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Before tackling some of the new small-cap ideas, we thought we’d let you know that the premium side of Underrated Small-Caps is now a lot better. We’ve dropped prices 40% and will be putting out 6 issues a year. Check out the revamped Underrated Small-Caps newsletter here.
Now, time for some ideas. Cable Car Capital, the small investment firm from San Francisco, is still killing it. Its fund is up 19.9% annualized since inception in 2013 – versus the MSCI All Country World Index return of 2.4%.
ARK Invest is known for targeting high-growth technology companies, with one of its most recent additions being DraftKings. In an interview with Maverick's Lee Ainslie at the Robinhood Investors Conference this week, Cathie Wood of ARK Invest discussed the firm's process and updated its views on some positions, including Tesla. Q1 2021 hedge fund letters, Read More
In March, the fund was up 0.9%, but the big news is that Cable Car will soon be flush with capital, following the ADT Corp buyout. After Cable gets its capital from the buyout, it’ll have the lowest gross exposure to the market since its inception. Talk about dry powder.
Here’s what it could be loading its elephant gun up for … notably, Cable Car thinks there’s plenty of opportunities in this market — particularly on the short side. However, Cable will be treading lightly, as the political and economic uncertainties make going “all-in” very non-fiduciary like. Right now, they’re 84% long and 19% short.
The most exciting opportunity in Cable Car’s concentrated portfolio right now is probably its worst performer. Retrophin (NASDAQ: RTRX) was the biggest detractor to Cable Car’s performance last quarter, as the $600 million market cap biopharma company is now down 20% year-to-date. This is the biopharm company that Shkerli was CEO of from 2012-2014. The issue with Retrophin is negative drug pricing and the overall negative sentiment for the specialty pharma space. Cable has kept mum, other than that “If market participants learn nothing else from recent missteps by activist investors, it is that reticence can sometimes be a virtue.”
The other major laggard in the Cable Car portfolio in 1Q was Pangaea Logistics Solutions (NASDAQ: PANL), with the $100 million market cap the global provider of comprehensive maritime logistics solutions is down 13% in the first quarter. Cable really detailed its Pangaea thesis in the investor letter from 1Q 2015, noting that the weakness in dry bulk shipping and the business complexity was driving the stock down. At the time, the stock was trading about where it is today, Cable noted that the stock is marked well below its downside estimate and a reasonable liquidation value. This is a longer-term opportunity, and Cable believes they’ll eventually “win” with Pangaea as they have a longer time horizon than most market participants.
P.S. We’ve overhauled our deep dives into underrated hedge funds and the underfollowed stocks they buy. We’ll now be putting out the Underrated Small-Caps newsletter bi-monthly … the hedge fund from our latest issue was up more than 10% for the first four months of 2016. Learn more about what we’re doing with small-caps here!