Miller Value Partners, an investment management firm, published its “Miller Deep Value Strategy” third quarter 2021 investor letter – a copy of which can be seen here. For the third quarter of 2021, the fund was down in excess of 10%, lagging the overall market and the S&P 1500 Value Index. The Deep Value Strategy remains well ahead of the market for the year, up in excess of 70%. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Miller Value Partners, in its Q3 2021 investor letter, mentioned Gannett Co., Inc. (NYSE: GCI) and discussed its stance on the firm. Gannett Co., Inc. is a McLean, Virginia-based mass media holding company with an $898.4 billion market capitalization. GCI delivered an 87.50% return since the beginning of the year, while its 12-month returns are up by 87.50%. The stock closed at $6.30 per share on November 4, 2021.
Here is what Miller Value Partners has to say about Gannett Co., Inc. in its Q3 2021 investor letter:
“During the quarter, our only significant positive contributor was Gannett (GCI), which was up in excess of 20%. Management has an aggressive transformation plan that is starting to gain operational traction. Their content subscribers are beginning to scale and should eventually provide an attractive recurring revenue and cash flow stream that will allow the enterprise to return to growth. Achieving their 10M digital subscriber target should generate close to $1B in high margin annual subscription revenue. Secondly, Gannett is aggressively scaling a Digital Marketing Solutions (“DMS”) and Event/Promotion business. DMS currently serves more than 20K small- to medium- sized businesses, with only a 2% market share of a large market (>$18B); Gannet has a significant upcoming growth opportunity. Management is targeting more than $1B in combined revenue from these two efforts over the next couple of years. It is worth highlighting that similar businesses today in the marketplace are being valued at more than 5x revenue. Success of these new growth initiatives could generate more than $2B revenue at higher than average company margins. Even with the recent price increase, we believe Gannett still has limited success from the transformation reflected in its share price, as it has one of the lowest price-to-sales multiples in the marketplace (currently at .25x). The transformation plan has the potential to unlock significant additional equity value as the business mix shifts, free cash flow generation accelerates (normalized free cash flow yield >50%), and their valuation multiples start to narrow with the significant discount to their public company peers.
We invest in our companies with a long-term perspective. Our process is focused on understanding the fundamentals of the business and long-term fundamental value. We roll up our sleeves and dive deep into the names we hold, regularly speaking with management to better understand the asset base and key drivers of the business model. We see this as an advantage in periods where our companies may see short-term fluctuations in their share price, such as what happened in the third quarter. We are looking for embedded value that has significant realization potential over a time horizon much longer than the market’s somewhat shorter-term view.”
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Based on our calculations, Gannett Co., Inc. (NYSE: GCI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GCI was in 18 hedge fund portfolios at the end of the first half of 2021, compared to 21 funds in the previous quarter. Gannett Co., Inc. (NYSE: GCI) delivered a 13.51% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
