This week, Durig Capital looks at the healthcare sector to review one of the largest publicly traded hospital companies in the United States. Community Health Systems (NYSE:CYH) has spent the last few years rationalizing its portfolio of hospitals. The company is beginning to realize the effects of this strategy as evidenced by its same-store results for the second quarter (see above).
Over the last few months, the ongoing trade-war between the U.S. and China has escalated into something of a volatility generating machine, with some market indices jumping up or down hundreds of points in a single day as new tariffs are added, sentiments of certain key political figures are expressed, etc. Causality aside, the markets are boiling and have many investors looking to find a way to beat the heat without having to leave the kitchen entirely. This week, Durig Capital explains how investors can do just that with its Dogs of the S&P 500 Portfolio.
This week, Durig Capital reviews one of the leading producers of steel products in the United States. AK Steel (NYSE:AKS) produces steel for the automotive, infrastructure and manufacturing sectors. There has been much talk of bringing back manufacturing jobs to the U.S., especially in the production and manufacturing of steel. AK Steel is one of the companies trying to ensure continued heavy manufacturing capabilities within the United States. It recently reported its second quarter results (for the three months ending June 30, 2019) with the highlights (listed above).
This week, Durig Capital recaps the recent performance of its own unique version of the Dogs of the Dow Strategy and benchmarks it to that of its closest peers. Also explored is the importance of portfolio correlation to the overall market, and how correlation can help to provide investors an idea of how a portfolio could theoretically perform under various market conditions.
Durig’s Dogs of the Dow – July Performance Highlights
12.87% Trailing 1 Year Return
15.98% Annualized Return Since Inception
Beta of 0.72 (vs. Benchmark*)
(Performance shown above is as of 7-31-19)
CoreCivic Inc., ~6.7% Yield-to-Maturity, Maturing October 2027
This week, Durig Capital looks at a company that primarily provides private prison services for governmental agencies here in the United States. CoreCivic (NYSE:CXW) has also recently added two additional business segments to its portfolio – CoreCivic Community, which consists of residential reentry centers, and CoreCivic Properties, which is a portfolio of government-leased properties. The company recently posted a solid first quarter, registering increases in many of its financial metrics.
This week, Durig Capital looks to a Canadian issuer, a specialty pharmaceutical company that is successfully treating long-term HIV patients with its unique medicines so that patients have the opportunity to have a better quality of life. Theratechnologies (TSX:TH) has two landmark drugs, Trogarzo™ and EGRIFTA™ specifically developed to help HIV patients. The company has reported its second quarter results (for the three months ending May 31, 2019) and continues to see outstanding growth over its product lines.
This week, Durig Capital looks at a company providing private prison services for governmental agencies both domestically and abroad. Geo Group, Inc. (NYSE:GEO) is one of only a handful of private prison service companies. With the election of President Trump, private prison companies have gotten a boost due to more stringent prosecutions as directed by our new attorney general, as well as Trump’s zero tolerance policies on immigration. The company’s first quarter 2019 results reflect this new political climate (above).
Geo Group is awaiting decisions from the Federal Bureau of Prisons on two procurements (CAR 18 and CAR 19) that total close to 12,000 beds. If these decisions come back in favor of Geo Group, the company would likely again increase its current guidance (as it just did with the release of its first quarter results). Geo Group’s 2023 bonds, couponed at 5.125%, are currently trading at a discount, giving them an enticing yield-to-maturity of over 9%. With the most recent increase in guidance and the possibility of more on the way, these short-term maturity bonds (maturing in only 44 months) are an ideal addition to Durig Capital’s Fixed Income 2 (FX2) High Yield Managed Income Portfolio, the aggregated performance of which is shown below.
The New Dogs on the Block
Last week, Durig Capital reviewed it’s own unique version of the Dogs of the Dow Strategy. Over the years, the Dogs of the Dow Strategy has been adopted by many investors looking to beat the Dow Jones Industrial Average (DJI).
