Earlier this week, I unveiled the first five selections of the 2016 Value Portfolio. Here are the final five picks: Sanchez Energy (SN), Seritage Growth Properties (SRG), Delta Airlines (DAL), Meritage Hospitality Group (MHGU) and Kindred Biosciences (KIN).
Sanchez Energy is small-cap oil and gas firm that we believe will do quite well coming out of the current oil cycle. The balance sheet is well structured, the company's production is growing and it could even be a neat tuck-in acquisition. We recognize that if oil prices sink below $30, things can get disastrous across the board. Were that to happen, we don't see Sanchez as being one of the ones to fold up.
Seritage is real estate spin-off of Sears Holding (SHLD) and I think the cash flows and safe assets will do well in the current environment.
Delta Airlines is a name I have been mulling over for more than a year. The airline industry is one that should be shunned by "value" investors. Although a lower oil price environment provides for a nice tailwind, low oil prices are not my sole catalyst, here.
During the past few years, the airline industry, particularly Delta, has figured out how to maximize efficiency. I've flown on more than 20 Delta flights during the past three months: Each one was full. This is a stark difference from years past -- when planes were flying 75% to 80% full. Incremental revenue dollars from things like priority boarding, better seats, and other perks, are adding up.
Meritage Hospitality is a tiny but well-run restaurant operator. Its bread and butter is Wendy's (WEN) franchises -- they have more than 150 of them in addition to an intriguing fast-casual collection of restaurant concepts that they developed.
Kindred Bio returns from the 2015 portfolio after declining nearly 50% thus far in 2015. My thesis remains unchanged: Kindred provides immense optionality on animal drugs -- a highly fragmented and underserved part of the healthcare space. But at current prices, shares now trade for less than net cash on the balance sheet.
The Class of 2016 is in. Even though this is one portfolio, long-time Real Money readers (and new ones) should see it as one part of a multi-year investment program. This is the fifth year of this portfolio. Annualized results will be reported in early 2016.
