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Capital Markets Analyst | 8 Years Investing | Market & Stock Commentary | Building a Foundation for a Bright Future | Car Enthusiast
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Into the Weekend
Hello all, Fiducia here.

I hope you all had a great trading week, investing week, or whatever it is you do. You will find me in the corners of the internet. We own Cloudflare, BlackLine, Anaplan, and Zebra Technologies. I also like Lam Research, Home Depot, SharpSpring, and a few others I have on the list, but cannot give away all the secret sauce. Would that not make it efficient?

I always get asked the question "is it a good time to invest?". My answer (not advice)..is yes. I am bullish right now, and I am bullish the next 5 years (i reserve the right to change my mind when presented with new data). I think there are areas of the market that are overextended or bubbly, and I stay away from that (SPACs in my opinion). I dont care much for them. I invest in businesses I think will be huge cash flow machines in the future, software in niche areas (BL and PLAN), corners of the market no one pays attention too, Zebra Tech --> amazing company. How do you think you get those cool NFL real time stats?...

Anyway, hope you all have a good weekend. I sort of keep to myself. I hope you all learn from my twitter, random stuff I post. Keep it up and make that money.
Hello World
The market gave us all a quick "look who is in control" reminder this morning. To me, I do not care for these types of moves in my LT account. I have added more shares of Anaplan today, and will continue to add on weakness.

For every winner there is a loser, for ever loser there is a winner. I firmly believe the market will parse out itself investors from traders over time, people who lose $5k, $10k, $20k on a trade will become investors quicker than you can snap your finger. I received 25 texts, from 8 different people this morning when the market whipsawed back and forth, it was a nice reminder that people get scared quick. I did added a small QQQ put position in my trading account, June $320s. Not trying to time anything, but a little downside protection never hurt. Been discussing it recently the past few weeks with numerous people, and will layer in slowly the higher we go but certainly will cut losses per my discipline.

I think the more I am connected to the internet (by this I mean social media and listening to other people) I am more convinced that the market is not really in a bubble, its more the social media is living in a bubble. Let us pop that bubble, continue our research, and remember we are buying businesses at the end of the day. I dont care what the indexes do on a day to day basis for this account. I get this feeling people are forgetting what investing is suppose to be. Yes, I have my fun account, but that is private for my website. I want the public to understand long-term investing and compounding your wealth overtime, especially people will small accounts because TRUST ME I have been there, thinking I could "hit it big" with OTM call options 6 years ago. Not it.

With the influx of new investors in the market in 2020, I am seeing a disconnect between understanding businesses and throwing money at the wall with complacency. People trading derivatives, that cant even tell me the Delta of the contract they just bought let alone tell me the P/E ratio of the business. There seems to be no worry until there is, like this morning and my phone blowing up with texts. Keep your eyes open, continue your research, and never ever be complacent in this market.

Fiducia B
Wise words. Some of the best investment advice that I've ever heard was "don't invest in anything you don't understand." If you've never invested before, I think a great place to start is a passively-managed portfolio. It's also a great reminder that sometimes people only synch part of their portfolio, not the whole thing.
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READING EVERYTHING
Now that I have your attention with a fantastic eye catching headline. Just a short memo on reading.

For all new followers the past week.

I usually do a “Sunday morning reads” thread on Twitter, but I did it yesterday instead. Usually consists of articles from various news sources I find valuable to market commentary. Small, but very useful when forming market thesis. As an investor you cannot read enough. Not just financial statements, I am talking WSJ articles, opinion pieces, Barron’s, CNBC, seeking alpha, Bloomberg, FinTimes, etc. But you do not want to waste time. If you find yourself not getting any useful information, stop reading and move onto the next. Time is valuable and markets move fast. No time for reading some dingo on SA who regurgitates what the other writers said on the same name. Everyone has something to say, parse out what is useful vs what is noise.

Thinking different is key 🔑

The ability to distinguish noise from fact, not only on your individual holdings, but the market in general in my view will make you a better investor. Noise from fact will also help you gut volatility.

Thank you
Fiducia B
Home Depot
Home Depot has been added to the Fiducia Fund.


Some taste:

What are the catalysts for The Home Depot, a $290b+ Market Cap company? Comps may be difficult in 2022, I mean, Home Depot did just post a 23.2% increase in revenue YoY for a large-cap company. I think an opportunity in Home Depot will be this sort of scenario: Travel & Leisure will pick up in 2021+, maybe making home improvements less attractive, therefore hurting Home Depot in the short-term. This may put the stock “out of favor”, but I would love to accumulate shares. Everyone points to low rates as being the biggest catalyst, I think that is just one. One thing I like about Home Depot is where are the threats? Amazon? I think Home Depot & Lowe’s have established themselves as the clear players. In 2018, the company invested 11b to better their technology, store improvements, as well as the supply chain. This is a dominant company, in an ever-evolving market because home building and construction will most likely always be here.

