedy believes that travel, particularly cruises, will eventually return to normal levels, similar to past recoveries after events like 9/11. He suggests that buying secured bonds from cruise companies could be a good investment opportunity as the industry rebounds.

Ray Kennedy indicates that regional gaming companies are more resilient compared to Las Vegas casinos, which may take longer to recover post-pandemic. He believes that people will continue to gamble in both good and bad times, making regional gamers a more stable investment.

Ray Kennedy mentions that PG&E bonds, especially post-bankruptcy, are attractive as they are undervalued. He believes that the company's issues are tied to specific risks rather than broader macroeconomic challenges, making their bonds a compelling investment.

AXA is positioned well in the property and casualty market, which is currently experiencing price increases in the 20% range in the US and mid-teens elsewhere. This pricing power should help offset any COVID-related losses, making it an attractive investment opportunity.

Rolls Royce is a leader in engine manufacturing and is expected to see a recovery in cash flow as demand for airplane engines returns post-pandemic. The current market valuation does not reflect the potential recovery, making it an attractive opportunity.

UniCredit has undergone a painful restructuring, improving its corporate governance and aligning management interests with shareholders. With a less risky balance sheet and better returns, it presents an interesting investment opportunity in the current market.

Volkswagen has successfully moved on from the Dieselgate scandal with new management that has improved expectations and positioned the company as a leader in the EV space, making it a compelling investment.

Peugeot has successfully restructured under new management, implementing aggressive cost controls and delivering on targets, which has strengthened the company and made it a more attractive investment.

AstraZeneca has revitalized its R&D efforts under new management, transforming from a less loved company to an innovator in the pharmaceutical industry, which enhances its investment appeal.

Amgen's heavy R&D spending is currently depressing its earnings, making it appear expensive relative to the pharmaceutical industry. However, when considering enterprise value to EBITDA plus R&D, Amgen looks much cheaper and has better growth prospects due to longer patent protection.

Alphabet's spending on 'Other Bets' depresses its earnings, inflating the stated P/E multiple. Adjusting for this spending and the cash on the balance sheet reveals that investors are not paying much more than a market multiple for its core Search business.

Netflix is adding approximately 25 million subscribers a year, which adds significant value. The market cap is around $200 billion, and if each subscriber is valued at $1,000, the annual return on spending for customer growth is 12.5%, which is better than potential returns from share buybacks.

Bill Nygren mentions that they owned Apple for a long time, and it was consistently selling at less than a market P/E multiple, indicating it was undervalued despite being a growth company.

TE Connectivity is a leader in electrification and has a higher content in electric vehicles compared to traditional vehicles, positioning it well to benefit from industry disruption.

Aptiv is also a leader in electrification, which gives it a competitive advantage as the automotive industry shifts towards electric vehicles.

Lear is dominant in seating and is expected to adapt to changes in vehicle design as the industry moves towards more autonomous vehicles, where comfort will become increasingly important.

We believe Facebook no longer looks expensive based on its projected P/E due to its significant growth from earlier concerns about its valuation.

We previously owned Amazon when it was priced in the $200s, believing it was undervalued compared to brick-and-mortar competitors, but sold too early as it rose to $600.

We sold our position in American Airlines due to concerns about its ability to survive the unprecedented downturn in global travel caused by COVID-19.

We believe Hilton's asset-light, franchise business model positions it well to weather the downturn in travel without significant losses, unlike heavily leveraged airlines.

We bought Match.com as we saw an opportunity to invest in a company that could benefit from changing consumer behaviors during the pandemic.

We purchased Pinterest after its stock fell significantly, believing that increased engagement during the pandemic would enhance its business value despite the drop in stock price.

Ally Financial is well-positioned to thrive post-Covid due to its shift to a deposit-funded model, which reduces risk compared to its previous reliance on short-term debt. The company is expected to return to pre-Covid earnings of about $3.70 per share, representing a compelling valuation at 80% of book value. Additionally, Ally's strong position in the auto loan market allows it to maintain good spreads despite low interest rates, and the rising used car prices provide a buffer against potential defaults.

Hanesbrands is undervalued due to its growth potential in eCommerce, the Champion brand, and international markets. The company has seen significant growth in its direct-to-consumer channel and has a strong presence in the athleisure market. With a target price of $25.50, we believe HBI should yield a ~14% three-year IRR based on its current valuation.

TJX has a balanced mix of close-out purchases and private label production, making it resilient to trade disputes. Its newly invested distribution centers will enhance inventory management flexibility, positioning it well for post-pandemic recovery.