This week, Durig Capital takes a second look at an issuer involved in the design and manufacture of semiconductors. Magnachip Semiconductor (NYSE:MX) has been around for over three decades and is currently the largest independent supplier of OLED display drivers to panel makers for smartphones. The company is riding the wave of transition from LED to OLED in the smartphone world. This has paid handsomely as its full year 2018 results can attest (above). In addition, the company’s first quarter also posted continued wins for its Standard Products division.
This week, Durig Capital looks at one of the top propane companies in the United States. Ferrellgas (NYSE:FGP) is the second largest propane retailer and distributor in the country. Through a combination of acquisitions and colder winter weather, the company has posted solid numbers for its third quarter (ending April 30, 2019).
Last month, Durig Capital explored several variations of the classic Dogs of the Dow Investment Strategy. Later in the article, we examined the historical performance of these strategy variations, benchmarked against the performance of Durig’s own unique Dogs of the Dow Portfolio Strategy. The original strategy designed by Michael O’Higgins in the book “Beating the Dow” in 1991 was designed for just that; beating the Dow Jones Industrial Average (DJI).
This week, Durig Capital looks at an oil producer who has built its company using non-traditional production techniques. Denbury Resources (NYSE:DNR) has been successfully using enhanced oil recovery (EOR) techniques to build its name in the world of tertiary oil production. The company had a fantastic 2018 as well as a solid first quarter.
Beyond Belief… this may be the most fascinating debt instrument we have ever reviewed.
Rising with the price of gold, the cash flow and yield of Gran Colombia Gold’s senior secured “Gold Notes” appears to be headed straight into the land of unbelief. Perhaps what we see here is either wrong… or something in this picture seems to have quietly escaped the attention or the view of most other investors in the high yield bond market. Granted, this is not a straightforward and easily understood issue because of the quarterly interest boost linked to its amortized quarterly redemption of principle when the price of gold is higher 1250 per ounce. However, it is precisely this “hard to be understood” feature that is driving its current push into the land of dreams.
For this week’s bond review, Durig Capital ventures into the auto world to look at one of the leading auto rental companies in the U.S. and around the world. Hertz Global (NYSE:HTZ) had a fantastic 2018 and 2019 looks to be shaping up much the same.
- First quarter 2019 is the seventh consecutive quarter the company has recorded year-over-year growth.
- Total revenues were up 2% (during one the company’s historically slow quarters), up 4% on a constant currency basis.
- Revenues in the U.S. grew by 7%.
- Cash flow provided by operating activities grew by 28% over first quarter 2018.
- First quarter 2019 interest coverage of 3.4x.
This week, Durig Capital ventures into the telecom space to look at one of the country’s major telecommunications services providers. Frontier Communications (NASDAQ: FTR) has been working hard to transform itself as cable, voice and internet usage continues to change and evolve. The company’s most recent quarter highlights some of its progress as well as actions Frontier is taking to remain competitive.
This week, Durig Capital explores a popular variation of the classic Dogs of the Dow investment strategy, introduced by Michael O Higgins in the early 1990’s. The strategy has been widely accepted by some for its simplicity and repeatability, yet denounced by others for the exact same. Durig Capital believes less complicated is better; fewer moving parts mean fewer potential points of failure, and has done well historically with it’s own unique version of this simple strategy, discussed later in the article.
(all price quotes are in Canadian Dollars, CAD)
This week, Durig Capital looks at a company that focuses on children’s content and brands. DHX Media (TSX: DHX; NASDAQ: DHXM) is the company behind such well-known names as Peanuts, Teletubbies, Inspector Gadget and the Degrassi franchise. With children spending more time viewing content not only through traditional television and cable, but also on various devices with online streaming capabilities, DHX is looking to optimize its proprietary children’s content through various channels. Having acquired the rights to the Peanuts brand a few years ago, the company is now starting to realize revenues from this iconic brand through licensing agreements with retailers like Lands’ End, Baskin Robbins, Tupperware, Levi’s and Macy’s just to name a few.
