2011 was one of the worst years on record for deep value strategies. Despite a late run by a couple of my stocks (thank you, Ansell!), my portfolio will end the year ~6% down. It’s pretty disheartening to end any year down, but overall I think the year was pretty successful for me as an investor. I’ve only been investing for 3.5 years, and I’m continuing to evolve and improve as an investor- I think that’s pretty clear if you compare the depth and level of analysis from posts at the beginning of the year to recent posts- and given that I plan on managing much larger sums in the future, that’s pretty important. I’m also thrilled with my portfolio today and excited for its prospects heading into 2012.
That said, here are my top 5 holdings heading into the new year- you’ll notice quite a few similarities between these and my top 5 net/net posts earlier.
1- GKK- By far my largest holding, taking up just under 20% of my exposure. About 75% comes through the preferred with the other 25% coming through the common. I really like the combination of how safe they are (no recourse debt, preferreds more than covered by cash), how much optionality there is (through improvement in the CDO), and the looming catalyst (preferred resumes div payment or buyout).
2- NCT preferreds- Making up almost 15% of my portfolio, NCT is very similar to GKK. Actually, I think NCT’s preferreds are even safer than GKK’s, but I slightly prefer GKK preferreds on a risk / return basis. The preferreds are more than completely covered by assets, and their recent investment in excess mortgage rights was about the best I could hope for as a preferred holder.
3- RDI- Making up ~13% of my portfolio, I’m actually down quite a bit from my purchase price. The company trades for a large discount to its tangible book value, which dramatically understates the value of all of its land. Their cinemas continue to outperform publicly traded comps, and I could see several catalysts in 2012- including big asset sales or potentially an acquisition of their cinema division by a larger player.
4- GTSI- Makes up over 10% of my portfolio. The company has $56m in cash versus no true debt. Net working capital comes in at $75m, almost all of which is made up of cash or A/R of very, very high quality. The market cap is $40m. The company has a buyback program for $5m outstanding (though hasn’t acted on it) and shareholders were pushing very hard for the company to announce a big buyback or special div on the last conference call. This is a situation absolutely ripe for an activist.
5- AEY- Comes in just under 10% of my portfolio. The business trades for a huge discount to tangible book value and a discount to net working capital. They haven’t reported an operating loss in the past ten years, and ROE has averaged over 20% in that time with low leverage levels. A turn around in cable spending could drive a huge increase in sales and profits, or the company could get active repurchasing shares after they pay down their debt in November.
Honorable mentions go to ASFI, which at 9.5% of my portfolio barely got beat out by AEY for the 5th spot, and LAKE, which had increased to the fifth spot until I sold a piece of my position into the recent catalyst.
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