The company is still on their dividend increase and share repurchase program (which they suspended because of covid, but will resume), this is also a catalyst to attractive passive money for income as well as bottom line appreciation. Now we can talk about the HD Supply acquisition, because that is obviously a catalyst as well. The company states that this acquisition positions them to drive sales in a “highly fragmented” MRO space, MRO = Maintenance, Repair, Operations. Honestly, paying $8b for the company does not seem like a bad deal. I am looking forward to the synergistic opportunities HD Supply will. bring in the future. Home Depot plans to finance the acquisition with cash on hand and new debt. Rates are low, why not? Makes sense to me. The acquisition will also be accretive to EPS in Fiscal 2021, and more shareholder value over the long-run. I also want to make note that Home Depot has consistently raised their dividends over the years as well. We will take a further look in the segment below. From what I have personally seen this year, M&A activity has dampened short-term performance in stocks I have seen. For instance, Teladoc and Livongo. Teladoc has traded down since the deal. Yes, comps will be hard for Home Depot to beat in 2021, but that does not worry me.
Home Depot & Lam Research
Come January 2021, I will be shaving a few % of Lemonade (grew from my original 5-6% to 12% and I will shave back to 8%. No fundamental reason about the company, but I will be contributing to the Growth Fund and I will be adding Home Depot & Lam Research. Two names I highly regretted selling at one point in time in this account.

I believe there are secular tailwinds for both companies over the next 5 years. I will have a full report dropped on the website https://www.fiduciainvesting.com/ come January. This will put me at a max 7 names that I will continue to monitor. 2021 is going to be a big year, as I have left my 9-5 as of December 31, 2020. My goal is to grow Fiducia into the most confident research firm for investors to utilize and grow ideas with.

I will also have a write up on Lam Research as soon as I finish up Home Depot. I have been following both names for 3 years so it should not take too long.

I hope everyone had a great Christmas.

I believe my well-balance portfolio with these 7 names will continue to do well in 2021 and beyond, even with Cloudflare as such a large %.

Days like Today, Part 2
Wow, another days like today post. I think it is warranted. This does NOT feel like your average down day. Many names, including the names Fiducia owns, are up. We can all speculate why the market moves the way it moves, bottom line no one "really" knows. We can say UK lockdowns, new COVID strains (that have been out for months actually), but there is no point for me.

But lets step back and focus on our businesses we own. They are still on fire, ignoring the day to day noise may be the best investment decision one could make. Now, unless you are a trader, today really shouldn't matter. I dont add to me names unless there is a rather large dip. I have price targets in my head and valuations that I would like to add at. Below is a photo of my monthly returns since I started managing this account in 2014. Can you see where the Central Banks really ramped up their buying? My largest personal drawdown as only been 18% as well, in March of 2020. That was crazy.

My standard deviation changed slightly as well over the years:

2021 is going to be an exciting year for many reasons, we have a vaccine, economy should get back to normal, buybacks resuming, new administration, and many more. I also think returns will be, meh.

But what are the risks? Let us start a thread on possible risks the market faces because as we know, we can never become complacent. Markets climb a wall of worry.
post mediapost media
General vaccine distribution time, virus mutation in London, lockdown extensions, vaccine efficacy against new mutations.
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Days like Today
I know it is not the end of the day, it's a pretty boring day out there at least on my watchlist. The interesting part, is the price action in the names I own vs the indexes $QQQ and $SPY. Sometime it is the little things to pay attention to, and after watching the market tick by tick all day everyday for years.. you start to develop a feel for patterns, news flow, watching the same names.

I dont like to keep my watchlist too large. Right now there are 17 names on it, and I own 5 of them, and 2 are indexes. I find this to be my sweet spot, my "edge" I guess you could say. We all want to have an edge right? Take the day/weekend, learn from mistakes, and find out what YOUR edge is in the markets & investing. Is your edge in tech maybe? Industrials? Biotech? Genomics?

I like to notice the correlation between my names and the indexes day to day. We could run a correlation analysis, maybe I will through R Studio this weekend. I have been wanting to, but time is scare with an 8 week old baby girl. Also, it is tough since Lemonade only IPO'd in July, not a big sample size.

Headed into the weekend I hope I give some food for thought. Subscribe to your companies investor relations, read the most recent transcript or analyst conference, take a few hours and compare to the competitors, read a few bear arguments for your holdings. Challenge yourself.