Farfetch is undervalued due to its strong economic moats, the market's overreaction to Amazon's entry into luxury goods, and its significant growth potential. The target price is set at $40, representing a 48% upside over three years.

Farfetch is positioned to capture a larger share of the luxury goods market, which is expected to grow significantly. Despite current concerns about its high take rate, the company's growth trajectory and potential to reach a 5.3% market share by 2030 suggest substantial upside. The valuation indicates a target price of $40, representing a 48% upside over three years.

Unity owns fiber to the home that they lease to Windstream, which provides a stable revenue stream despite the challenges in the telecom sector.

Nine Energy specializes in making disposable plugs used in horizontal drilling, which is a critical component in the energy sector, although there are concerns about regulatory changes under a potential Biden administration.

Allison Transmission manufactures standard transmissions for combustion engines and is also involved in electronics, positioning it well for the evolving automotive industry.

Boardriders, the parent company of Quiksilver, has valuable brand equity, which allows them to charge premium prices for their products despite challenges in the retail sector.

Limited Brands, particularly its Bath & Body Works segment, is in good shape and has established brands that retain value even in a challenging retail environment.

Volkswagen is expected to become the world's leader in electric vehicles and will have the cleanest fleet in the next decade, driven by significant shareholder engagement and pressure to improve their environmental impact.

UniCredit has undergone significant restructuring under new management, which has improved its balance sheet by addressing non-performing loans. This restructuring has lowered risk, reduced the cost of equity, and increased return on equity, making it a compelling investment opportunity.

Amadeus is well-positioned in the travel technology sector, and despite the pandemic's impact, the demand for travel remains strong. The company is expected to benefit as the travel industry normalizes, making it an attractive investment.

Sabre operates in the travel technology space and is likely to see a rebound as travel demand returns post-pandemic. The company's resilience and potential for recovery make it a worthwhile investment.

Airbus is involved in aerospace manufacturing and is expected to benefit from the eventual recovery in the aviation sector as travel demand increases. Its strong balance sheet positions it well for future growth.

Rolls-Royce is positioned in the aerospace sector and is anticipated to recover alongside the normalization of travel. Its strong fundamentals and market position make it a compelling investment opportunity.

Alaska Air is a key player in the airline industry and is expected to benefit from the recovery in travel demand as conditions improve. Its strong balance sheet and operational efficiency make it an attractive investment.

Itochu is fundamentally different from other Japanese trading companies, showing consistent earnings growth of 10% annually for 15 years and generating low-teens returns on equity. Their diverse portfolio includes strong brands and capital-light franchise businesses, making them a compelling long-term investment.

Sony is undervalued at around 10x earnings, ex-cash, and is a leader in video games, music rights, and TV/film production. The market misunderstands its business model, viewing it as cyclical when it has transitioned to a recurring, software-driven platform with strong network effects.

Element Fleet Management is the largest commercial fleet management business in North America, providing essential services for a blue-chip customer base. The company is expected to grow steadily at a mid-single-digit topline rate with very limited risk, as it holds no residual value risk in its vehicles, making it a high-quality investment opportunity.

Nippo is a leading player in the asphalt and road manufacturing industry, generating consistent returns on capital. With a strong track record of earnings growth and a low valuation of under 5x earnings when adjusted for net cash, it presents an attractive investment opportunity.

Bollore is a holding company controlled by Vincent Bollore, trading at 6x estimated earnings. It has valuable stakes in high-quality businesses, including a significant share in Universal Music Group, which benefits from the growing streaming market, and a logistics business in Africa that has shown strong growth and profitability.

NXP Semiconductors was added to the portfolio after being on the radar for some time. The firm had a strong understanding of the business and its competitors, and the investment was made when the stock became attractively priced, indicating a long-term growth potential in the semiconductor industry.

Ashtead is well-positioned to benefit from the increasing rental penetration rate in the U.S. equipment rental market, which is currently much lower than in the UK and Japan. The company's national presence and technology-driven approach provide significant competitive advantages over smaller regional players, allowing for improved service and reduced downtime for customers.

NXP is a global leader in sensors and technology that supports the trend towards safer driving, including auto-braking and driver assistance systems. The stock was purchased at an attractive valuation of around an 11x P/E, which is seen as a misunderstanding of the company's growth potential in the automotive sector.

United Rentals is a competitor to Ashtead and is expected to be a long-term winner in the equipment rental industry. The investor is familiar with the business model and believes both companies have significant growth opportunities ahead.