Laughing Water Capital recently released its Q4 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 28.2% for the quarter (net of fees), outperforming their benchmark, the S&P 500 Index which returned 12.2% in the same quarter. You should check out Laughing Water Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.
In the Q4 2020 Investor Letter, Laughing Water Capital highlighted a few stocks and Whole Earth Brands Inc. (NASDAQ:FREE) is one of them. Whole Earth Brands Inc. (NASDAQ:FREE) is one of the world’s leading manufacturers of zero/low sugar and calorie sweeteners as well as reduced sugar products. In the last three months, Whole Earth Brands Inc. (NASDAQ:FREE) stock gained 41.7% and on January 26th it had a closing price of $12.63. Here is what Laughing Water Capital said:
“The stock has appreciated by more than 50% since that time, but in my view the move higher is more reflective of the incredibly low purchase price we were able to exploit rather than a reflection of the business’s true earnings power. While no longer as cheap as it was, at present the company trades around 8x pro forma EBITDA, versus slower growing, lower margin comparable businesses that are exposed to less attractive trends that are trading at 12-14x. We may have moved past the incredibly low purchase price that we originally enjoyed, and management has to execute, but shares would still have to ~double to trade in line with peers. I don’t know when that will happen – although being added to indexes in a few months time will likely help close the gap – but I do know that this is a business whose fortunes are not directly tied to the economic cycle, and I do know that management has easily identifiable levers to pull to continue to improve the business. As such, I think it is cheap enough to own regardless of what else is happening with the broader markets and pockets of excess.
A similar story can be told about each of our stocks that have enjoyed large gains over the past several months. Just because they are not as cheap as they were, does not mean they are expensive. Thus, I think the real risk for us as a partnership is forgetting that perhaps our greatest advantage is patience.
To be clear, our stocks are unlikely to be immune in a broad market decline, but as long as our businesses continue to perform, at some point in the next 3-5 years I expect that the stocks will trade at a normalized multiple of normalized earnings. In the case of FREE, this implies ~100% upside, assuming a properly incentivized and experienced management team fails to find additional ways to increase value. While I have no doubt that our returns will not come in a straight line and that not all investments will work as envisioned, the scenario described above represents a 15-26% annualized return. While doing so would be no small feat, if one were to maintain a 15% annualized return for 30 years a $1M investment would be worth more than $66M. If that were to happen, I am confident we would all firmly believe it was the “best of times,” and whatever “season of darkness” we had to temporarily endure on the way would be a distant memory.”
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Laughing Water Capital has been a long time Whole Earth Brands Inc. (NASDAQ:FREE) bull. In October 2020, we shared Laughing Water Capital’s bullish FREE’s thesis in this article.
In November 2020, we published an article revealing that Whole Earth Brands Inc. (NASDAQ:FREE) was one of the
CLearline Capital’s 5 best catalyst-driven value Stocks to buy now.
Our calculations showed that Whole Earth Brands Inc. (NASDAQ:FREE) isn’t ranked among the 30 most popular stocks among hedge funds.
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Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.