Have a nice weekend,
Fiducia
"Challenge yourself" well said. It's important to understand that in every market there are people buying, people selling, and people holding and all 3 believe they're right.
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Zebra Tech
Post from my Website. Photos not included but you get the gist. Enjoy https://www.fiduciainvesting.com/post/zebra-tech-room-in-a-portfolio

Intro:

A name that is not popular, again, among my fellow investors is Zebra Technologies. Lets do a brief history and recap on this name, it not only helps me understand the name better, but it will help readers and followers. I still believe in diversification, I am very diverse: I own a web-infrastructure/website-security company, a disruptive insurance company, a SaaS that automates and controls the entire complex financial close process, and a marking/tracking/computer printing company! I do not like herd mentality, I like owning different names and being an educated contrarian. You can't be a contrarian, just to be a contrarian (at least in stock buying).


Overview:

Zebra Technologies was incorporated in 1969, originally called Data Specialties Incorporated. In 1982, the company became Zebra Technologies as their focus switched to on-demand labeling and ticketing systems. (This information is on their website by the way).


Anders Gustafssn, the CEO, quoted "We are living in an on-demand economy where organizations must digitize their operations to compete. The pace of change is accelerating. We are the pioneers at the edge of the enterprise and we are investing in innovations to empower front-line performance so brands can deliver differentiated service and care to thrive into the future".


One reason I think people have not paid attention to this name, is because they are "behind the scenes" of the operations. The company connects the person, to the data, optimizing workflows, operations and decisions in real-time. In return, this creates an efficient, impactful value-add for the business.


The company can be found in:

Retail and E-commerce

Manufacturing

Transportation and Logistics

Healthcare

Public Sector

Hospitality

You can see why I like this name, if you are not familiar with my strategy. We are getting insights into tons of industries, understanding how the economy is doing, as well as having a diversified end-market as a company. Having insights in MULTIPLE industries through one company? Count me in. Zebra even operates in the NFL, do you ever wonder how you get the Next Gen Stats? You can thank Zebra for that! With RFID chips in the football, and pads of the players! They have been partners since 2014. I can see why this company can be boring, its not upfront high growth, but it is certainly essential. And I like to buy businesses that are essential to the efficiency of others. The portfolio consists of Barcode printing, Mobile Computing, Data Capture, Locationing, Data Platforms, Software, Services, and Supplies. A lot to unpack here!


Third Quarter, 2020:

In their Q3 2020 Presentation, we can breakdown the segments and the key drivers and longer-term opportunity.


Healthcare is always a changing landscape, I had to do a discussion post during my MBA program one time where we had to talk about RFID and how it has changed the landscape. My example was that hospitals now have (Zebra Technology) to basically keep track of inventory, for instance each healthcare item will have a barcode on it. When you remove it from the cabinet, it gets scanned and send to a database where it will automatically order that piece of equipment and keep track of the inventory. Talk about efficiency! Anyway, we know how big of a boom Retail / E-Commerce has had. This is another way to play that trend in the markets, with the "order online and curbside pickup) Zebra has been a large beneficiary of this trend. Omnichannel demand has given Zebra a rise during the pandemic, certainly. An investment in e-commerce, is an investment in Zebra.


Zebra has obviously been financially affected by COVID-19, some Q3 highlights are Net Sales increasing .3% (better than expected), adjusted EBITDA margin of 20.3% (240bp YoY decrease) this was caused by large order mix + premium freight cost. Although it was a very well executed quarter, it was not fueled by growth. This doesn't bother me, because the company is in position for a large re-acceleration into growth 2021+ as COVID dissipates and hopefully goes away. As illustrated below, you can see the impact on a YoY basis, this is not a failed company that cannot grow their business..


Yeah, the company has a nice chunk of debt, not as liquid of a company I would like to see, but the upside is they have an untapped (it seems) revolving credit facility of b maturing in Aug 2024. Their net debt to adjusted EBTIDA ratio is 1.8x, as well as a share repurchase program (flexible) (increase is due to the acquisition of Reflexis, which we will look at down below).


Commentary was bright on the call. The quarter certainly surprised me. Enterprise customers have been prioritizing spending with Zebra. Zebra has expanded the relationship with a leading e-commerce retailer that is experiencing INCREASED order volumes.. (AMAZON?). "Innovation, quality, and value are critical partner attributes cited by this customer". One can only think, Amazon! Zebra is seeing more hospital deals and deployed more TC7 series mobile computers with the USPS Postal Carriers. Accelerated trends to digitize and automate workflows are increasing and rapidly evolving.


What is Reflexis? They are a leader in intelligent workforce management, and task execution, very fitting for Zebra already. Hundreds of retailers around the globe utilize their platform to drive employee productivity and retention, at the same time improving customer engagement. Zebra management believes Reflexis will be synergistic with their existing suite of solutions as a service (slide 12 of presentation).


