Argosy Investors, an investment management company, released its first-quarter 2024 investor letter. A copy of the same can be downloaded here. The fund ended the first quarter with 46.4% of the portfolio in cash and short-term government bonds and year-to-date, the S&P 500 returned 10.6%. The firm stays long-term oriented, opting to invest less aggressively when possibilities are few and to invest more aggressively when opportunities are more easily identifiable in the market. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Argosy Investors highlighted stocks like BBB Foods Inc. (NYSE:TBBB), in the first quarter 2024 investor letter. BBB Foods Inc. (NYSE:TBBB) is a chain of grocery retail stores in Mexico. The one-month return of BBB Foods Inc. (NYSE:TBBB) was -4.10%, and over the last three months, its shares lost 4.19% of their value. On June 28, 2024, BBB Foods Inc. (NYSE:TBBB) stock closed at $23.86 per share with a market capitalization of $2.677 billion.
Argosy Investors stated the following regarding BBB Foods Inc. (NYSE:TBBB) in its first quarter 2024 investor letter:
“While a small position, it is worth explaining what I find attractive about BBB Foods Inc. (NYSE:TBBB). Started by a McKinsey consultant (not always a sign of an attractive investment), Tiendas BBB is a hard discounter a la Aldi or Lidl, retailers well-known in the United States. TBBB operates over 2,200 stores in Mexico, with visibility to 12,000 stores over the long-term, and I believe the potential for even more beyond that. As with Aldi, TBBB offers a limited number of primarily private label products, approx. 2,000-3,000, at less than 15% gross margins, in relatively small stores supplied by an efficient supply chain network. These metrics compare to competitors who stock tens of thousands of items, mostly third-party brands, and at gross margins >20%.
What allows the hard discounter model to thrive is the low number of stock-keeping units (SKUs), which results in higher sales per SKU, which allows the hard discounter to negotiate competitively at even a small scale vs other retailers. As their scale grows, hard discounters can negotiate increasingly better prices with suppliers, placing greater pressure on competitors who already operate on thin margins. Also as a result of the low number of SKUs, hard discounters are able to negotiate attractive payment terms, and because their inventories remain low as a result of high inventory turnover, they have negative working capital and generate positive cash flow as basically a perpetual loan from their suppliers. This cash flow allows hard discounters to pay for their growth without incurring significant debt.
As a result, we estimate TBBB’s 2020-2023 growth was 33% per year, while long-term debt only grew at a 5% rate. Because of the characteristics discussed here, TBBB is capable of growing stores by 15% per year in addition to growing same-store sales at 5-10% per year going forward. It seems likely they can continue at this pace for the next 10-15 years and returns could approach or exceed 20% per year.”
A business executive in a suit standing in front of a retail store shelf displaying one of the company’s products.
BBB Foods Inc. (NYSE:TBBB) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held BBB Foods Inc. (NYSE:TBBB) at the end of the first quarter which was 0 in the previous quarter. While we acknowledge the potential of BBB Foods Inc. (NYSE:TBBB) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In addition, please check out our hedge fund investor letters Q1 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
