Two Roads Diverged Year-End 2008 Performance
At the end of 2007, the NAV for the Two Roads Diverged Portfolio was $86.71. The portfolio trails the S&P 500 by 5.85% since inception in 2004. This is significant because the portfolio was beating the S&P 500 at the end of 2007.
Much of the declines are a result of the small cap concentration of this portfolio. The current portfolio and returns are noted in the table below.
| Company | Allocation | 2008 Return |
|---|---|---|
| Yamana Gold (AUY) | 39.36% | -41.56% |
| C-trip.com (CTRP) | 25.65% | -58.22% |
| Dawson Geophysical (DWSN) | 18.16% | -75.01% |
| JupiterMedia (JUPM) | 2.32% | -90.10% |
| Cash | 14.50% |
Sales within the portfolio were Netflix, ADP, Middleby, and OYO Geospace. Each of these sales were to raise cash rather than for any issues with the company. All of these but OYO Geospace were sold at a gain. The remaining stocks are still in this portfolio only because their share value is so significantly below my view of their value. A summary of these holdings is below.
Yamana Gold
Yamana approached $20 per share during the commodity boom that ended in late summer. Gold hasn’t fallen that significantly since then, but it seems that Yamana has fallen in anticipation of falling gold prices. They continue to forecast increasing production over the coming years, which should hedge some gold declines. If the price of gold holds up, Yamana should be worth significantly more than its current share price.
C-trip
C-trip’s amazing growth finally stalled as the global economy began to slow. If China’s middle class continues to expand, so will Ctrip’s shares. The company has great margins and impressive management. The company should recover quickly if the economy recovers.
Dawson Geophysical
Dawson is down dramatically largely due to their customers cutting back on capital expenditure spending in 2009. Dawson has yet to report earnings since these announcements have been made. In their most recent report, they indicated that all their crews were booked solid for 2009. These contracts can be cancelled at any time, however. Dawson is the best in their class and have kept their equipment at the cutting edge of technology. Their business will likely not decline as much as the market seems to expect.
Jupitermedia
When Jupiter Research was sold several years ago, Jupitermedia was flush with cash. They began to build a new business of online images. These combined businesses are now being sold to Getty at quite a discount to their purchase price. Still, the company has been cash flow positive and will generate quite a bit of cash on sale. Management’s capital allocation strategies are certainly in question, but the company is priced well below the sale price of their images business, yet will retain their online businesses. I’m holding out for better prices.
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