FY10 and Q4 Performance

For the fourth quarter, the portfolio returned 10.22%. The S&P 500 index returned 10.76% for the same period. for the quarter my return was handicapped by the poor performance by my biggest holding (CPD, which was down over 15% for the quarter).

For the FY2010, the portfolio returned 8.85%. The S&P 500 index returned 15.05% for the same period. Again, the biggest drag on the results was the poor performance of my largest holding (CPD, which was down over 23% for the year).

Since 2009, the portfolio has returned over 149% compared to the S&P 500’s return of 39.2%. I’m still working on putting together the historical performance. I plan on posting that fairly soon.

Thoughts on our holdings:

Caraco: This was our biggest holding and 2010 was not a good year for CPD. For the year, the company was down over 23% in 2010. The turnaround for the company took longer than I expected. In December, Sun Pharma made a low ball offer to take the company private. Then the news came that the distribution deal between Sun and CPD would expire in 2012. It was this news that led me to sell out of CPD. I believe CPD was doing around $300M of revenue prior to the FDA issues, with only $50M from drugs manufactured by CPD. The rest was coming from the distribution deal. Once the distribution deal expires in 2012 and the limited manufacturing from its Detroit facility, I believe CPD will be burning cash without the distribution revenues. In the meanwhile, the verdict on the Sun Pharma offer should be coming shortly. At $4.75 per share, I think it is a steal. Although I don’t have confidence in the independent board members and the valuation from a third-party. In early January I sold off most of my holding. As of today, I have completely sold out of my holding.

Harvest Natural Resources: The company did a major financing deal in late 2010. The company has started drilling in Indonesia. I expect the results in the next month. In the meanwhile, the company keeps developing its Utah assets. In January the shares have taken a hit, I have been adding more with the pullback.

WellCare: In December we finally got news that the company will be providing service to two additional counties in Florida. It has been years since the company has be able to expand again in Florida. I believe the company is a likely acquisition candidate.

General Growth Properties: 2010 was a big year for the company. The company emerged from Chp 11 with the backing of BAM/Ackmann/Berkowitz/Blackrock. 2011 should be a big year for the company, as well. The company should complete refinancing at much better terms, expand outside of US, and shed low performing assets.

ATS Corp: We bought ATS in late December. It was selling at a huge discount to cash flow and had strong growth prospects. Only few weeks later, the company announced plans to pursue strategic alternative, likely selling itself. I expect the company to announce something in next couple of months.

Yukon Nevada Gold: The company has a huge 2010. We ended with over 150% return in less than 6 months. I believe the turnaround of this company is still in process and there is plenty of upside still remaining. In the most recent corporate presentation, the company expects to hit 1M oz of annual production in 5 yrs, compared to the current 120k of annual production.

Howard Hughes Corp: The company ended the year with a new management team and some initial steps at starting development at some of its properties. This investment will take a while to materialize, although I expect the wait will be well worth it.

KVH Industries: The company had a strong 2010. The huge contract with the US Coast Guard. I expect 2011 to be a breakout year for the company. We should see the strong cash flow generation from its VStat business.

Palladon Ventures: 2010 was a big turnaround year for the company. The company successfully shipped its first shipment. The company also lined up the agreements to transfer its iron ore from Utah to the ports in Richmond, CA. Also, the company has successfully raised capital for its production of concentrate ore and expand production. In 2011, the company will increase its shipment of iron ore to its Chinese customer.

Avino Silver: This investment has been a play on the silver prices. I expect the company to substantially benefit from any rise in silver prices.

Heckmann Corp: The company had a very good 2010. The acquisition of the CVR will have a huge impact on the company’s 2011 performance. I expect the future for this company is exceptionally strong and with the $200M of cash on hand, the company should be able to put the capital to grow and become a monster it the water business.

I ended the year with 10% of the portfolio in cash. In January, we sold out of our holding in CPD. The cash position as of today is roughly 25%. The cash holding is likely to stay high, for some opportunistic investment opportunity (like the pull back I’m seeing in HNR).

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