On Monday, we will be trimming one of our more challenging stocks and reinvesting the proceeds into one of our more recent purchases, a promising growth stock, as well as one of our other more challenging holdings.
On the sell, which will take the name down to an average position size, the stock has actually performed well since we added to it after a plunge in March after the CEO was pushed out. The company met my sales growth goals over the past year, but profitability remains elusive. The most appealing part of the story is the "cheapness", but cheapness is abundantly available today, so it's not worth having it be our largest position.
Adding to the growth stock makes a lot of sense to me - this is the time (after a market pullback) to do so. I have a lot more confidence in the long-term prospects of this company and believe the valuation is very attractive too. The stock will be "average" in size after the add. Adding to the shoe manufacturer may be somewhat controversial, but I liken it to the add that we made in March to the name we are trimming it. It is oversold and trading substantially below asset value, but it also has reasonable short-term profitability. I understand the challenges here and feel the market is overly pessimistic about what is a short-term challenge. In this case, the position moves from average to above average. Perhaps my target, which I reduced to 26 (1.3X TBV) remains too aggressive, but even if the stock recovers only to where I first got interested in the name late last year, it will return 50% (rather than 90% I am currently forecasting).
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