Summer Doldrums

If your portfolio is heavy deep value / commodities / reflation plays like mine, you’ve probably seen a lot of red the last few weeks as interest rates have declined and institutional money has flowed back to growth for the time being.

As I write this post, my portfolio is now down almost 10% from its all time highs set in late June, which capped a blistering 2021 YTD return of +129%. But given the strong fundamental reasons behind my holdings, I continue to HODL my contrarian portfolio. As Spiderman once said:

Great outperformance comes with great volatility

Hidden Rock Capital @HiddenRockCap

Remember: "Scared money don't make money" AND "With great outperformance comes great volatility"

Today’s post will be a bit lighter than my usual and recap 3 “lesser” holdings in my portfolio which are not in my Top 10 but still compelling long opportunities in my view. Some of these ideas are sourced from other investors I respect.

In the investing world, you don’t get any points for originality, and odds are that if you find a compelling opportunity you probably weren’t the first one to plant the flag. So I’m certainly not ashamed to piggy back, while doing my own due diligence of course.

You can’t borrow conviction!

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Idea #1: Tenneco

I recently wrote a Seeking Alpha article on Tenneco which I think is a second order play on surging used car prices. The stock has a ton of torque given its heavy debt burden which management is steadily paying down with its strong free cash flow generation. My conservative price target is $30/share, with room to go much higher in upside scenarios.

Please read (and comment/like!) the article on Seeking Alpha! This one hasn’t gotten as much engagement as my previous articles on Peabody or Macerich, perhaps since it’s discussed as much on Reddit/FinTwit.

@deepvaluetrash also has a good Tenneco writeup on his blog

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Idea #2: ZIM

From my previous article on what I look for in the “perfect” investment, you know that these criteria would be:

• Undervaluation

• Special situation

• Turnaround / Mgmt revamp

• Hidden asset

• Benefits from secular/cyclical tailwinds

ZIM hits 3 of the 5 boxes.

1. (Undervaluation) Based on consensus 2021 earnings forecast, ZIM is trading for 3x-4x forward P/E. Even accounting for the extreme cyclicality in shipping company earnings this seems absurdly cheap

2. (Special Situation) ZIM is a recent IPO so some of the institutional money might not have come in yet. Also there is a recent lockup expiration which might be leading to technical selling pressure

3. (Cyclical Tailwinds) Containership rates (proxied by HARPEX index) continues to hit high after high. Tight shipping supply combined with continued global economic recovery is leading to a strong cyclical tailwind

@mintzmeyer has been pounding the table on ZIM for several months now, and this article is a good starting resource for ZIM investors.

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Idea #3: CATO

CATO is a beaten up retailer that has taken out costs, has net cash on its balance sheet, and some “hidden” real estate assets. It’s been punished for having less of an online push than other omni-channel retailers, but should rebound strongly given its location in the South and families refreshing their wardrobes coming out of the pandemic.

@andrewrangeley posted a good podcast on CATO

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That’s all for this week, and look forward to hearing about your thoughts on these ideas or other top investment ideas.