Yale Bock, Concentrated GARP Investment Model
Author: Yale Bock, Y H & C Investments
Covestor models: Long Term GARP, Concentrated GARP
The Long Term GARP portfolio performed very well for investors over the last month, and I believe it is perfectly positioned for growth in future. It has almost 85% of its market value held in 5 holdings: Liberty Interactive, Intuit, Direct TV, Quest Diagnostics, and Starbucks. The following are summaries of the portfolio and their prospects going forward.
The Reasons for Owning the Portfolio Holdings
Liberty Interactive (LINTA): The company owns QVC, Provide Commerce, Bodybuilding.com, Evite.com, Gifts.com, 40% of Lockerz.com, 34% of Home Shopping Network, 26% of Expedia.com, 26% of TripAdvisor.com, 30% of Interval Leisure Group, and 25% of Lending Tree. Lots of great assets here, and the company generates approximately $1.5 billion dollars per year of EBITDA, and its debt is at low rates with some of it maturing in 2029 and 2030.
The business is not capital intensive and generates a great deal of free cash flow. Management has indicated over the next three years it will have about $5 billion dollars of cash to find places to allocate, either through buying back shares, buying other companies, or adding to existing ownership positions, according to a recent company presentation. LINTA reported earnings on February 23, 2012.
Liberty Interactive opened a new market in Italy just last year and it is starting to gain traction, as revenues will likely exceed $50 million in only the second year of operations, which is consistent with the development of current large markets like Japan, the UK, and Germany.
Growth internationally has been a development focus over the last few years but no announcements for new countries have taken place. But on the latest earnings call, QVC President Mike George said he expected an announcement on that front in the next few months. Target markets include China, France, Brazil, Spain, Canada, and Mexico. In fact, Liberty Interactive announced a joint partnership to open QVC in China with China National Radio.
In addition, Liberty Interactive owns 4 internet based ecommerce businesses (Provide Commerce, Bodybuilding.com, Backcountry.com, and Celebrate Express (Buyseasons.com, Redenvelope.com, the Right Start)) which have over one billion dollars of revenue combined and almost 150 million of EBITDA per year. Look for management to add e-commerce businesses when they find an attractive candidate with good growth opportunities.
Another interesting development is Liberty management has bought back almost 20% of the shares outstanding in the last three years while reducing debt dramatically, and recently upped their share buyback authorization to $1 billion.
The management team at Liberty decided to break LINTA up into two tracking stocks, and that should take place by July 4, 2012, according to the conference call. Investors currently owning LINTA will get both tracking stocks upon issuance and when they start trading. Here is the announcement, including which assets will comprise each tracking stock, and here is their most recent earnings report on February 23, 2012.