Recent Transactions
BUYS
Alphabet (GOOG), better known as Google, is by far the world’s most used search engine, the parent
company of YouTube, and offers other cloud computing and software services. Google
earns the majority of their revenues from advertising, and they are currently the
fourth largest company in the world in terms of market cap. Google’s financial stability
(in terms of market cap, beta, and low debt usage), their consistent growth rate (in
terms of revenue, net income, EPS, and share price), and their track record/reputation
made Google an obvious double-down candidate for the portfolio. The SIF increased
its holdings of GOOG by an additional 45%.
Comcast (CMCSA) is an American telecommunications conglomerate and the largest internet service provider
in the United States. CMCSA is also the second largest broadcasting and cable television
company in the world through their ownership of NBC Universal. CMCSA’s Internet service
business makes up over half of their revenues. Comcast has a firm competitive advantage
as an ISP based on its geography and scale. Comcast is financially stable have produced
consistent revenue, income, and EPS growth, and they were trading at lower-than-industry-average
P/E at the time of the pitch making them a strong investment opportunity.
Facebook (FB), the ubiquitous social media platform, is also top-tier blue chip stock that was trading
at a good value at the time of our pitch. We project a healthy 10% appreciation in
the near term. Facebook is as financially sound as companies come with very little
debt usage, a strong revenue base from advertising, a firm competitive advantage in
their market, and a track record of consistent growth. Facebook is a low risk option
with high upside trading at a bargain price during a time of uncertainty in the market.
Intuitive Surgical (ISRG): A majority of Intuitive's procedures are considered elective (benign gynecology, hernia,
cholecystectomy, bariatric, and so on), and with hospital rooms occupied by COVID-19
patients, elective procedures are being deferred. Even with the company's procedure
volume now exceeding 1.2 million, we think the total addressable global market of
several times the size still offers the firm ample growth opportunities, particularly
overseas. The ultimate ceiling for robotic surgery is virtually unlimited, with existing
applications only scratching the surface of all possible procedures that could migrate
to the robot.
Northern Trust (NTRS) consists of two segments, wealth management and custody. Northern Trust’s wealth
management division serves ultrawealthy clients, where NTRS’s reputation and switching
costs helps insulate it from competition. Northern Trust’s custody segment provides
custody and ancillary services to assets owners and asset managers. While the firm
is smaller than its two main competitors, this segment earns solid returns and possesses
the scale to make sufficient technology investments. Northern Trust’s revenue is 70-75%
fee-based; its lower reliance on Net Interest Margin and conservative allocation makes
it attractive in a declining interest rate environment. Additionally, NTRS was one
of only two financial institutions in the S&P 500 to keep its dividend steady during
the 2008-9 Recession.
DIVESTMENTS
AB Inbev (BUD) The large, Brazil-based beer producer will likely be hit harder than most consumer staples firms by the current pandemic. Its global cost advantage and scale still may offer attractive returns in the long term, but reduced sales, a heavy debt load, and long-term shifts in consumer preferences away from mass-market beers put a damper on this stock.
Discover Financial Services (DFS) offers a range of consumer credit products. Unlike SIF’s other consumer-credit holding, Capital One, DFS customers tend to have a lower credit score and carry a revolving credit balance. DFS itself does not have a deposit base to provide a low-cost source of Capital. In April 2020, DFS increased its loan loss provisions by a 123%. Management’s allowance assumptions include unemployment levels surpassing 9%, a decline in GDP of 18%, and a slow recovery through 2022. There may be additional allowance provisions required in the near term as unemployment already increases well beyond DFS’s initial assumption.
Dollar Tree (DLTR): This discount retailer had weak 3rd Quarter 2019 results, down 8.5% YoY, well before COVID-19 had any impact. U.S.-China trade tensions hurt DLTR, increasing their COGS by $19M. DLTR continued to underperform its competitors (Dollar General, Big Lots) through 2020. While shoppers might be encouraged to use discount stores in a recessionary economic climate, DLTR shut down all online business mid-march, and analysts question the impact of COVIDO on DLTR’s supply chain (DLTR’s management still claims little to no disruption.)
Paylocity (PCTY) is a smaller company compared to most stocks in the SIF portfolio (market cap of 4.7 billion) that offers cloud-based automated payroll and human resources services. Paylocity was one of the better performing stocks in the SIF portfolio before the Covid-19 pandemic, but they were hit rather hard by the economic retraction and their share price dipped rapidly during the month of March. Paylocity has a strong customer base that they likely will not lose, and they currently only have 5% of their target market locked down, so there is a quite a bit of room for growth in the future. Due to the short-term volatility and uncertainty surrounding the Covid-19 pandemic, the SIF decided to trim Paylocity holdings in half.
Universal Insurance Holdings (UVE) is a property insurer based in Southern Florida. The company all aspects of insurance underwriting, policy issuance, general administration and claims processing and settlement. Despite efforts to grow business across the U.S. East Coast, UVE remains geographically concentrated in Florida. After several worse-than-expected hurricane seasons, UVE has displayed negative net income growth and EPS growth for the last three years.
The SIF chose to reduce exposure to oil and gas by selling its position in the North American refiner Valero (VLO) Current depressed prices have swung VLO earnings into the red; In the longer term, electric vehicle adoption, autonomous vehicles, and ride-sharing may reduce demand for VLO services. The SIF maintained a position in Chevron, which offers a more diversified energy portfolio.
Wynn (WYNN): The Las Vegas and Macau-based hotelier and casino operator has an attractive brand and may be poised for a rebound once travel-related industries recover. However, the near-term risk and Wynn’s heavy reliance on Mainland China VIPs (nearly 30% of their global revenue, just in the VIP segment) makes Wynn a gamble the SIF was unwilling to take.