Boyar Research – 2014 S&P 500 Mid-Year Roundup
The share price performance of the companies contained in our 2014 Forgotten Forty (priced 12/12/2013) as well as recently featured companies within the Boyar Research universe has been a mixed bag thus far in 2014. As of June 30th the Forgotten Forty was up 7.8% compared with a 10.4% increase for the S&P 500. We came into 2014 with muted expectations for stock performance and noted in the introduction for this year’s Forgotten Forty publication that, “Stocks are not on the bargain basement table as they were from 2008 to 2009.
Temper your expectations in terms of expected future returns, and be wary of momentum stocks with triple digit P/E ratios (or no current earnings at all), a higher cash balance may also be appropriate.”
Boyar Research – S&P 500’s continued upward bias
The continued upward bias in the S&P 500 Index and many momentum stocks has been surprising. While we do not have to remind our readers that extreme caution is warranted with today’s highfliers [Netflix, Inc. (NASDAQ:NFLX), Tesla Motors Inc (NASDAQ:TSLA), etc.], we would not extrapolate their elevated valuations to the rest of the market. In contrast to the continued strong performance of the overall market, the retail industry has faced significant pressure. Through June 30th, the SPDR S&P Retail (ETF) (NYSEARCA:XRT) has declined 2% YTD compared with a 6% increase for the S&P 500. We have included some updated thoughts below on a few of the retailers t we follow that we believe are trading at a meaningful discount to our estimate of their intrinsic value. It should be noted that some of these retailers have sizable real estate holdings, which provide an added margin of safety, in our view.
Recent spinoffs are always a fertile ground for uncovering attractively valued situations. Time Inc. was recently spun off from Time Warner Inc (NYSE:TWX). We provided a detailed analysis of Time Inc. in our February 2014 edition of Asset Analysis Focus featuring Time Warner (the Time Inc. excerpt from that report is included in this edition) and have included some comments below regarding its current valuation. While the timing of our 2013 update on Weight Watchers was poor, we believe the brand is still relevant and new management has a credible plan to revitalize the business.
Shares of The Madison Square Garden Co (NASDAQ:MSG) have performed well since they were initially profiled, but we believe shares continue to suffer from the so called “Dolan Discount.” The proposed sale of the Clippers and recent real estate activity surrounding “The Garden” help to reinforce our favorable view of the Company’s irreplaceable assets. Before providing additional detail on opportunities within the AAF universe, we thought it would be useful to highlight a few success stories:
Boyar Research – Recent AAF Success Stories
Boyar Research – DIRECTV (NASDAQ:DTV) ($85.30)
AAF initially featured DIRECTV in our October 2012 issue with shares trading at approximately $51 a share. In that report, as well as in our subsequent update in October 2013, we stated that we would not be surprised if one of the large telecom companies emerged as a suitor. In our initiation piece we wrote,
“DIRECTV (NASDAQ:DTV) partners with a number of large telecommunications providers including AT&T and Verizon. In partnering with these companies, DTV is able to offer its consumers a synthetic bundle/triple play offering. While AT&T have recently deployed their own video product in recent years to select markets, we believe that an acquisition of DIRECTV could help them further their video ambitions while providing them with significant leverage over programming companies. We would note that DTV’s current market cap of $33.5 billion is dwarfed by the market caps of AT&T ($200 billion) and Verizon ($127 billion).”
Although we were not surprised when AT&T Inc. (NYSE:T) announced on May 18, 2014 that it would be acquiring DTV for $95 a share, we were disappointed that our estimate of DTV’s intrinsic value provided in the 2014 Forgotten Forty ($94 a share) was off by $1 a share. While we are well aware that all of the Companies that we profile do not work out quite this well, we believe the recent success with DIRECTV (NASDAQ:DTV) provides an important lesson about our research service that is worth highlighting. While many clients find AAF to be a very useful idea generation tool, DIRECTV is a good example of the importance of re-visiting a high conviction idea. Though DIRECTV shares were up by 22% ($62.49) when we revisited them just one year later, we still believed that there was a large gap between the Company’s share price and our intrinsic value estimate for the business.
See full Boyar Research – 2014 Mid-Year Roundup in PDF format here via Value Investing Congress
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