The Ironwood Smidcap Value Strategy portfolio rose +4.95% in November. While the portfolio’s enhanced relative performance was driven by a number of strong stocks, our technology stocks made up our largest sector contribution.
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Micron (MU), the world’s number two supplier of memory chips, and Brocade (BRCD), a technology company that produces data and storage networking products, built on their strong year-to-date returns in the month.
All four of these special situation investments are at various stages of a management-led transition. In addition, all four companies have restructured their operations and are beginning to see stronger operating performance as a result. In my opinion, these positive developments should continue to lead to higher valuations going forward.
Positions initiated in November
Hologic (HOLX) is a woman’s healthcare company undergoing a significant transition. Previous management made two big acquisitions that haven’t worked as expected. In early December, the company named a new CEO and two new board members. As a result, I expect the company to undergo a strategic review of all of the operations.
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All possible outcomes are on the table. In the meantime, the company is no longer pursuing acquisitions and is using free cash flow to pay down debt and buyback stock. Recently, activists have announced that they plan to engage management in discussions and most likely accelerate the strategic review.
I believe management has a number of opportunities to restructure the business and drive earnings growth over the next 2-3 years, which should lead to a higher stock price, though I have no way to know for sure.
Positions eliminated in November
Our original investment thesis for Dean Foods (DF), which I’ve owned since my portfolio’s inception, was based on management’s commitment to restructure their business and enhance shareholder value.
Management had stated their intention to divest their ownership in White Wave following a successful IPO, and to sell their Morningstar division (private label traditional and specialty dairy products) to improve the balance sheet and allow management to focus on the core business.
I realized a return on our investment in two steps. In May, I sold the White Wave shares we received in the spinoff. When we heard Dean’s latest capital plans in their Q3 earnings release, I did not see much remaining upside and sold our Dean shares for a positive return.
DISCLAIMER: The investments discussed are held in client accounts as of November 30, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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