This week, Durig Capital reviews its own version of a time-proven investment strategy. The Dogs of the Dow investment strategy is a simple way for investors to design a portfolio around the “dogs” of the broader Dow Index, and rebalance it annually. Durig Capital’s Dogs of the Dow (DoD) portfolio has, since its inception in June 2017, resulted in a less volatile portfolio with excellent returns when compared the the broader Dow index.
This week, Durig Capital takes a look at a unique oil and gas producer. California Resources Corporation (CRC) produces oil, natural gas and natural gas liquids (NGL) strictly within the state of California. Most people know that California is one of the largest states (physically) in the U.S. But most probably don’t know that it represents the world’s 5th largest economy. Against this backdrop, CRC produces oil, natural gas and NGLs and sells all of it in the state of California. This looks to be a great situation for CRC – a local buyer for all of its product and a huge appetite for more. CRC, a spinoff of Occidental Petroleum in 2014, has spent the past few years recovering from the oil doldrums of 2016 and it looks to be on the upswing. Some of the highlights from its most recent quarterly results in bullet points above.
This week, Durig Capital looks at one of the leading producers of steel products in the United States. AK Steel has been working diligently over the past few years to increase its competitiveness in the marketplace. Its design of its own ultra high-strength steel (UHSS) has produced excitement amongst the company’s automotive customer base. In addition, AK Steel’s acquisition of Precision Partners a few years ago has been very lucrative as that acquisition has now resulted in approximately $50 million in additional future revenues. The company recently released its first quarter results for 2019. Amongst some of the highlights:
This week, Durig Capital takes a look at an industrial designer, manufacturer and marketer of aftermarket parts for light vehicles, commercial trucks and other industrial uses. Tenneco Inc. recently posted a fantastic fourth quarter and full year results in large part due to its recent acquisition of Federal-Mogul. Highlights include:
Later this year, Tenneco will create two separate, market leading companies from its acquisition of Federal-Mogul. Federal-Mogul brings strong brands, products and capabilities that are complementary to Tenneco’s portfolio. Creating two new product focused companies with stronger product portfolios will allow each of them to move faster in executing on their specific growth priorities.
This week, Durig Capital reviews the largest underground gold and silver producer in Colombia. Gran Colombia Gold has staged an amazing transformation from just a short three years ago, when Durig Capital began to carefully follow this issuer. After completing a well-timed and skillfully crafted restructure of its balance sheet early in 2018, the company has consistently continued to smash its production targets, and has once again impressed us with its most recent results for the fourth quarter and full-year 2018.
This week, Durig Capital reviews a Canadian heavy haul transportation and crane company. Entrec Corporation provides heavy haul transportation and crane solutions to the oil and gas, construction and power generation industries, among others. Entrec’s most recent results for both its fourth quarter and full year 2018 showcase healthy growth in the company’s U.S. operations. And given the volatility in oil and gas late last year, the company’s results are even more impressive.
This week, Durig Capital reviews a traditional print-based marketing company that is undergoing a transformation. Quad Graphics (recently rebranded to just Quad) is in the midst of implementing its Quad Transformation 3.0 plan. This plan is helping to add core marketing expertise to the company’s service offerings. This has been accomplished mainly through acquisitions. The company’s most recent financial results show some of the progress on this plan.
This week, Durig Capital takes a look at a company that provides communications services for consumers and businesses across the U.S. Frontier Communications has spent most of 2018 making progress on its transformation initiatives that are designed to reduce costs, increase profitability and improve the balance sheet. The company recently released its fourth quarter and full year results for 2018. The company is showing progress on its initiatives.
Frontier Communications’ April 2022 bonds are currently trading at a significant discount, giving them an outstanding yield-to-maturity of about 23%. These bonds provide investors with an excellent opportunity for diversification into the essential service of internet connection. Considering Frontier’s solid free cash flow and excellent interest coverage, these 2022 bonds make an ideal addition to Durig Capital’s Fixed Income 2 (FX2) High Yield Managed Income Portfolio, which historically, has done well in a rising interest rate environment, shown below.
This week, Durig Capital takes a look at a company that provides compressions services and equipment for the oil and gas industry. CSI Compressco (CCLP) has had multiple successive quarters where the company has increased revenues and its latest quarter did not disappoint. Included with this increase were several other notable achievements.
