“For contrarian value investors like us, these are lean years when traditional ideas are ridiculed and the emerging technology like blockchain wins favor and attention,” says Saylor. “People need to remember that risk matters, balance sheets matter, and debt levels matter. The price an investor pays for a security matters.”
Portfolio holding Ericsson typifies the classic beaten-up turnaround that Saylor and Cipolloni tend to be attracted to. For many years the Swedish communications equipment company’s growth failed to live up to expectations, and the stock was trading well below its historical price-to-sales and price-to-book ratios when they purchased it in March 2017.
A number of events have brightened the picture considerably this year. With the recent consolidation of the European network/communications industry, Ericsson is one of only a few big players left to compete with the new Chinese entrants. The company has accelerated much needed cost reductions, improved profit margins, and has a large cash cushion that should help it weather any unexpected delays in its upcoming 5G rollout.
Another holding, Molson Coors, is one of the world’s largest beer brewers, serving customers primarily in the U.S., Canada and Europe. In recent years sales stagnated, and high raw materials costs ate into profits. By the time the stock was added to the portfolio in May 2018 it had declined over 40% from its 2016 high and was trading well below its historical price-earnings ratio. Saylor and Cipolloni think the company’s partnership with a Canadian cannabis company to release an infused beverage in early 2019, along with improving sales, lower production costs, and efforts to reduce debt, should improve the company’s fortunes going forward.
AT&T was added to the Berwyn fund in the third quarter of this year. A self-described “modern media” company, it offers telecommunications, broadband internet, satellite TV and, with its recent Time Warner acquisition, paid cable content. The company is pursuing a strategy to use its scale, rebuild its financial strength and grow revenue. The stock has a dividend yield of more than 5% and a historically low price-to-earnings multiple.
For now, though, stocks are taking an allocation back seat to short-term corporate bonds that can ride rising rates without too much risk.
The fund’s third-quarter letter to shareholders put it this way: “In an environment like this one, an investor is faced with two options: pay up for securities or be patient. We are contrarian, value investors and believe in our investment process. Sometimes, the most difficult thing is to do nothing.”