The V20 Portfolio Week #3: Heading Into Earnings

By | October 25, 2015

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Summary The portfolio rallied 5.6% versus a gain of 2.1% for the S&P 500. Expect significant volatility going into earnings. I am starting to doubt one of the holdings. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! Overall, the V20 Portfolio advanced 5.6% for the week against 2.1% for the S&P 500. This offsets much of the loss from last week and the portfolio is bouncing back along with the market. Although the market was overwhelmingly bearish just a couple weeks ago, recent earnings beats by major companies (Microsoft, Google, Amazon, etc.) have lifted investor sentiment and I expect the portfolio to benefit from the market tailwind over the next little while. Near-Term Volatility Volatility is the reason why earnings seasons have always been a stressful time for investors. Nothing can compare to that sinking feeling in your stomach when you realize your top holding just tanked 20%. Unfortunately, the V20 Portfolio will not prevent volatility. As I explained in the portfolio introduction , you should actually expect more volatility from the V20 Portfolio due to its concentrated style. As we experience our first Q3 earnings next week (from ACCO Brands (NYSE: ACCO )), definitely be prepared for a rocky ride (both up and down). Significant Portfolio Event All was quiet until Friday. On Friday, our second biggest holding accounting for 28% of the entire portfolio, Conn’s (NASDAQ: CONN ), commenced a “consent for solicitation” for its high yield debt. The objective was to carry the debt with less restrictive terms such as increased limit of share repurchases. The most significant parts of the solicitation will probably go through as the company already has initial consent from 54% of the noteholders. This means that the company will be able to increase its share repurchase limit from $75 million to $375 million. As I believe that the stock is undervalued (why it exists in the V20 Portfolio in the first place), additional repurchases will provide significant upside for the remaining shareholders. The market agreed with this sentiment, as the stock shot up as much as 20% on Friday before settling down with a gain of 11%. On Intelsat This stock (NYSE: I ) has been one of the laggards in the V20 Portfolio. The following price chart tells the sad story. Unlike Conn’s, I still did not add to the position as it declined. Why is that? The biggest reason is the new information that is making me question my original investment thesis. Financial Times leaked a possible deal that involved Intelsat selling assets to cut down debt. This is significant in two ways. For one, the information was leaked by an insider to a respectable news outlet, so this has some credibility. While there is no guarantee that the deal will go through, it does trouble me that the management would decide to pursue such a deal without giving any indication to shareholders. Secondly, if the deal goes through, it will no doubt impact valuation in some ways. Right now that is a big question mark as investors have no information whatsoever. This means that Intelsat’s future is no longer as certain as I once thought. The Week Ahead Expect volatility in the coming weeks as the V20 Portfolio pushes through earnings season. ACCO Brands and Intelsat will be reporting next week. I am not particularly worried about ACCO Brands as it is a fairly stable company. I expect Intelsat’s management to shed more light on the company’s future. If additional disclosure can erase my doubt, then I may add to the Intelsat position at the current price. Scalper1 News

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