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Why Collectors Universe (CLCT) Stock is a Compelling Investment Case

Alta Fox Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The Alta Fox Opportunities Fund posted a return of 60.5% for the quarter (net), outperforming its benchmark, the S&P 500 which returned 20.5% in the same quarter. You should check out Alta Fox Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Alta Fox Capital highlighted a few stocks and Collectors Universe Inc (NASDAQ:CLCT) is one of them. Collectors Universe Inc (NASDAQ:CLCT) provides third-party authentication and grading services to collectors, retail buyers and sellers of collectibles. Year-to-date, Collectors Universe Inc (NASDAQ:CLCT) stock gained 68.6% and on July 30th it had a closing price of $38.85. Here is what Alta Fox Capital said:

“We spent significant resources and time speaking with customers, competitors, and other industry participants while conducting diligence on Collectors Universe. We ultimately came to the conclusion that the business is significantly undervalued in its current state, but that with greater ambition and better capital allocation, the business could potentially be worth multiples of its current price. We compiled a short presentation in which we summarized some of our work and key conclusions. It was the type of analysis the company might have paid a consulting firm significant fees to compile over a long period of time, but we were offering it for free to the management and Board of Directors as an aligned stakeholder in the business.

We presented a subset of our findings to the CEO of CLCT and had several amicable conversations with him in which he validated many of the points we raised and seemed to agree with most of our conclusions. However, we were told there was no timetable for implementing any of the digital initiatives. This led us to raise the issue to the Chairman of the Board. Unfortunately, he was unwilling to even discuss our proposed methods for value creation and quickly dismissed the results of six months of work from one of his largest shareholders.

At this point, we had several options. We could do nothing, hold our shares, and likely earn a reasonably attractive (given the dominant moat of the current business) but unexceptional return (given the company’s poor capital allocation strategy) over time. Our second option was we could sell our shares, move on, and avoid the headache of an entrenched Board of Directors whose actions over the last decade suggest they are not solely focused or properly aligned with common shareholders. The third option was to exercise our right as a common shareholder to push for change. This is the decision we came to after very careful consideration. Ultimately, we concluded that this was an extraordinarily rare opportunity to potentially earn a multiple of our capital in a strong business. To unlock this higher return potential, however, it required Alta Fox to go activist and push for a new Board of Directors. You can read our initial letter to shareholders here.

We are limited in what we can say at this juncture, but suffice to say, we remain deeply convicted that our strategy is the right one and that if push comes to shove, we have a winning hand and can create significant value for common shareholders. We are excited to share additional materials on our plan and the need for change at the appropriate time. Stay tuned.

Finally, I have no desire to be a full-time activist investor. I enjoy interacting with management teams and have developed many great relationships over time, but these have always been friendly and amicable. In fact, I would wager that if you spoke to some of the management teams in which we have been significant investors, they would comment that we have been among their most knowledgeable and helpful shareholders. We went to great lengths to work cooperatively with CLCT to strive for value creation, but were forced down this path. While activism is not a path we will actively pursue, we are willing and able to do whatever legally necessary to protect our LP’s investments if an entrenched Board of Directors is not acting in the best interest of shareholders.”

Pixabay/Public Domain

In Q1 2020, the number of bullish hedge fund positions on Collectors Universe Inc (NASDAQ:CLCT)  stock decreased by about 20% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t agree with Collectors Universe’s growth potential. Our calculations showed that Collectors Universe Inc (NASDAQ:CLCT)  isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 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

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.