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My Top 5 Positions Heading into 2012

whopper investments

whopper investments

50 followers
2011 was one of the worst years on record for deep value strategies. Despite a late run by a couple of my stocks (thank you, Ansell!), my portfolio will end the year ~6% down. It’s pretty disheartening to end any year down, but overall I think the year was pretty successful for me as an investor. I’ve only been investing for 3.5 years, and I’m continuing to evolve and improve as an investor- I think that’s pretty clear if you compare the depth and level of analysis from posts at the beginning of the year to recent posts- and given that I plan on managing much larger sums in the future, that’s pretty important. I’m also thrilled with my portfolio today and excited for its prospects heading into 2012.

That said, here are my top 5 holdings heading into the new year- you’ll notice quite a few similarities between these and my top 5 net/net posts earlier.

1- Gramercy Capital (GKK) - By far my largest holding, taking up just under 20% of my exposure. About 75% comes through the preferred with the other 25% coming through the common. I really like the combination of how safe they are (no recourse debt, preferreds more than covered by cash), how much optionality there is (through improvement in the CDO), and the looming catalyst (preferred resumes div payment or buyout).

2- Newcastle Investment Corp (NCT preferreds) - Making up almost 15% of my portfolio, NCT is very similar to GKK. Actually, I think NCT’s preferreds are even safer than GKK’s, but I slightly prefer GKK preferreds on a risk / return basis. The preferreds are more than completely covered by assets, and their recent investment in excess mortgage rights was about the best I could hope for as a preferred holder. 3- Reading International Inc. (RDI)- Making up ~13% of my portfolio, I’m actually down quite a bit from my purchase price. The company trades for a large discount to its tangible book value, which dramatically understates the value of all of its land. Their cinemas continue to outperform publicly traded comps, and I could see several catalysts in 2012- including big asset sales or potentially an acquisition of their cinema division by a larger player.

4- GTSI Corp (GTSI)- Makes up over 10% of my portfolio. The company has $56m in cash versus no true debt. Net working capital comes in at $75m, almost all of which is made up of cash or A/R of very, very high quality. The market cap is $40m. The company has a buyback program for $5m outstanding (though hasn’t acted on it) and shareholders were pushing very hard for the company to announce a big buyback or special div on the last conference call. This is a situation absolutely ripe for an activist.

5- ADDvantage Technologies Group Inc. (AEY)- Comes in just under 10% of my portfolio. The business trades for a huge discount to tangible book value and a discount to net working capital. They haven’t reported an operating loss in the past ten years, and ROE has averaged over 20% in that time with low leverage levels. A turn around in cable spending could drive a huge increase in sales and profits, or the company could get active repurchasing shares after they pay down their debt in November.

Honorable mentions go to ASFI, which at 9.5% of my portfolio barely got beat out by AEY for the 5th spot, and LAKE, which had increased to the fifth spot until I sold a piece of my position into the recent catalyst.

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Rating: 3.5/5 (19 votes)

Comments

tonyg34
Tonyg34 - 2 years ago
Never feels good to have a down year but important to keep learning and evaluating your portfolio. What matters is your return over the long run. I've enjoyed quite a few of your articles so keep 'em coming.

david richter
David richter - 2 years ago
RDI is my largest holding and I have been there for more than a decade and agree that 2012 will be the year of many of its undervalued assets are monetized and the shares will reflect that
mbhurley
Mbhurley - 2 years ago
GTSI has $56 million in cash but when sales are slumping and nothing is being sold $56 m burns up quickly. They have not recovered from the suspension levied by the SBA in October 2010. The sad thing is they got suspended for doing nothing wrong just some over eager regulators who destroyed a company and hundreds of jobs. The conclusion of the investigation was that GTSI was a model company for working with small businesses.

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