Blue Hawk Investment Group, LLC is the management company of the Blue Hawk Fundamental Growth Fund, LP. Insider Monkey has recently published a copy of Blue Hawk Investment Group’s Q1 2020 investor letter. A copy of the letter can be downloaded here. Jake DuBois is the fund’s founder and managing member. The fund was founded in 2016. For Q1 2020, the fund reported a net return of -10.01%, while the S&P 500 returned -20.00%.
In the said letter, Jake DuBois highlighted a few stocks and Lululemon Athletica Inc. (NASDAQ:LULU) is one of them. Lululemon is an athletic apparel retailer. Year-to-date, Lululemon stock lost 8.3% and on April 21st it had a closing price of $206.72. Its market cap is of $27.6 billion, and LULU is trading at a price-to-earnings ratio of 43.04x. Here is what Jake DuBois said:
“Lululemon, in our view, has become the model for where Retail is going. New-age Retail – pure direct to consumer (DTC) ecommerce brands (think of Casper) without a physical presence – has proven to be a tough model to maintain due to the prohibitive costs of repeatedly acquiring the same customer before building enough brand awareness to become a front-of-mind destination. Legacy retail and apparel, relying on wholesale distribution partners, has had even bigger struggles (e.g. Under Armour) due to the slow death of malls and reliance on external distribution. Lululemon has cracked the code, with a hyper-loyal following, a strong DTC offering, and a strategic physical presence. Their DTC business is why we own the stock, with operating margins above 40% and growing revenue over 25% annually. We estimate this will drive normalized operating income growth of 30% annually over the next 3-5 years excluding, 2020. Nike has proven this can be an attractive industry if done right, and we believe the company is just scratching the service of what the brand will become. This stock should do well on the other side of the recovery, earning $1.5 billion in operating income by 2023. With $1 billion in net cash on the balance sheet and very strong brand loyalty, we see a very low risk for permanent loss of capital.”
In Q4 2019, the number of bullish hedge fund positions on LULU stock decreased by about 10% from the previous quarter (see the chart here).
Blue Hawk Investment Group’s comments on NYT
In the said letter, Jake DuBois also highlighted The New York Times Company (NYSE:NYT) stock. The New York Times Company is a mass media company focused on creating, collecting and distributing news and information. Here is what Jake DuBois said:
“New York Times Company is in the midst of a transition from a newspaper for the New York region to a digital news resource for the entire world. NYT saw the shifting tides in the industry earlier than most and has built up a digital subscriber base that is greater than that of The Washington Post, The Wall Street Journal, and the 250 local Gannett papers combined. NYT is thus building its resources while small competitors stagger toward bankruptcy. With the deepest pockets (and a great reputation) come great journalists and editors, who create great content, which drives virality of stories and subscriber growth in general, which garners NYT more money and a better reputation. While this flywheel is moving, it creates adjacent opportunities too, and NYT is in the early stages of building its media portfolio (including the very popular podcast The Daily and the new television series The Weekly) to further acquire customers. The NYT of 2025 is likely to be a media company that uses its best-in-class journalism and editing capabilities to create a variety of different products, services, and stories to appeal to more and more customers – much different from the NYT of 2015. While the transition is underway – and the stock price had come up substantially before a recent pullback – investors still do not appear to appreciate the long-term strength of this flywheel and what it implies for future growth and profitability. Further, this current period of intense focus on high- quality journalism (and the sense that those following the news were better prepared for the pandemic) is likely to accelerate digital subscribers and accelerate the path toward bankruptcy for small local papers. The new environment will likely hurt NYT’s already-declining advertising business, but the balance sheet is strong, and we believe that the long-term strength of the digital business outweighs this near-term weakness.”
Disclosure: None. This article is originally published at Insider Monkey.