The drivers (According to Anders): Healthcare, increased real time visibility into the patient journey and demand for innovative solutions to provide SAFE and EFFICIENT care. Retailers, prioritizing investment in Zebra Technology for the complex omnichannel fulfillment strategies and related warehouse automation needs. These demands are at record levels! Transportation logistics, strong e-commerce growth drives partial volumes and last mile delivery. Manufacturing, this area is still most impacted by COVID and global trade tensions, mixed trends but solid recovery in Chinese manufacturing (very net positive....).


Spreadsheet Values:

These estimates are provided by Finbox, connected to excel. I am building out a few spreadsheets in order to cut back on time. At current share prices, these are the forward P/Es, I absolutely expect beats on the bottom line. Below are the revenue growth forecasts.


To the left are efficiency metrics I like to keep track of (LTM).I am not here to give you price targets, or tweak my DCF models, honestly I think they are a waste of time. My time frame on this company is until I see the fundamentals deteriorate on bad management and ability to execute.


Fourth Quarter, 2019

Now, I want to go over some 4Q 2019 eggs because pre-covid is a better way to look at the company when they were not slapped in the face with a virus. In FY19, the company delivered 6.3% net sales growth (5.5% organic), 21.6% adjusted EBITDA margin (90bps YoY improvement), $12.94 in non-GAAP diluted EPS (17.5% YoY) and $624m in Free Cash Flow. These are great numbers, especially on the earnings growth. For FY20 they were guiding for 4-6% net sales growth, adjusted EBITDA margin of slightly more than 22%, and FCF of at least $700m. On the FCF front they are still guiding for YoY growth which I like, somewhere in the $650 range (up from $624m in 2019) growth of 4.2%.


Zebra is a company that got hit by tariffs, and their goal was to transition out of China for majority of their manufacturing. They have delivered on this promise and moved forward with global product sourcing. The goal was to mitigate this by mid-2020, and they have/still are. This gives me confidence that management has the ability to deliver on their guidance.


Zebra outlook for 4Q20 was an absolute blowout, hence the share price return since. Expecting net sales to increase 3-7% YoY as customers continue to recover from PEAK COVID-19 pandemic (a lot can change here, such as an unexpected shift in demand) and non-GAAP diluted EPS range of $3.70-3.90 vs $0.46 above consensus!


Summary:

I am long the stock, and will buy on bigger dips when I think it is necessary. I would actually like to build this to a 10-12% position. I believe the company is overlooked, and deserves a spot in a growing portfolio. The company is riding, and executing, on so many tailwinds. Zebra is a clear leader per IDC Report linked in the Sources & Links below:

Sources & Links:








Great write up! You make a good case for how essential and integrated they are. Not high growth, but quite a robust business. Thanks for posting this!
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Strategy
I usually post all my strategy and moves on my website, but I could write a short memo here. Have been investing in public capital markets going on 8 years, and have 6+ years worth of performance data. That performance data is pinned in my Twitter profile at the end of every month TWR by Fidelity. Worked as an analyst at a boutique shop 2 years out of college and then left, on my own terms, I was the only analyst for basically 2 years. I am slowly building out Fiducia while working a middle markets job at a larger institution, while completing my MBA in Business Analytics. The job allows me to focus on my research and analysis, and promote long-term growth strategies. I plan on focusing more on Fiducia in 2021 and growing with my peers.

My strategy is relatively simple, I like finding strong companies led by extremely strong management with vision. I enjoy reading the stories about some of these companies, and I do not trad too often in my "Growth Fund" which is my long-term account I have linked up here. The ability to gut volatility creates better investors in my opinion, I enjoy reading financial literature and gathering an overall understanding of where we are in the current market. I put a lot of emphasis on management.

I like to find faster growing names, in niche end markets. Zebra is the exception as it is my "Economic Recovery Play" while I have a lot of faster aggressive name exposure, to have balanced exposure headed into 2021. I have been in names like Square, Veeva Systems, Apple, Livongo, Home Depot, Lam Research, and many more in this account that have attributed to my 6+ year CAGR. The names I own now, I have dug so deep into, I feel confident gutting volatility with them over the next (at min) 5 years.

Being able to adapt to this dynamic industry is critical, the markets shoot first and ask questions later (as we saw in March). My Anaplan and Blackline holdings are not your sexy HYPER-GROWTH names, but they are very steady growing, niche names, with nice valuations. Who cares about accounting software right, and planning software? Valuation is sanguine to me at these levels, to offset my NET which is at the top for most expensive P/S now. I find "value" in the names I currently own, especially in a seemingly frothy market with SaaS names trading at record P/S. "The market can remain irrational longer than we can remain solvent".

I study and subscribe to my companies websites, I read their SEC filings, quarterly reports, annual reports, news article and write ups that come out on them. In order to be the best, you have to feel like you have the edge in your names. I dont know everything about my names, as I am sure a lot of people do not. This is why I own only 5 names. Any more than that, I feel it is a distraction to having an edge (for me).

Thank you for reading my memo :)

Happy investing,
Fiducia