Winter 2018

CarMax has a unique business model for selling used cars that has proven difficult for competitors to replicate. The company is only halfway built out across the U.S., presenting a significant opportunity for growth by potentially doubling its store base. When purchased, CarMax was trading at 15 times earnings, below the market average of 17-18 times, while also showing healthy same-store sales growth.

First Data Corporation is projected to generate over $6 billion in cumulative free cash flow over the next four years, which will significantly reduce its net debt to EBITDA ratio. This de-leveraging will lead to a re-rating of the company's valuation from an EV/EBITDA multiple to a P/E multiple, with a base case price target of $72 representing approximately 31% upside.

ADP is one of the greatest success stories in American industry, having grown from a market cap of $10 million to $60 billion. The company earns a 40% return on equity and has a debt-free balance sheet, making it a strong investment despite its current trading multiple of 27x-30x earnings.

We’ve owned Google since maybe 2010 and recently bought more, as it now constitutes about 10% of Sequoia Fund. We believe Google is a better business growing at a much more rapid rate compared to other mature businesses we sold, and it offers superior economics for a P/E that is not significantly different from those we divested.

Credit Acceptance is a lender of last resort for consumers with poor credit looking to buy cars. The company has a unique model that aligns its interests with car dealers, allowing it to effectively manage risk and maintain high returns on capital. Despite being lumped in with other subprime lenders, CACC's disciplined approach and strong management team make it a compelling investment opportunity.

Google's search engine has proven to be superior to its competitors, making it difficult for new entrants to disrupt its market position. The company is expected to grow at a rate that exceeds GDP growth, and the current price reflects modest growth assumptions, making it an attractive investment.

We are long Staples 8.5 2025 Senior Unsecured notes which are trading at 91.7 with a YTM of 10.3%. The market has overreacted to the announcement of Amazon Business Prime, dropping the newly issued bonds from 96 to a low of 85. We believe the bonds offer a compelling investment due to extremely stable cash flows, strong barriers to entry against Amazon, and market overreaction to Amazon Business Prime.

Staples is positioned to outperform Amazon in the B2B office supply market due to its dedicated sales team, fixed pricing, and superior customer service. The market has overreacted to Amazon's introduction of Prime membership, creating a compelling opportunity to invest in Staples as it continues to dominate the enterprise market.

FleetCor Technologies offers an attractive business model with strong network effects and an industry-leading return on invested capital (ROIC). The company is expected to grow revenue by approximately 15% annually over the next five years, driven by market opportunities in the fuel card and corporate payments sectors, making it a compelling buy due to current market pessimism.

We anticipate the NTM multiple to re-rate to historical levels after FLT proves consistent new customer wins and unaffected retention rates for the next few quarters. Our valuation assumes a two-year holding period with a target price of $279.46, implying a 34% IRR.

We recommend a long on First Data Corporation with an end of 2020 price target of $39, implying a 128% absolute return and 30% IRR. FDC is a winner in an oligopolistic market with industry leading margins and cash flow, and we believe short-term fears are overblown, allowing for revenue growth at 6-8%.

Parker-Hannifin is a leader in motion control products and has a substantial aerospace business, which provides stable cash flows and long-term equity duration. The company has been a successful investment for Vulcan Value Partners over a long period.

Oracle is in a strong competitive position due to its significant investments in cloud technology, which are beginning to pay off as their earnings growth accelerates. Despite a temporary dip in earnings, the cloud business is experiencing substantial growth, and Oracle is generating robust free cash flow, which supports share repurchases and stabilizes value during the transition period.

While SAP's strategy is not flawed, it is expected to experience slower growth relative to Oracle due to its lack of investment in cloud technology. At the right price, SAP could be an attractive investment, but currently, it trades at a premium compared to Oracle, which is better positioned for future growth.

PanaHome Corp. is trading at a significant discount, with over 89% of its market cap in cash and zero leverage. The business is valued at just one and a half times earnings ex-cash, and it has strong long-term revenue streams and expansion potential in Southeast Asia. The market undervalues its cash due to it being held by its parent company, Panasonic, which is a situation that is expected to change as the company matures.

Nintendo was identified as a classic value investment, trading at a mere 20% premium to its cash value when the investment was made. This suggests that the market is undervaluing the company's potential, especially given its strong cash position.

We established a sizeable position in Premier Foods after the board poorly rejected a takeover proposal, leading to a significant drop in the stock price. We believe there is potential for a transaction to occur, especially since we have a representative on the board now.