Mott Capital’s Michael Kramer made a bold prediction in his 2017 Q3 investor letter. Before judging the validity of his prediction, you may want a look at his performance this year. Mott Capital Management returned 16.7% after fees and expenses so far in 2017 (3 times the return of an average hedge fund) and outperformed the market by 2.5 percentage points. You should keep in mind that this is a “hedge fund” that is at least partially hedged and carry some cash in its portfolio, so comparing a hedged portfolio’s return to the S&P 500 Index’s return isn’t really fair (can you hear me Warren?).
Anyway, Michael Kramer isn’t pessimistic about the potential of market returns in the next 15 months. Actually he thinks S&P 500 ETF (SPY) can increase another 30% by the end of 2018. You can download a copy of Mott Capital’s investor letter here and read his reasoning yourself. In this article we will take a look at some of his positions. Michael Kramer discussed Netflix Inc. (NASDAQ:NFLX), Acadia Pharmaceuticals Inc. (NASDAQ:ACAD), Altria Group Inc. (NYSE:MO), Mastercard Incorporated (NYSE:MA), General Electric Company (NYSE:GE), and Alkermes (NASDAQ:ALKS).
Netflix Inc. and Mastercard Incorporated had delivered an average return of close to 20% whereas the average loss of Altria Group Inc and General Electric Company was more than 11%. Here is what Michael Kramer said about these stocks:
Netflix Inc (NFLX): Netflix continues to dominate and reshape the media landscape, while the streaming media giant continues to add subscribers. The total number of subscribers now stands at over 100 million for the first time, while the number of international subscribers exceeds the number of domestic subscribers. Based on the current trends Netflix is on pace to ramp up to nearly 130 million subscribers by the end of the Q2 2018, led by international subscriber growth which is just in its beginning phases.
Mastercard Incorporated (MA): Mastercard still shows strength catching the wave of shifting demographics as millennials increase their aversion to cash and rely more and more on credit and debit settlements. The company continues to report record revenue and earnings nearly every quarter. The stock price and the cycle of the changing demographic trend likely has many years left before it reaches maturity.
General Electric Company (NYSE:GE): Finally, General Electric just continues to struggle, and although we have contemplated selling the stock on several occasions over the quarter, we have not been able to pull the trigger. Our analysis suggests that GE shares likely have a worst-case scenario situation priced into the shares. Newly installed CEO John Flannery could be on the verge of turning things around. At this point, it feels as if selling GE now would be is just giving the stock away.
Altria Group Inc. (NYSE:MO): Altria shares were sitting near all-time highs when out of nowhere the FDA announced it would seek to reduce the amount of nicotine in cigarettes to just trace amounts. The news sent Altria shares plummeting. The move lower seemed like a knee-jerk reaction to a rule that likely does not change for many years, even if the FDA is successful in its announced regulatory initiative. Additionally, the company continues to move away from smokables to e-cigarette and vapor products. We believe Altria continues to be a good holding and offers decent growth opportunities; now is not an appropriate time to make any meaningful changes in our holding.