Silver Ring Value Partners LP is a Boston-based investment management firm that specializes in delivering long-term value by utilizing an intrinsic and robust approach to investing. The company was founded in 2016 by Chief Investment Officer and Managing Partner Gary Mishuris. Recently, Silver Ring Value Partners released its Q1 2020 Investor Letter – a copy of which can be downloaded here. In its Q1 2020 Investor Letter, Silver Ring Value Partners LP reported 15 investments with a 0.0% cash level and a 57% option-adjusted net exposure. At the end of the quarter, the fund reached a 46% price to base case value estimate.
In the said letter, Gary Mishuris highlighted a few stocks and Gilead Sciences Inc (NASDAQ:GILD) is one of them. Gilead is a biopharmaceutical company based in California. Year-to-date, GILD stock gained 18.0% and on April 23rd it had a closing price of $77.78. Its market cap is of $96.5 billion, and GILD is trading at a price-to-earnings ratio of 18.17x. Here is what Gary Mishuris said:
“I sold roughly 1/3rd of our call option position in Gilead after the stock spiked on hopes that it will benefit from being a provider of a Coronavirus drug. My value for Gilead is in the $90s, far above where the stock was trading prior to the spike and still above where it was trading at the time of the spike. I have no idea if their drug will or will not be approved for Coronavirus, and if approved if they will be allowed to charge a reasonable price or if social pressure will lead to confiscation of their intellectual property. My sale was due to a desire to manage risk in a position that was getting large in terms of Portfolio at Risk and the opportunity cost presented by more attractive investments. I would continue to hold the remaining 2/3rds even if I were sure that their Coronavirus drug were destined to fail, as I believe the stock is still meaningfully undervalued without it.”
In Q4 2019, the number of bullish hedge fund positions on GILD stock increased by about 2% from the previous quarter (see the chart here).
Silver Ring Value Partners comments on CTHR
In the said letter, Gary Mishuris also highlighted Charles & Colvard Ltd (NASDAQ:CTHR) stock. Charles & Colvard distributes and manufactures jewelry. Here is what Gary Mishuris said:
“I am disclosing this investment as having crossed the 5% ownership threshold I have had to file a form 13G. The investment combines a floor value provided by asset value with a potential for very large upside if the business turns around. I plan to go into more detail in a future letter, but the general facts are:
• The company sells jewelry utilizing moissanite, a close substitute for diamonds
• The stock trades at a discount to a conservative liquidation value (see below)
• There have been several indications of traction in the turnaround
• If the turnaround succeeds, it is possible to have returns in the 3x-10x range given the size of the market vs. the size of the current market capitalization of the company
• The CEO appears honest and competent
• The Chairman owns a substantial stake in the business
• The company has no debt and has recently turned FCF-positive
• There are many reasons why the turnaround might fail (synthetic diamonds, lower-priced Chinese competitors, and many others). I estimate the probability of the turnaround fully succeeding at under 50%. Despite this, the combination of the downside protection offered by asset value and the potential upside in the event of success create a positively skewed asymmetric risk/reward profile which I believe to be very attractive.”
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Disclosure: None. This article is originally published at Insider Monkey.
