Winter 2014

Baghdad Soft Drinks has a dominant market position in Iraq with Pepsi holding 80% market share. The company has improved operational efficiency and is expected to see significant revenue growth due to increasing soft drink consumption in Iraq, which is currently low compared to other emerging markets. The management has demonstrated its ability to enhance margins and drive profitability.

Rocket Fuel Inc. is overvalued at 5.9x 2014E revenue compared to the average of 2.2x in the ad-tech space. Despite expected revenue growth, the company's business model is not as strong as valuations suggest, and the competitive landscape is increasingly commoditized. The anticipated selling pressure from venture capital firms post-lock-up expiration further supports a short position.

SeraCare Life Sciences is a post-bankruptcy small company that provides critical reagents to laboratories. The investment thesis is based on the company's durable competitive advantage due to the necessity of its products in the FDA approval process and the control laboratories have over their inputs, making them reliable and essential.

We had the thesis that over five years the stock would be at least a triple because we were investing at half of stated tangible book value, investment income was below normal due to artificially depressed bond yields, and the company was buying back significant amounts of stock.

Osteotech was a situation where a large institutional investor asked us to partner with them. We ran a campaign to replace the entire board, and it was a good investment that resulted in shareholders making a 100% return in less than a year from the time we became involved.

SeraCare was interesting and relatively straightforward in terms of the work, and we understood how the issues applied to the company and why it was protected from a lot of challenges in the healthcare industry, making it undervalued enough that it was a good investment.

Howard Hughes is expected to continue developing its assets and adding value over a long period of time. The company has been owned since its spin-off from General Growth Properties and has tremendous assets that are projected to improve significantly in value over the next five to ten years.

Iraq has the potential for significant economic growth due to its increasing oil production, greater foreign exchange reserves, and higher GDP per capita compared to Nigeria, despite both countries facing similar security risks. The valuation of consumer products companies in Iraq is much lower, trading at 7x earnings compared to 30x in Nigeria, indicating a mispricing that presents an investment opportunity.

FUEL is overvalued at 5.9x 2014E revenue compared to the industry average of 2.2x, with no earnings or positive cash flow expected until 2016. The company faces significant competition and margin compression due to commoditization in the DSP market, leading to an unsustainable business model. A lock-up expiry on 3/19/14 is expected to create selling pressure, making it a strong short opportunity.

Buy XPO Logistics shares with a target price of $49 over three years, representing an 87% upside. The investment thesis is supported by the company's position in a large and growing market, high freight demand, and strategic acquisitions that enhance its service offerings and operational efficiency.

XPO is positioned to capitalize on a large and growing market in third-party logistics with significant acquisition opportunities. The company has a strong management team led by CEO Brad Jacobs, who has a proven track record of successful roll-ups in the industry. With a target of reaching $5 billion in revenues and $300 million in EBITDA by 2017, the stock is projected to reach a target price of $49, representing an 87% total return.

Short World Acceptance Corp. (NASDAQ: WRLD) with a target price of $46, a 48% short upside from its current level. The core business is deteriorating with increasing delinquency rates and regulatory pressures that could further erode interest income. Additionally, management disruptions and a high level of insider selling raise concerns about the company's future performance.

Pandora is positioned for significant growth as it has found ways to monetize mobile listeners effectively, with barriers to radio advertising decreasing. The company is capturing a larger share of the radio advertising market and has potential for expansion both domestically and internationally. With a probability-weighted price target of $38, there is a 40% upside from the current price of $26.82.

Post Holdings is positioned for significant growth due to its strong management team led by Bill Stiritz, who has a proven track record of delivering shareholder value through strategic acquisitions and operational improvements. The company is expected to achieve a target price of $105, representing a 90% upside over three years, driven by its focus on expanding its product offerings and improving efficiencies in its operations.

Annaly Capital Management is a mortgage real estate investment trust that trades at 83% of book value and yields 11.4%, making it a reasonable risk for income-seeking investors.

Blackstone Mortgage Trust is a new real estate finance company that trades at 113% of book value and yields 6.43%, which is considered a reasonable risk given the current market conditions.

Long-dated Puerto Rico general obligation bonds, specifically the 5s of 2041 trading at 65.40 to yield a triple tax-exempt 8.18%, are seen as speculative but appropriately priced for the risk involved.