August was a strange month. Operationally, every portfolio company apart from one had good to very good results, and at one point I was up 7% MTD, yet all that faded, and I ended the month up only 0.92%, bringing my YTD still to a very strong 63.19%.
Market Commentary
I haven’t commented on the market in a while, so I thought to give an update where I am looking for value right now.
As attentive readers might remember, in February I wrote a piece called “the great rotation” - calling for a potential market rotation into old-school economy sectors like oil and chemicals. Despite all the back-and-forth regarding the Strait of Hormuz, Energy is still the best performing sector YTD.
The biggest change since then has been the AI rally, as showcased by the Technology sector increase since April. Industrials were off to a good start to the year, but have not done much since then.
While I continue to have no opinion on most AI-related companies or “bottlenecks”, I do have some AI-battery-energy companies on my watchlist, but ultimately I think it’s tough to find a quality name that is a small- or microcap within that sector.
What I find much more interesting is finding more niche bull markets, as for example the biofuel market, which had a volatile week, but ultimately the thesis remains intact and the economics favourable for biofuel producers. I will comment more on that in the paid section of this update — for everyone new, you can find my thesis below:
Apart from renewable fuel, everything defense, drone and especially missiles related is enjoying tremendous tailwinds, as evidenced by this piece from Citrini, as well as by the microcap poster child in that sector IEHC, which reported impressive earnings.
After spending time thinking about it, I came to the conclusion that the best risk-reward opportunity for that theme remains this tiny Canadian company, that I have profiled in June:
The reason is simple: While IEHC represents the most direct exposure to missiles, the exposure for my pick is mainly focused on one of the three subsidiaries they own, but it trades much cheaper than IEHC, at a current run-rate of roughly 7x EV/EBITDA. Most likely EBITDA will grow from here, with many company-specific value-generating opportunities ahead, on top of the industry tailwinds.
A set-up like this is one of my absolute favourites. You have a stock that experiences company-specific inflections based on a change in capital allocation, as well as industry tailwinds. It was pretty much the recipe for my biggest winners; D-BOX, Frontera Energy as well as AstroNova.
To sum it up: Crack spreads remain high, biodiesel margins remain high, Gold seems to be recovering from the “higher-lows” of 4000. It pretty much smells like the final innings of a bull market where commodities across the board are rallying.
That being said, here is my current positioning, as well as some commentary on the earnings of the companies I cover: