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Our goal today and always is to share information that you will never FORE get!
Hey, there!
For any new readers, we provide brief and entertaining market analysis (stock spotlights, educational pieces, financial news) for the next generation ofΒ long term investors. We like to think that if Warren Buffett were born in 2000, he would read Cruising Altitude.
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πSPOTLIGHT
Chip Chip Hooray!
For better or worse (usually for better), we the shareholders have minimal ability to influence operational, day-to-day decisions of public companies.
Therefore, when analyzing a possible opportunity, understanding the competence of the CEO and management team is integral. Doing a deep dive into a companyβs CEO is in many ways a lost art. Tesla, Apple, and Amazon excluded, when was the last time you have heard someone say βI love this stock because they have the best CEO!β?
Well, we at CA value this lost art and feel that a strong understanding of a CEOβs history can not only shed light onto the trajectory of the company, but also the quality of your investment.
One stock that we love βbecause they have the best CEOβ is Callaway Golf $ELY. Their CEO is a man by the name of Oliver βChipβ Brewer. Here is a picture of the legend himself:
Brewer is a career golf industry executive who understands how to create value for the company he works for and its shareholders. Let us take a deeper dive into who Chip Brewer is and why we think he is a masterful CEO.
After receiving his MBA from Harvard University (not bad), Brewer went to work for a small golf company named Adamβs Golf. Brewer soared up the ranks at Adamβs Golf by showing a strong ability to grow sales and partnerships.
In 2002, Brewer was named CEO of Adamβs Golf where he took the company from a money losing operation to one that was βcrankingβ cash. Chip achieved this through years of strong and consistent decision making that included growing from a single product brand to a diversified portfolio of products.
An awesome example of how he did this is seen through the acquisition of a putter company called Yes!. Brewer scooped the company up from a bankruptcy auction for a price tag of $1.5 million. That year Yes! did $2.4 million in revenue. That is what we call a hole-in-one move.
What Brewer was able to achieve at Adamβs Golf put the industry on notice.
Callaway Comes Calling
In 2012, Callaway Golf officially completed its fall from grace. Imagine a golfer throwing his or her clubs into the water after another terrible shot- that is where Callaway was in 2012.
Callaway went from one of the most well respected brands in the golf world to one that was on life support. Their EBITDA (an important profitability metric) dropped from $122 million in 2008 to -$82 million in 2012. Losing $82 million is not good. We at CA believe that it is important for a company to make money, not lose money #duh.
For obvious reasons, Callaway fired their CEO and knew they needed a top-level executive to turn the ship around. Yup. You guessed it. They gave our friend Chip a call and he officially became CEO.
Fast forwarding to today, you guessed it again, Chip Brewer pulled off a comeback that even Tiger Woods would be impressed by. For the fiscal year of 2019 Callaway Golf reported an EBITDA of $212 million- yes, in 7 years he took a company losing $82 million to one doing nearly 2x the amount of its prior record of EBITDA. How the heck did he do this?
Well- we wonβt get too nitty gritty but Brewer achieved this by executing on three main principles:
Selling $ELYβs struggling assets.
Acquisitions of βtangentialβ businesses that benefited from the existing supply chain of $ELY, like athletic/outdoor clothing brands Travis Matthew and Jack Wolfskin as well as sports bag manufacturer OGIO.
Redefining Callawayβs brand as one that is modern and tech savvy.
Long story short, Chip Brewer is really really good at what he does and truly understands the golf industry.
On October 27th, when Callaway announced its merger with TopGolf, the stock plummeted by 20%. We at CA were salivating about the prospect of adding Chip Brewerβs company with a modern, next gen, experiential activity asset in TopGolf on a 20% sale to our portfolio.
In the great words of Charlie Munger: βOpportunities come to the prepared mind.β Often reading up on companiesβ executive teams is not on the top of the due diligence list. However, we hope today to have showed you, our valued Cruiser, the power of understanding how good (or bad) a companyβs management can be and how it can give you another angle at being a fantastic investor.
Final Note- never place your chips against Chip.
πΈPerformance
Portfolio Update
We at CA had a pretty good week in the market as we were up 7% taking our performance since we started to +46%.
In the same period of time, the S&P 500 is up 18%. We take pride in the fact that we are beating the market by 28% not through βYOLOβ stocks but rather good, sound investing.
As always, for live updates clickΒ here!
π°STUFF YOU SHOULD KNOW
This Week
General News
π Merging Onto The Highway: Major car companies Fiat, Chrysler, and PSA (the maker of Peugeot) merged to create the fourth largest car manufacturer in the world under the name Stellantis $STLA. This brings brands like Jeep, Dodge, Peugeot, and Maserati under one entity. $STLA began trading as one company on Tuesday on the NYSE.Β
π IP Oh Here We Go Again! Poshmark $POSH and Affirm $AFRM began trading last week and continued the IPO boom from last year. Both companies saw share prices more than double in their first day trading. Petco $WOOF also demonstrated the significant demand for IPOs as its shares increased 63% in one day.Β
πΈ Watch Your Backβ¦ The United States should be taking this advice as Chinaβs economy grew by an estimated 2.3% in 2020 while most countries struggled to par losses. As a result of its shocking 2020 performance, China is now expected to overtake the U.S. economy by 2028, 5 years earlier than projected before the pandemic.Β
β‘ Shocking Tesla News. The National Highway Traffic Safety Administration requested that Tesla $TSLA recall roughly 158,000 Model S and Model X vehicles due to failures in the carsβ touch screen units. While Tesla is not yet required to issue a recall, the inevitable failure of a central component in most of its models does not bode well for the future of the company. Nevertheless, shares were virtually unaffected by the news.
Portfolio News (NEW SECTION ALERT!)
π Madison Square Garden Sports $MSGS: Sports publication Sportico recently released the valuations of NBA teams. The New York Knicks, owned by Madison Square Garden Sports, came in at $5.42 billion, making it the most valuable NBA team. $MSGS currently only has a market capitalization of $4.285 billion, indicating its potential undervaluation. The stock responded nicely to the news.
π° Penn National Gaming $PENN: Pennsylvania sports books posted a record handle of $548.6 million in December 2020, cementing it as the countryβs third largest market for sports gambling. Leading the way in revenue was Barstool Sports, a subsidiary of our portfolio stock Penn National Gaming.
πΊ ViacomCBS $VIAC: ViacomCBS recently announced the launch of Paramount+, making it the latest competitor to enter the cramped streaming market. The service is an expansion of its current CBS All Access and will launch on March 4.Β
πLEARN
What is Fiduciary Responsibility?
Fantastic question. The idea of Fiduciary Responsibility is that those who run the company (the fiduciaries) must put the interests of shareholders and growth of the company above all other interests, including, but not limited to, personal compensation and other personal investments and obligations.
Todayβs spotlight stock, Callaway Golf, is an excellent example of a company that takes their Fiduciary Responsibility very seriously. Often times CEOβs say that their #1 goal is increasing shareholder value, but executing on this is a whole different story. Every decision that $ELY has made during Brewerβs time as CEO has been focused on appreciating shareholder value in a timely manner.
When a company completes a big acquisition, merger, or sale, there are often class action lawsuits led by lawyers who represent individuals who feel that the company has not fulfilled their fiduciary responsibility properly and are not representing shareholdersβ best interests.