Recent Transactions

Bloomberg-Terminal

Students made four buy decisions in Fall 2016:

  • Reynolds American (RAI): The second largest U.S. tobacco company, RAI is strategically well positioned with its dominant market share and high brand loyalty across all customer segments, including nicotine replacement therapy and the fast-growing e-cigarette category. RAI’s recent acquisition of Lorillard Inc. further strengthened their leadership position. Despite its strengths, the company missed earnings in the first two quarters of 2016. A market overreaction to what we believe is a temporary disruption in earnings created an opportunity to buy at a good value. Since SIF purchased RAI, British American Tobacco (BAT) announced a takeover bid valued at $56.50/ share. Should this transaction be completed, RAI shareholders will receive $24.13 in cash and 0.5502 BAT shares for each RAI share.
  • Alaska Airlines (ALK): Currently the 6th largest U.S. airline, this hometown hero’s reputation for excellent customer service and prudent management has generated strong top and bottom line growth. Its pending merger with Virgin Americas will offer coveted landing spots on the East Coast and in the Caribbean, giving ALK significant runway for growth.
  • Cooper-Standard (CPS): Automotive components manufacturer Cooper-Standard is a turnaround story.  After a 2009 bankruptcy, CPS emerged leaner and stronger. CPS weaned itself from a dependency on its largest customer Ford, and now serves a growing number of international players. CPS continues to streamline its product offerings, focusing on higher-margin break systems, and shifting its operations toward lower-cost, higher-growth emerging markets through both acquisitions and organic growth.  As CPS’s credit rating continues to improve CPS will be able to refinance existing debt at lower rates, we believe this will be a tailwind for the company.
  • Lockheed Martin (LMT): With the election of Donald Trump and a shift toward a Republican controlled Congress, aerospace and defense companies like LMT are likely to benefit from an increased defense budget. Early indications of the administration’s intentions suggest a possible increase of 20% or more on materiel spending alone. Given LMT’s scale, its exclusive and lucrative contract to provide the F-35 joint strike fighter, and its growing share in key attractive sub-segments of the defense industry, including cyber security, LMT is poised for reliable growth over the next 4 years.

Students also voted to divest from four companies:

  • VF Corp (VFC): This owner of fashion and apparel brands Northface, Vans, and Seven for Mankind, amongst others, continues to face challenging conditions in the wholesale market. Its main retail channel, department stores, has reported weak results in 1H 2016 with little sign of improvement aside from the usual holiday bump in 2H. While VFC’s direct-to-consumer sales have picked up some slack, it is not enough to compensate for the department store’s decline.  Although VFC has announced plans to sell its underperforming contemporary brands segment, we believe there are more attractive growth opportunities available elsewhere.  With analysts predicting a turn in the business cycle in the coming years, we believe picking companies with less elastic demand will ultimately provide more upside potential and less risk.
  • Hexcel (HXL): The SIF unanimously voted to sell this maker of aerospace parts to avoid an overconcentration of the portfolio in the defense industry. We believe other portfolio holdings—Northrop Grumman and Lockheed Martin—stand to benefit more directly from increased defense spending and also are better sheltered from direct competition by stronger barriers to entry.
  • Stericycle (SRCL): This provider of specialized waste disposal has faced an influx in new competition and heightened price pressure, especially in its small account segment., resulting in steep losses over the past 12 months. Additionally, a qualified auditor’s opinion on SRCL’s most recent 10-K raised the red flag on this company.
  • Sanderson Farms (SAFM): SAFM is the third-largest U.S. poultry producer. After posting substantial year-over-year declines in 1H 2016, the chicken processor’s third-quarter earnings improved, although still coming in at 1.6% below the previous-year’s showing. Subdued foodservice demand, combined with additional industry production, makes us bearish on future prospects for SAFM.