With the continued demand for LNG and the current and planned LNG terminals in the U.S. and Canada, CSI Compressco looks to be perfectly positioned to take advantage of this demand. In light of the company’s solid performance in 2018, the company’s short-term bonds maturing 2022 are an ideal candidate for additional weighting in Durig Capital’s Fixed Income 2 (FX2) High Yield Managed Income Portfolio, shown below.
Informa Investment Solutions (Informa) recently benchmarked the performance of Durig Capital’s FX2 Portfolio Strategy against its peer group of over 200 in short term fixed income on it’s PSN database and found that as of Q4, 2018, Durig’s FX2 was in ranked 1st in Trailing 2, 3, 5, and Since Inception Return Periods.
This week’s bond review focuses on one of the nation’s largest publicly traded hospital companies. Community Health Systems, Inc. (NYSE: CYH). CYH has spent the past few years divesting hospitals in an effort to reshape its portfolio towards urban and suburban markets. The company continues to make that shift and has now added urgent care centers in some of those markets to help drive additional patients to its hospitals. Its fourth quarter and full-year 2018 results look to be an indicator that the transformation is gaining a foothold.
This week, Durig Capital looks at a longtime company that has adopted a new name to reflect its new direction. Pyxus International, formerly Alliance One, is well into its “One Tomorrow” transformation plan, where it has added new products to its product base of leaf tobacco. The company has entered into producing e-liquids, cannabis and cannabis related products.
Durig’s FX2 SMA Ranked 1st by Morningstar
Morningstar recently ranked the performance of Durig’s FX2 Portfolio Strategy among a peer group of over 200 High Yielding Fixed Income SMA’s and found that as of Q4, 2018, Durig’s FX2 was in the top 17th percentile amongst our peer group in Trailing 1 Year Return.
Morningstar’s Peer Ranking of Durig’s FX2, Q4 2018
This week’s bond review delves into the retail sector with a specialty retailer of durable consumer goods who also offers its customers financing on their purchases. Conn’s Inc., which is headquartered in Texas, has a market presence that stretches across the southern United States. Conn’s set some records in its most recent quarterly results (third quarter for its fiscal year 2019).
- Record third quarter retail gross margin of 41.2%
- Record quarterly credit segment revenues of $89.9 million.
- For the first nine months of fiscal year 2019, the company registered its second highest nine month operating income ever
- Excellent interest coverage of 2.4x.
This week, Durig Capital looks to the healthcare industry, where a medical supply logistics provider has made some key acquisitions to broaden its revenue sources. Over the past 18 months, Owens & Minor has acquired Byram Healthcare, a direct to patient medical supply distributor, along with Halyard’s surgical and infection prevention (S&IP) business. Combined, these two acquisitions are slated to add $1.45 billion in annual revenues for Owens & Minor. The company’s last reported quarterly results (third quarter 2018) show revenue growth coming through these most recent additions.
This week, Durig Capital ventures to the technology sector to review an issuer involved in the design and manufacture of semiconductors. Magnachip Semiconductor (NYSE:MX) has been around for over 30 years and is the largest independent supplier of OLED display drivers to panel makers for smartphones. The company’s latest reported quarterly results (three months ending September 30, 2018) were excellent.
Adjusted EBITDA increased 13% year-over-year.
Gross profits were up 10.8% over the prior year period.
Operating income increased by 17.9% over Q3 2017.
Revenues were up 16.6% year-over-year and were at the highest levels since Q4 2012.
Interest coverage over 3x for the third quarter.
This week, Durig Capital takes a look at a leading marine transportation company. Teekay Corporation provides marine transportation, storage, and vessel leasing for the oil and natural gas industry. The company’s third quarter saw increases in its subsidiaries revenues over second quarter. Here are some highlights from its third quarter results.
Teekay Tankers nearly doubled its quarterly revenues from the prior year period.
Teekay Corporation recorded adjusted cash flow from vessel operations of $19.8 million as compared to $1.2 million a year earlier.
