Lockstep Investing Performance Update: November 2023

The Portfolio’s Performance for November 2023

November was a solid month for The Portfolio, with the fund returning +14.4%, driving year-to-date performance up to +16.8% for 2023.

 

Drivers of Performance

Seritage Growth Properties

SRG’s share price appreciated after it reported its third quarter (Q3) 2023 results towards the beginning of the month. The company continues to post losses, but our investment in this real estate business is because of the underlying value of its properties as it liquidates its portfolio.

In the Q3 2023 results, SRG updated its estimates of the remaining properties on its balance sheet, providing more granular details of what it expects to sell the remaining properties for. Based on management’s news guidance and our calculations, SRG should return between $9.25 (worst case) and $16.00 (best case) per share to shareholders.

Additionally, if interest rates start falling, it will be a big positive for the company as it can increase the asking prices of its properties. We, therefore, expect our return on SRG to be 50% or greater over the next 12-18 months.

 

Lee Enterprises (LEE)

LEE’s share price improved by 27.7% in November. While there was no material company-specific news to drive the share price performance, it is likely due to the following two factors:

  1. Interest rates have peaked: In November, the market’s narrative changed from “higher-for-longer” to the view that interest rates have peaked. LEE is sitting on substantial debt relative to equity, and the share price fell while rates increased. Therefore, the perception that rates have peaked would be a positive for the market’s view of the company.
  2. Better company disclosure: During a recent conference, management provided additional information regarding the company’s strategy to reduce its debt through increased cash generated from operations. We were delighted to hear the CFO speak directly about their cash flow strategy, as it has been a key concern. We did encourage the CFO to disclose further information during our last conversation with him, so perhaps we can take some credit for the better disclosure.

 

Intel Corporation (INTC)

Finally, we can write INTC’s share price going up!

Those who have been a part of our community for some time have read more than once about our investment thesis in INTC, namely its cost-cutting strategy, and how the market has no faith in its ability to execute it.

INTC reported Q3 2023 results at the end of October, providing the market evidence that the cost-cutting is working and management is delivering as promised. INTC’s share price appreciated +22.5% as a result.

There is still a long way to go before INTC is fairly valued, in our opinion, and if the company keeps delivering, then it’s a matter of time before the market’s perception sways.

 

Alibaba Group Holding

BABA was the only company in our portfolio that lost value during November. BABA’s share price declined -9.3% for the month, likely due to the following:

  1. China’s economic headwinds
  2. Tensions between the US and China
  3. BABA released “unsatisfactory” second quarter (Q2) 2024 results during the month

We believe the market is overly critical of BABA and wrote about it extensively in our Q2 2024 earnings analysis.

 

 

Market Performance

November has been a stellar month for the market. The S&P 500 and Nasdaq Composite appreciated +8.9%  and +10.7%, respectively.

November’s performance is in stark contrast to the downbeat performance for both indices in September and October. As a result, the S&P 500 is up an impressive 19% year-to-date (YTD), which is nothing compared to the Nasdaq Composite, which has increased +35.9% YTD.

November started with a bang as sentiment shifted from the “higher-for-longer” narrative of October to the perception that the Federal Reserve (US Central Bank) is done raising interest rates. The sudden change in the market’s opinion stems from comments the Federal Reserve Chair, Jerome Powell, made during his press conference on 1st November, where he stated the Fed would move cautiously.

Economic data released during the month, which included lower-than-expected employment levels and inflation dropping faster than anticipated, further convinced the market as it priced in with almost certainty that interest rates have peaked, at least in 2023 anyway.

 

 

Closing Thoughts

While November was a fantastic month for the Portfolio, and we have returned an impressive +16.8% YTD, we are very optimistic about its potential.

There is a definite change in market’s mood and the fact that it was not only “The Magnificent Seven” that led the market higher in November but all sectors, including Small and Micro Caps, suggests the rally could be sustainable.

Inflation is coming down, and already we are reading how pressure is building on Central Banks in the US, UK and Europe to start lowering interest rates. Our portfolio has high exposure to real estate and other interest-rate-sensitive sectors. If the Federal Reserve does pivot, we expect to benefit. As a result, we believe now is the time for us to be fully invested in the market and expect to hold little cash, if any, as we advance.

 

NB!
We are not economists, and we are not suggesting the Portfolio performance will be positive going forward. Any information, articles, communication and all other features are provided for informational and educational purposes only and should not be construed in any way or form as investment advice.

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