Trade Alert: VSAT, ECOM
Buy ViaSat, Inc. (Nasdaq: VSAT) and ChannelAdvisor (NYSE: ECOM).
Today we are adding to the Brain Trust Profits portfolio two high-conviction picks from two top hedge funds.
The first stock ViaSat (Nasdaq: VSAT) should be a familiar name to long-time subscribers. We found the stock in Seth Klarman’s Baupost Group the first time and did very well. Today we return to it.
We sold the stock the first time in early 2015 to lock in gains and to make room for a new pick, not because Baupost had soured on it. ViaSat is Baupost’s third-largest holding and the hedge fund owns more than 13 million shares, or more than 22 percent of the company, making it by far the largest shareholder.
ViaSat has two high-capacity satellite systems in space and is a leading provider of satellite telecommunication services. It serves residential, commercial, and government customers. Its services range from residential broadband internet to in-flight Wi-Fi to classified work with the Department of Defense.
The company is working on a third, even more impressive, satellite system that it plans to launch in 2019. This third system is expected to comprise of three geostationary satellites and have more capacity than the rest of the world combined and provide coverage to nearly the entire globe.
The cost of research and development has kept earnings subdued and kept the stock largely range-bound in recent years, but we think once the company has its systems in place, earnings will likely accelerate.
The second stock comes from Shapiro Capital Management, which specializes in mid-cap and small-cap stocks. It owns more than 14 percent of ChannelAdvisor (NYSE: ECOM), a small $280 million e-commerce specialist, and has been adding to its position in recent quarters. The company’s software enables its worldwide retailer and branded manufacturer customers to integrate, manage, and optimize their merchandise sales on various online channels.
The company is in a unique position of being a e-commerce company that helps offline (brick-and-mortar) brands adapt to an evolving digital world. Recent internal strategic shifts seem to have helped rejuvenate revenue growth back to double digits.
Like with VSAT, ECOM has underperformed the market, but these stocks with the strong backings of top stock gurus and potential to rebound are the type we are particularly after in Brain Trust Profits.
Our initial suggested buy-up-to price is $68 for VSAT and $11.25 for ECOM.
We will have more information and analysis on both stocks in an upcoming Market Update.
Stock Talk
Michael Dunn
I there some reason the 3 of the 4 closed orders show a significant loss and compared to previous years, especially 2015. open orders look a little better.
Mike
Scott Chan
Dear Mike,
None of the three picks worked out. However, the fact that they were all sold this year is coincidence.
Seth Klarman (Baupost Group), our reference guru, gave up and sold his positions in both KIN and INVA, so there was no justification for us continuing to hold on anymore. KIN’s 3 late-stage animal drugs all failed in the clinical trial stage and INVA’s royalties were disappointing the drugs it had interest in had a slow sales ramp, and the company had a messy proxy fight.
In the case of AG, we made the mistake of following a fund manager that makes macro bets in that we followed Eric Sprott, who’s known for his gold and silver miner picks. Unfortunately, precious metals prices’ decline meant that it’s very difficult to find a mining stock that is up over the past few years.
We later went with FNV, the royalty and streaming company, which has done well for us. Unlike miners, FNV can take advantage of rough patches in the precious metals market by investing in distressed assets in return for royalties and future production often at discounts, which adds to FNV’s future growth.
Going forward, we will look to avoid money managers who make macro bets, such as on gold or on oil. Although we think both gold and oil will perform well in the long run, during down periods as we’ve had in recent years, it’s hard to make profitable picks no matter how good the company is.
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Jan Zuk
How long we looking keep this stocks ?
Do is smart way do options on this stock!
Jan
Scott Chan
Dear Jan,
We do not have a set schedule how long we will keep a given stock. In our history, considering the closeouts since inception of Brain Trust Profits, on average the holding period is about 330 days. But we have had holding periods as short as a few weeks and as long as a few years.
It depends on what the reference fund does with the stock, and also we will use our discretion to sell if we see some significant change in the company/stock.
I don’t quite understand your second question. Are you asking if it’s smart to also trade options on the stocks?
If that’s your question, option trading isn’t part of Brain Trust Profits’ strategy. If you are a seasoned options trader and you are comfortable trading options on your own to hedge against stocks you hold or just to increase leverage, that’s something you can consider doing on your own.
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