First, a brief bit on buy/sell decisions. When we run through our current portfolio holdings or evaluate a company for purchase or for sale, we always compare the market price to our estimate of fair market (or intrinsic) value. In this sense, we always maintain a view of potential upside or downside on a company by company basis. Then, in aggregate, we have a portfolio view of embedded upside for our long positions and embedded downside (=upside) for any short positions. All the while, we pay special attention to key risk factors that might impact our theses.
We continue to see significant embedded upside for certain holdings, including microcap Sonic Foundry (SOFO), our container shippers Seaspan (SSW) and Global Ship Lease (GSL), and -- if you've been following our recent Yahoo/Facebook posts -- Yahoo (YHOO).
Another holding where we see significant upside is Weight Watchers (WTW), which we first highlighted on CS$ in December of 2009 in Watching the World's Weight with Weight Watchers (WTW). Over the past year, we and our extended family have been buyers of the company in the mid- to high-$20 range.
Although short-term moves often mean very little, shares of Weight Watchers (WTW) are finally catching a bid. Potentially for this reason, the Street.com featured Weight Watchers CEO in a short clip on 9/25:
- Weight Watchers CEO Unfazed by Obesity Pill News - David Kirchhoff, CEO of Weight Watchers International, says he's not bothered by headlines about biotech companies developing weight-loss pills.
We're also not overly fazed by other weight loss remedies and believe cash flow will be sufficient to service and/or repay debt. Further, while earnings guidance and estimates for 2010 are slightly lower than our original forecast (from fall 2009) on increased operating expenses related to brand repositioning (see February's 4Q09 release for brief mention of reinvestment), we think earnings power remains intact and durable over the long-run. Accordingly, we continue to believe reasonable fair values are in the $40 range and could extend into the $50s if historical multiples are awarded to the company.
As a result, even with the recent upward move in the share price, we still see a meaningful margin of safety at current levels.
Disclosure: long SOFO, SSW, GSL, YHOO, WTW.
© 2009 Jeffrey Walkenhorst
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