Below is an excerpt from an interview with value fund Logos LP. The full interview is coming up in the third quarter issue of ValueWalk’s exclusive magazine, Hidden Value Stocks.Hurry now as the price is going up in the coming weeks.
Logos LP’s strategy is built around value, but unlike other value funds, managers Matthew Castel and Peter Mantas are not afraid to use leverage to boost returns. This approach has produced enormous returns for investors.
For firm’s first quarter to the end of April, Logos generated a total return to unitholders of 13.7%, compared to the S&P 500’s gain of 6.7% over the same period. The trailing 12-month return was 27.2% and since inception investors have seen an annualized increase of 25.1%.
Below is part of the Logos’ team investment thesis for manufacturing company [REDACTED]. The full interview and the thesis will be published shortly in Hidden Value Stocks.
Interview With Hidden Value Fund Up 25%+ Since Inception
Let’s start with the basics. What does this company do?
XXXX is a leader in engineering, manufacturing and marketing of sophisticated air conditioning systems, custom rooftop units, chillers, air handling units, geothermal and water-source heat pumps and other condensing units. The company’s main market segments focus on structures less than ten stories high including hospitals, educational institutions, residential and commercial and industrial buildings.
Is there room for growth in this market? Is the firm a market leader, or does it have an advantage in scale?
We believe there is significant growth potential in XXXX’s markets based on a number of factors. The company’s backlog grew over 17% last quarter, is a market leader in high-end custom air/cooling units and continues to have the following tailwinds: 1. Pent-up demand for residential structures in cities, of which there is a shortage in the US and around the world. We believe there will be continued growth in construction starts for decades. 2. Investment upgrade cycle in new infrastructure particularly for hospitals, schools and other industrial buildings.
What about XXX’s valuation, why do you like the company at current levels and how does it compared to the rest of the market?
Increasing our position in XXX becomes interesting beneath the $30 mark. The stock is well off its 52-week highs and has declined nearly 17% over the last two months despite solid growth in its backlog.
Is this purely a discounted value play or do you believe the firm has a long runway for growth ahead of it?
We believe the company has a long runway for growth which over the long-term makes it undervalued. The annual value of construction in the U.S. is still well below pre-crisis levels (down from $403bn to $379bn since 2008) despite the catalysts mentioned above that will undoubtedly contribute to demand. The company’s stock is highly correlated to the value of construction and the architecture billings index, which have seen upticks over the last quarter. The company also has a powerful management team with high levels of insider ownership having bought back more shares in the first half of 2017 than all of 2012 and all of 2013.
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As well as the remainder of this investment thesis, the fall issue of the magazine also contains interviews with two value fund managers who have produced annualized returns of 25%+ per annum for investors since inception.
These managers reveal the four value ideas the like most in our third quarter issue. Stocks already featured in the magazine have returned an average of 27% since inception.
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