Teekay LNG revenues increased to $123.3 million as compared to $104.3 million a year earlier.
This week, Durig Capital reviews a bond from an issuer that was snapped up a few years ago by one of the most enigmatic figures in corporate America. In late 2016, SolarCity was acquired by Elon Musk’s company, Tesla. The acquisition made sense- combine the maker of electric cars and energy storage with a company that produces solar panels that produce energy (seemingly to ultimately charge Tesla’s vehicles). Tesla has since integrated SolarCity’s products into the Tesla portfolio. Tesla’s most recent reported quarter (Q3 2018) was truly historical.
Free cash flow of $881 million.
Operating income of $417 million
Cash flow from operations of $1.4 billion.
Interest coverage in Q3 of 2.4x.
This week’s bond review ventures into the auto world, specifically car rentals. Hertz is one of the leading auto rental companies in the U.S. and around the world. The company recently posted its financial results for its third quarter, presenting solid evidence that the 2017 Transformation Plan is continuing to bear fruit. Some of the company’s excellent Q3 results include the following:
A 52% increase in in global net income.
U.S. adjusted corporate EBITDA increased by 25% year-over-year.
Revenues for U.S. operations also increased 10% year-over-year.
This week, Durig Capital takes a second look at an iconic cosmetic company that is continuing to refine its market strategy. Revlon, founded in 1932, has been identified with some of Hollywood’s biggest stars over the years. The company, under the direction of a new President and CEO, has recently posted some fantastic results for the third quarter including:
Adjusted operating income increased by 82% year-over-year.
A 35% increase in Adjusted EBITDA.
An increase in e-commerce sales of 23%.
Significant sales increases in China as well as North America.
This week’s bond review looks at a diversified conglomerate that has been reshaping its portfolio of companies to grow and increase synergies. Griffon Corporation has spent the past few years strengthening its business segments, particularly its Home and Building Products segment, acquiring leading brands like ClosetMaid and CornellCookson. Griffon had a fantastic third quarter. Some of the highlights include:
A 44% increase in revenues year-over-year.
Home and Building Products sales increased 59% over third quarter 2017.
Business orders for the company’s Telephonics business were up 30% year-over-year.
The Defense Electronics segment has accumulated Contract backlog of $346 million.
Durig Capital’s FX2: Bond Investing with Equity-like Returns
Stocks versus bonds – which is the better investment? This is a highly individual question and depends on the goals of the investor. For most investors, getting the best return with the least amount of risk is a goal worth striving for. But what is the best way to do this? While stocks have generally outperformed bonds, there are exceptions to the rule. Consider Durig Capital’s FX2 Managed Income Portfolio.
This portfolio’s 3-year trailing return has handily beat the S&P 500 index.
Not only has its returns exceeded that of the S&P 500 index, it has done so with roughly half the risk (volatility).
Morningstar claimed that FX2 was the top performing Fixed Income SMA among its peer group in the last significant interest rate spike of 2016.
Additionally, Morningstar has ranked Durig Captial’s FX2 portfolio as the top performing Fixed Income SMA for Trailing 1-year, 3-year, and 5-year returns, as well as for Q1 and Q2 of 2018, amongst a peer group of over 800 SMA’s.
Informa ranked FX2 1st in performance in 1,2,3 and 5 year return categories, as well as since inception, as compared to its peers in Short-Term Fixed Income.
Durig’s FX2 Portfolio – Third Quarter Rankings from Informa
Informa Investment Solutions Bench Ranked 1st in Performance Durig Capital’s Fixed Income 2 (FX2) Portfolio against its peer group of short term fixed income in it’s PSN database.
Here is how Durig’s FX2 Portfolio was Ranked Third Quarter of 2018:
Durig Capital Rank
Number of Competitors
This week, Durig Capital looks to the skies as it reviews an issuer that is focused on the design and manufacture of aircraft parts and systems. Triumph Group has spent the past few years shedding non-core business assets, consolidating locations and streamlining its operations with an eye to cost reductions. Its latest quarterly results showcase its progress on this journey. Its fiscal year 2019 first quarter results included the following:
A 6.5% increase in net sales as compared to Q1 FY 2018
An increase of 126% in adjusted EBITDA as compared to the prior year period.
