Trapeze Asset Management released its second-quarter investor letter recently, which detailed some of the fund’s moves during the period. With the U.S stock market at all-time highs, the fund found it challenging to unearth bargains. It also sold off a number of positions as the prices on those stocks ran past the fund’s fair market value (FMV) estimates.
Toronto-based Trapeze was established in 1999 by co-founders Herbert and Randall Abramson. The fund builds focused individual portfolios for each client based on model portfolios which are then adjusted to meet the client’s specific requirements. Portfolios are typically all-cap or large-cap-only oriented, with Trapeze’s all-cap portfolios currently having a lot of exposure to small-cap stocks, which are trading well below the fund’s FMVs for them.
In this article, we’ll take a look at the fund’s thoughts on five of its key positions, or former positions: Total SA (ADR) (NYSE:TOT), Oracle Corporation (NYSE:ORCL), Dicks Sporting Goods Inc (NYSE:DKS), Foot Locker, Inc. (NYSE:FL), and Dollar Tree, Inc. (NASDAQ:DLTR).
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First up is Total SA (ADR) (NYSE:TOT), which Trapeze Asset Management believes is primed for free cash flow and production growth, even if oil hangs around the $50 mark. The fund likes Total’s moves to shed its high cost assets like Gina Krog, and expects that others in the same vein like Fort Hills and Martin Linge will follow. It also likes the company’s expansion of its low carbon production, which Total believes will deliver 20% of its profits by 2030. Analysts also like Total’s recent acquisition of Maersk, pointing out that it will be immediately accretive and helps rebalance the company’s portfolio.
Trapeze has a $58 FMV on Oracle Corporation (NYSE:ORCL), which currently trades around the $48 level. The fund sees Oracle’s cloud revenue shooting past the $5 billion mark soon and anticipates that as cloud revenue accounts for more of Oracle’s total revenue, the company’s margins will also rise. Additionally, it expects Oracle’s FCF to grow at twice the rate of its revenue. Oracle CEO Mark Hurd is confident that his company can win the cloud wars, despite the imposing specter of Amazon.com, Inc. (NASDAQ:AMZN)’s AWS looming over it, telling CNBC that “I think we’re going to win, bar none.”
On the next page we’ll check out the fund’s take on Dollar Tree, Inc. (NASDAQ:DLTR), Dicks Sporting Goods Inc (NYSE:DKS), and Foot Locker, Inc. (NYSE:FL).