Long / Short hedge fund manager Michael Rothenberg looks at the “big start, shaky finish” to the stock market since the election of President Donald Trump and sticks to his knitting: idiosyncratic stock picking. It is here the $601 million Moab Partners portfolio manager is even more convinced about a stock with potential to partner with Amazon as a buy and a flooring manufacturer long position.
Moab Partners, up slightly in March, likes Air Transport partnership with Amazon
Moab Partners, L.P. was up 0.12% in March, bringing yearly performance to 3.06%, a letter to investors reviewed by ValueWalk stated. Short exposure and hedges delivered the strongest performance for the fund on the month. Amid a tepid general market environment, the hedge fund is increasingly confident in both their long and short stock holdings.
Positive earnings for EnerCare, Vail Resorts and Air Transport Services Group were strong, with Air Transport, in particular, having outsized potential in the near term.
The company could exceed Rothenberg’s estimates due to a partnership with Amazon and that firm’s move to establish a new $1.5 billion airport hub at the Cincinnati / Northern Kentucky International Airport. The move could boost the March 2016 deal Air Transport had to handle 20 planes and provide higher than anticipated revenue.
Another winner on the month was EnerCare, its biggest winner on the month with strong growth and retained earnings.
Armstrong Flooring is so bad it might be good
While many stocks are flourishing amid strong earnings, Armstrong Flooring, a Moab Partners long, isn’t looking as positive. The firm “surprised” the hedge fund with a weaker than expected earnings report and cost -0.55% in March performance.
“AFI appears to be losing market share in certain engineered wood and resilient flooring segments and management has cut their earnings guidance,” Rothenberg wrote. “We’ve spoken to management and shared our concerns and continue to hold the investment principally because we believe the current stock price offers asymmetric upside given the low valuation, net cash balance sheet, share buyback and potential for a premium sale of the company to a strategic buyer.”
Rothenberg’s initial long thesis was based on conversations with competitors who expressed interest in a potential buyout of the firm. The company’s strong brand recognition, distributor relationships, and strength in product categories would fill out a strategic suitor’s needs. Even management’s compensation plans were designed to encourage a sale of the company. Given the weak earnings, Moab’s confidence in the investment as a stand-alone has been significantly impaired. But the situation might be deteriorating to the point that it could motivate a sale to another company, which “could yield a substantial gain.”