Update 8/16/11: Adib Motiwala no longer manages a Covestor model
Author: Adib Motiwala
Covestor Model: Dividend Value Plus
Disclosure: Long GME, ESV, ARO, APF, MAY
May 2011 was a down month for the Dividend Value Plus model and for the U.S. equities market. My model decreased by 2.3% compared to a decrease of 1.35% for the S&P 500, as reported on Covestor’s model page.
The investment objective of the Dividend Value Plus model is to seek maximum total return through a combination of long-term capital appreciation and dividend income. The model primarily invests in common stocks of U.S. companies that I believe are undervalued. I employ a value investing approach, using bottom up fundamental research.
Trades
After several months of low to no activity, there was quite a bit of activity in the portfolio in May 2011.
I added to the existing position in GameStop (NYSE: GME). I believe GME is well placed for FY 2011 and beyond. I find GME to still be valued very cheaply on trailing twelve months’ earnings. GME management is committed to delivering shareholder value and continues to buy back shares and reduce debt with cash from operations.
The model also added to the position in Ensco Plc (NYSE: ESV). ESV earlier this year announced the purchase of Pride International (NYSE: PDE). This transaction was approved by shareholders of both companies on June 1, 2011 and makes ESV the 2nd largest off shore drilling company in the world. I believe ESV is well managed and holds further promise.
The model added a new position in Aeropostale (NYSE: ARO), a teenage fashion retailer. Shares have been under pressure since management reduced Q1 guidance sharply. Shortly following that announcement, I purchased the position. ARO then dropped further on lowered Q2 guidance during the Q1 conference call.
While the news flow is negative currently, I believe this company has executed solidly over the last several years, including during the recession. ARO shares currently trade at less than 3x EV/EBITDA (as of 6/3/11 – data from Yahoo Finance) which is very cheap for a quality company with high returns on capital and excess cash on its balance sheet.
The model also utilized excess cash by buying small positions in two closed-end funds – Morgan Stanley Asia Pacific Fund Inc (NYSE: APF) and Malaysia Fund Inc. (NYSE: MAY) – that have open tender offers that expire at the end of June. I believe this is a low-risk way to contribute to the performance of the model while I continue to look for bargain priced quality companies.
Till next time,
Adib Motiwala
Sources:
“Aeropostale, Inc. Issues Q2 2011 EPS Below Analysts’ Estimates” Reuters, 5/19/11 https://www.reuters.com/finance/stocks/AROG.D/key-developments
