Alphyn Capital recently released its Q3 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -11% in the first nine months of 2020, underperforming its benchmark, the S&P 500 Index which returned 5.6% in the same period. You should check out Alphyn Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of 2021.
In the Q3 2020 Investor Letter, Alphyn Capital highlighted a few stocks and IacterActiveCorp (NASDAQ:IAC) is one of them. IacterActiveCorp (NASDAQ:IAC) is a media company. In the last three months, IacterActiveCorp (NASDAQ:IAC) stock gained 57.1% and on January 12th it had a closing price of $198.65. Here is what Alphyn Capital said:
“IAC is a holding company run by Chairman Barry Diller and CEO Joey Levin, proven business builders with an enviable track record of creating significant value for shareholders. Starting in 1995 with a collection of television stations called Silver King Communications worth $250 million, Diller has built IAC by investing in undervalued media and tech companies, developing them and spinning them out. Levin is Diller’s chosen successor at IAC. He was formerly a mergers and acquisitions banker at Credit Suisse First Boston, and has been at IAC since 2003, where he has run several of its subsidiaries and chaired the boards of some of its companies, including Match Group, ANGI HomeServices, and MGM Resorts.6 To date, IAC has spun out 10 separate publicly-traded businesses, including Match, Expedia, TripAdvisor, Tree, and LiveNation, collectively worth approx. $60bn.7
On July 1, 2020 IAC completed the separation of Match Group (~$30bn market capitalization) to shareholders. IAC emerged with a $3.9bn net cash position and a collection of high-potential internet focused businesses. On August 10, IAC disclosed it had deployed $1bn to accumulate a 12% stake in publicly listed MGM Resorts at an average price of $17 per share.
As of this writing, IAC owns an attractive collection of fast growing internet businesses operating in very large markets with strong offline-to-online transition tailwinds:
• An 85.1% stake in ANGI HomeServices (ANGI.NASDAQ) – a marketplace for home services and repairs operating in a $500bn market. 49% of consolidated revenues.
• Vimeo – IAC’s hidden jewel, a fast growing SaaS company (sales up 47% in Q2) that helps businesses create and distribute video. 7% of consolidated revenues.
• DotDash – a portfolio of websites publishing need-to-know content in seven verticals, generating >20% EBITDA margins. 6% of consolidated revenues.
• Search business – a cash cow business. 27% of consolidated revenues.
• A collection of emerging businesses including Care.com, BlueCrew, and Turo; play to IAC’s strengths at developing large online marketplaces. 10% of consolidated revenues.
• A 12% stake in MGM Resorts (MGM.NYSE), a casino operator with marquee name properties in Las Vegas and Macau, as well as exposure to the explosive growth in online sports betting and iGaming precipitated by changes to US gaming legislation.
IAC is a good example of a company with “synthetic leverage,” a term I define broadly as companies with advantaged business models that can safely leverage alternative third-party sources of capital or operations to generate significant incremental income. First, at a time when fast growing SaaS-type businesses routinely trade at double digit Price-to-Sales multiples, investors can buy IAC with a significant margin of safety, as the company trades at an approximate 14% discount to a conservative sum of its holdings, and an 94% discount to a bull case. Second, IAC uses spin outs not only to realize tremendous value for shareholders (by closing discounts and allowing those share prices to compound) but also to raise cash to invest in its next group of companies, as it did with the $3.9 billion it received from the Match separation.8 Third, despite Diller’s protestations that IAC is the “anticonglomerate,” he leverages skill synergies across the group, for example using Vimeo’s video expertise to benefit other IAC companies, and using IAC’s online expertise to help MGM grow online.
IAC presents investors with an attractive set up. On the one hand, risk of permanent impairment to capital is low: 25% of the company’s value is in cash (overseen by great capital allocators), and it is undervalued especially when compared with fast growing internet stocks. On the other hand, IAC has a lot of optionality and multiple “shots on goal” with $2.7 billion to deploy and the potential for any one of ANGI, Vimeo, MGM, or its emerging businesses to add a significant valuation uplift should they make inroads into their very large respective markets. At the time of our investment, IAC was available at a discount to the sum of its components even when valued using undemanding assumptions, which does not reflect its long history of compounding value for shareholders.”
In Q3 2020, the number of bullish hedge fund positions on IacterActiveCorp (NASDAQ:IAC) stock increased by about 20% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in IAC’s growth potential. Our calculations showed that IacterActiveCorp (NASDAQ:IAC) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.