Mario Cibelli (Trades, Portfolio) seems to have achieved what many hedge fund managers desperately want but can’t get—near anonymity.
His performance record remains a mystery, despite numerous online searches.
Yet, Cibelli is worth the attention of value investors. He has made a positive difference as an activist investor, and has an interesting and concentrated portfolio of stocks.
Who is Cibelli?
Now in his early 50s, Cibelli has been in the investment field since 1990. That was also the year he graduated from Binghampton University with a bachelor's degree in business management. According to Equilar.com, after graduation, he worked at GAMCO Investors, Prudential Securities and Robotti & Co.
In 2001, he founded his own firm, Marathon Partners Equity Management LLC. He has continued to manage it since then.
In an interview with The Wall Street Transcript, he said he chose the name “Marathon” because it underlines the firm’s long-term investment horizon.
Cibelli was fortunate in his first employer, GAMCO and guru Mario Gabelli (Trades, Portfolio). He also learned from his last employer, Robotti & Co., saying, “The principal, Robert Robotti, is an astute though less widely known value investor.” Altogether it seems he found astute mentors early in his investing career.
What is Marathon Partners?
The firm is a relatively small hedge fund based in New York City. As of Feb. 6, 2017, it had $275 million of discretionary assets under management.
It lists itself, in its Form ADV Part 2A, as an investment advisory service serving institutional and other sophisticated investors.
As of June 30, GuruFocus shows his equity holdings at $218 million, giving equity the lion’s share of his total assets.
Cibelli is the firm's advising (managing) member and its sole owner.
Strategy
The firm takes a value approach, with Cibelli describing it in the Form ADV Part 2A as using intensive research on business and industry fundamentals to find "compelling" investment opportunities. By compelling, he means securities believed to be selling for considerably less than their intrinsic value, or securities that may increase their intrinsic value at above-average rates.
Financial analysis is a constant, and all investments must have quantitative justification. They do in-depth, fundamental, bottom-up research on candidate companies. That includes multiple visits with management as well as analyses of competitors, customers and industry trends.
In an interview in the early 2000s, he said he looked for opportunities in the least efficient sectors, calling this the most common feature of his portfolio.
Cibelli and associates have a long-term focus and are willing to hold securities for up to five years to get their returns. Most of the attention goes to domestic securities; they want to know the intrinsic value of an entire company; they occasionally take short positions to hedge the portfolio at times; and they may also use leverage, but not often.
There is also an activist side that comes out from time to time; Cibelli says, “The Adviser engages with the management teams of issuers, from time to time, to offer what it believes are unique insights and value-added ideas. At times, the Adviser may step into an activist role with respect to the issuer of an asset held in a Fund’s portfolio.”
Shutterfly Inc. (SFLY, Financial) was one of the companies in which he took an activist role. In his LinkedIn profile, he writes, “Elected to the board of directors by shareholders in 2015 and subsequently placed on the compensation committee. Very active board member during a period of rapid change for the company. Assisted in attracting a new, high profile CEO and creating an executive compensation plan that strongly aligned owner and management incentives. Amicably left the board once shareholder concerns were satisfied.”
Not mentioned here is Cibelli’s more aggressive stance before he was elected to the board. He and Marathon had had a continuous position in Shutterfly since 2008, and apparently ran out of patience with the existing board, the CEO and his compensation.
They were not alone. Two major proxy firms, ISS and Glass Lewis, also had reservations about the company’s governance. ISS wrote, “for Yet Another Year - a Vote AGAINST the Executive Compensation is Warranted" and "Also Recommends Shareholders Vote AGAINST Management's Proposal to Increase Its Already 'Excessive' Equity Incentive Plan”.
Glass Lewis also disparaged the board, saying, “"Unsurprisingly, the Company has again failed to align compensation with performance, receiving its second consecutive 'F' this year" and "shareholders should be deeply concerned with the compensation committee's sustained failure in this area."
Cibelli and one of his two nominees were elected to the board, no doubt materially assisted by endorsements of the two proxy firms.
Patience can serve a value investor well. But for those who have the capital available, they can make difference for themselves and all shareholders sooner by getting involved in the management of a cigar butt company.
Holdings
This GuruFocus chart shows the sectoral distribution of stocks in Cibelli’s equity portfolio:
This list shows Cibelli’s top 10 holdings:
- HD Supply Holdings Inc. (HDS, Financial): 11.27%
- Shutterfly Inc. Class A (SFLY, Financial): 8.75%
- US Foods Holding Corp. (USFD, Financial): 7.34%
- PayPal Holdings Inc. (PYPL, Financial): 7.18%
- Macerich Co. (MAC, Financial): 6.89%
- eBay Inc. (EBAY, Financial): 4.91%
- GrubHub Inc. (GRUB, Financial): 4.87%
- J. Alexander's Holdings Inc. Class A (JAX, Financial): 4.75%
- SeaWorld Entertainment Inc. (SEAS, Financial): 4.57%
- Darling Ingredients Inc. (DAR, Financial): 4.32%
To underscore the value approach, none of his top 10 holdings would show up in the baskets of most investors. Of the 10, six do not have a predictability rating and the four that are rated log in at a lowly 1-Star (GuruFocus defines predictability on the consistency of revenue per share over the previous 10 fiscal years plus their EBITDA per share, again over the previous 10 years. The most highly rated stocks receive 5 stars, and are considered to be the highest quality).
Performance
As a hedge fund operator, and with a relatively small portfolio, the performance of Cibelli and Marathon Partners does not show up in online research.
Conclusion
Cibelli is still something of a mystery.
But we now know that the top 10 stocks in his portfolio would likely make Benjamin Graham proud, and that he has done good work as an activist. Good enough to win the endorsement of two major proxy voting services.
For value investors, it may be worth following Cibelli’s new buys and checking out the quality status of those buys. If the stock is a cigar butt, low-quality, then Cibelli may be planning to move in and shake up the company. In that case, value investors may get in early and make a significant profit in three to five years. But investing that way might take much patience; after all, Cibelli held Shutterfly for seven years before setting out on his activist campaign.
Disclosure: I do not own shares in any of the companies listed here, nor do I expect to buy any in the next 72 hours.
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