It's a new year for U.S., stocks and 2015 is starting the way 2014 ended: with volatility the rule, not the exception. The 2015 Gad Winning Value Portfolio, an equal-weighted portfolio of 10 stocks that are held for the entire year, has started the year with its own dose of volatility.
As of Feb. 2, the class of 2015 was down 7.3% against a decline of just under 2% for the S&P 500 and Wilshire 5000. Our inclusion of the Wilshire 5000 as a benchmark results from the make-up of our portfolio. Securities are not chosen by market cap, industry or any other pre-defined category, but simply chosen on the consideration of price as it relates to value.
The biggest laggard, Travelzoo (TZOO), has been selling off since day one. At the recent price of $8.62, the Internet travel company is being valued at $126 million. The balance sheet is debt free and includes more than $50 million in cash. The enterprise value of approximately $75 million is less than 6x historical free cash flow although for 2014, free cash flow will minimal. The current valuation, however, still makes this business ripe for a re-appraisal of the stock price.
Biotech Kindred Biosciences (KIN) is one to watch. As it often the case with biotechs, nothing really happens until some positive data or milestone is achieved. I believe that can happen, as Kindred has numerous candidates in its pipeline. Pet vaccines, Kindred's focus, require a fraction of the capital and time that human drug candidates require to come to market. Kindred's current market cap $125 million and cash balance of over $100 million gives the company ample resources to fund its pipeline.
It's only been a month, but I believe this collection of securities is wholly undervalued compared to intrinsic value. Time is on our side and patience should serve these securities well for 2015, and ultimately, beyond.