Interest coverage was an outstanding 2.3x for Q1
Triumph Group is projecting a 5% increase in net sales in FY 2019.
Backlog increased by 5% over the previous year period.
Diversification is the word this week as Durig Capital takes a second look at the number two grocer in the United States. Albertsons recently posted its first quarter results for fiscal year 2018. The company showcased some impressive financials including the following:
Adjusted EBITDA of $815.8 million, an increase of 5.7% year-over-year.
39% increase in net cash provided by operating activities.
108% increase in e-commerce sales.
Interest coverage of nearly 3x.
This week’s bond issuer is a company entrenched in production and transportation of natural gas. CSI Compressco’s (CCLP) first and second quarters have been outstanding, both recording consecutive increases in revenues. The oil and gas industry’s activity level has been steadily increasing over the past 18 months and CCLP has started to see the effects of this on all three of its business segments – Compression Services, Aftermarket Services, and Equipment Sales. Its second quarter results gives investors reason to look twice at this natural gas services company.
Q2 revenues increased 33% year-over-year, and 17% over Q1 2018.
Adjusted EBITDA increased 21% over Q1 and 19% year-over-year.
Compressions Services increased gross margin by 460 basis points.
At the conclusion of Q2, new equipment sales had generated a backlog of $102 million, revenue to be recognized later this year and the first half of 2019.
Durig’s FX2 Portfolio – Helping to Solve Your Income Needs
Performance Review of Durig’s FX2 Portfolio
- Morningstar’s Top Performing Fixed Income SMA in Trailing 1, 3 & 5 Year Returns, Q1 2018, Q2 2018
- Up 10.94% YTD
- Up 12.64% Trailing 1 Year Return
- Up 17.54% Trailing 3 Year Return
- Up 9.59% Trailing 5 Year Return
This week, Durig Capital takes a look at an oil and gas producer who has balanced its revenue streams between oil, natural gas and natural gas liquids (NGLs). Approach Resources has posted excellent results the past two quarters and has some unique advantages amongst oil and gas producers – significant, contiguous acreage, 100% owned infrastructure, improved well recovery and a balanced product portfolio. It’s most recent quarter continued the positive trend set in Q1.
A 21% increase in revenues year-over-year.
Production increases over Q1 by 2%, at the high end of quarterly guidance.
18% increase in EBITDAX.
Interest coverage of 2.7x.
This week, Durig Capital takes a look at a 130-year old company, whose name is synonymous with direct selling. Avon Products is now a global manufacturer and distributor of a wide range of beauty products. The company’s recently posted its most recent quarterly results. Some of the highlights include:
A 62% increase in operating profit.
The company’s average order was up 6%.
- Operating margin was up 160 basis points over last year’s Q2.
This week’s bond focus takes a third look at a global specialty retailer of health and wellness products. Durig Capital’s last review of GNC discussed the Harbin China deal. While that deal is currently awaiting regulatory approval, GNC has since reported its second quarter results. The company continues to report successes in several areas.
Q2 international segment sales increased 11% year-over-year.
E-commerce sales increased by 8.3%
The company’s myGNC and ProRewards customer loyalty programs grew 14% and 8.8% respectively over Q1 levels.
Q2 interest coverage was a healthy 1.8x.
This week, Durig Capital looks again at Parker Drilling, a company that provides contract drilling / drilling related services and rental tools to the oil industry. (Durig Capital reviewed Parker Drilling in June 2015). Having survived the unprecedented declines in oil prices over the past three years, Parker Drilling has emerged as a leaner, more competitive company. Its most recent quarterly results show a company that continues to perform.
Q2 adjusted EBITDA growth of 39% year over year.
Consecutive quarterly revenue growth of 8.1%.
Gross margin as a percentage of revenues increased to 22.8%, up from 16.5% in Q1.
Q2 interest coverage ratio of 2.4x.