Wednesday, April 24, 2013

Better Late than Never - Q1 Update

Well, here we are at the end of April, and I'm just now getting around to posting my Q1 results, sorry folks.  Frankly, there's nothing too exciting to talk about here - I tweaked my SHLD position and LUK merged with JEF, so nothing earth-shattering.  Anyway, here's a quick summary (keep in mind that my returns & portfolio are as-of 3/31/2013, so they won't include Sandridge, which I bought in April):

  • I came into the year with $213,090 and ended the quarter with $233,138.  I didn't deposit or withdraw any money, so this increase was straight appreciation.
  • My portfolio increased about 9.4% for the quarter (44.0% IRR), whereas the Hypothetical S&P increased about 10.5% (49.9% IRR).  
Below are the following exhibits: 7+ year performance summary, waterfall graph, holdings summary, and quarter-to-quarter bridge (all values & holdings are as-of 3/31/2013, click to enlarge).

As always, please don't hesitate to drop me a line if you have questions, comments, or stock ideas (especially that last one!).  In the meantime, good luck out there! 


Sunday, April 7, 2013

Hello Again Old Friend

Well there’s nothing quite as boring as a stock-picking blog that never picks new stocks!  However, I have some good news faithful readers – for the first time since 2011 I actually bought a new company!  But, before I tell you what it is, let me give you some hints to pique your interest…

First, what would you say if I told you there’s a company where the founder and CEO is dumping his shares hand-over-fist as the stock plummets to its 52-week low (which it hit Friday)?  Further, what if I told you this company has undergone massive shareholder dilution due to ill-advised acquisitions and consistently negative free cash flow?  And finally, what if I mentioned that significant company resources have been squandered on lavish C-level perks and eyebrow raising related-party transactions?

Now, I know you’re all probably thinking the same thing, which is “where can I get me some of that!?”  So, without further adieu, our mystery company is none other than Sandridge Energy (SD), and on Friday I bought 4000 shares at $4.93 for a total outlay of $19,725.

So what the heck am I thinking?  Well, despite my less-than-stellar opinion of management, they actually have assembled an attractive set of assets with real and substantial value (I think).  More importantly (and ultimately the impetus to my purchase), managements’ poor stewardship has finally pissed off some large and powerful shareholders, who just last month won a proxy fight to gain control of the Board.  As a result, the CEO should be gone by the summer (hence the reason he’s selling), and going forward the company will actually be run to maximize value for shareholders (what a novel idea!).

So how’s this all going to play out?  Well, I suppose the company could be sold outright, however I don’t view this as particularly likely.  Rather, I think the new leadership is going to drastically reduce capex and focus on cash flow.  I also think they’ll sell some non-core assets to build cash and pay down debt.  As a result, I think the company is going to be much less focused on wheeling-and-dealing, and much more focused on plain vanilla oil and gas E&P.

Of course that’s not to say this purchase is without risks.  In fact, due to Sandridge’s high degree of both operational and financial leverage, there is a huge amount of uncertainty here.  Nonetheless, I think the assets help insulate me against the downside, and with a little luck this stock could easily be a double.

Questions?  Comments?  Email