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Apis Capital Up 39 Percent In 2020, Gains On Penumbra Short

Apis Capital Flagship Fund commentary for the fourth quarter and the year ended December 31, 2020. Q3 2020 hedge fund letters, conferences and more Dear Partners, Apis Capital Flagship Fund was up 21.6% net in 4Q20. During the past quarter, our longs…

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Apis Capital Flagship Fund

Apis Capital Flagship Fund commentary for the fourth quarter and the year ended December 31, 2020.

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Q3 2020 hedge fund letters, conferences and more

Dear Partners,

Apis Capital Flagship Fund was up 21.6% net in 4Q20. During the past quarter, our longs contributed 34.3% (gross), while our shorts detracted 5.3% (gross). At the end of December, Apis Capital Flagship Fund was approximately 68% net long with the portfolio 101% long and 33% short.

Apis Capital Flagship Fund

Apis Capital Flagship Fund: Performance Overview (Gross Returns)

2020 was a year to expect the unexpected and we humbly admit being surprised, not only by the market’s general strength under the circumstances, but also our ability to successfully navigate it. In the end, 2020 returns were the second best in our 17-year history with December 2020 our single-best month. The Apis Capital Flagship Fund benefited (finally!) from emerging tailwinds for small-capitalization companies as well as renewed interested in ex-U.S. and emerging markets which can hopefully sustain, given years (even decades) of relative underperformance.

At the macro level, our best returns came from the Industrials sector (22.9% contribution), followed by Consumer (17.1%) which aligns with our long-term success in those sectors. An outlier this year, however, is the regional performance contribution from Europe, which added 19.6% to returns compared with North American and Asia (including Japan) which added 13.7% and 14.4%, respectively. 2020 marks the first time Europe has led the way.

As self-described “stock-pickers,” the most gratifying aspect of 2020 was the strength and breadth of positive contributors. Long side stock performance was outstanding, generating in excess of 68% to returns. Top names such as West Holdings (Japan) and Kambi (Sweden) each contributed more than 5.0%, but in sum there were 26 names that added more than 1.0% to returns versus 4 names that detracted over 1.0%, and all these were crystalized in the Q1 crash. While there is nothing wrong with owning Tesla or other Unicorns if that is your thing, we find it oddly satisfying there isn’t a winner in the Fund that is a household name.

For the quarter, there were 12 holdings that each added over 1.0% to returns, led by Darling Ingredients in the U.S. (2.6%) and Evolution Holdings in Sweden (2.1%). Other winners included Rush Street Interactive, Myokardia, Flatex, and Global Wafers to name just a few. Part of success is avoiding failures and the largest quarterly loser was Pexip Holding (Norway) which only detracted about 0.3%.

On the short side, the 4th quarter was better, with notable winners stemming losses. The top short was Penumbra, which fell on reports that the company misled investors about its flagship products for treating ischemic stroke. Another notable winner, Beyond Meat, declined on weak Q3 results. With 3% Q3 growth valued at 20x sales for a food product company that will never achieve high margins, we think this Unicorn has considerably more distance to fall.

Portfolio Outlook And Positioning

The tendency for a “bad” year to follow an especially strong one tempers our enthusiasm for markets. Social media is rife with retail investors discussing what they are going to do with their “stimmy” (stimulus checks). Many are looking to buy more Tesla or Bitcoin. It’s insane, but it’s the world we live in currently. There are certainly many parallels with the Internet bubble of 2000 and the most heartening thing we can draw from that experience is that when the bubble pops (and it may not be this year), it should discriminate between real companies and pretenders. We are building lists of names that we believe have the potential to decline in value by 80% or more. As ever, we remain pragmatic and have no delusions of calling a top in the market but are prepared to be more active when the mood shifts. On the other side, especially in the small-cap area, we have plenty of durable, high-growth businesses on cheap valuations. Single-digit P/E multiples, strong growth and good balance sheets are plentiful in our segment of the market. Below we highlight several names we believe should perform well in the coming year.

Apis Capital Flagship Fund

Investment Highlights

Cornerstone Building Brands, Inc. (U.S. – $1.5bn market cap)

The homebuilding market is currently having a sharp resurgence, with prices across the nation up approximately 8% year-on-year; a level that was last touched briefly in 2013/2014 but hasn’t been sustained since prior to the housing crisis. New home building, remodeling and home sales are all very strong. As a result, the inputs to homebuilding are seeing meaningful inflation for the first time in a decade. Products ranging from doors to faucets, roofing, lumber, flooring, siding, windows and insulation are all up 5-10% or more. Demand isn’t the only driver behind this growth; supply has also been reduced by COVID-19 as labor is in short supply for manufacturing these items. While 5-10% may not sound too dramatic, consider that a company with a low, single-digit income margin could see its profits double if these price increases pass to the bottom line.

Cornerstone Building is one such company we own. Cornerstone specializes in homebuilding products where they are the dominant manufacturer in the U.S. of both vinyl siding and windows as well as corrugated steel warehouses. The company was formed through a merger in 2019 and has been quietly focused on increasing its margins and rationalizing the business. They recently posted their sixth quarter of margin expansion, a herculean feat given this past year’s economy. The stock is on 15x current earnings, but these earnings don’t yet reflect the recently announced price increases which could cut this multiple in half (or even less ). Cornerstone is a cyclical business which will naturally trade at a low multiple near the peak of its cycle, however, this cycle looks like it’s much closer to the beginning than the end. We see the potential for about 90% upside in the shares from current levels.

Impala Platinum Holdings, Ltd. (South Africa – $10bn market cap)

Most investors have never heard of the most valuable metal in the world at the moment, rhodium. Rhodium currently trades at nearly $19,000 per ounce, or 10x the price of gold. Rhodium is in severe shortage because it is used in catalytic converters for automobiles. Passing hot exhaust through a honeycomb filter coated with minute amounts of rhodium along with its sister metals of palladium and platinum causes toxic gas, notably nitrogen oxide, to separate into its much safer constituents of nitrogen and oxygen/water. Importantly, there are no substitutes for using these metals and every major country including China is ratcheting up their auto emissions requirements, thereby driving demand increases which far outstrip supply. Supply is particularly constrained as the mines are largely confined to two geographic sources: one in Russia and the other in South Africa where an oligopoly of just 4-5 companies controls most of the production.

The third largest of these producers is Impala, which is focused on a portfolio of mines in South Africa where they produce significant amounts of rhodium, palladium and platinum. Platinum has struggled to keep up with palladium and rhodium as it is primarily used in recently shunned diesel engines, however, palladium and rhodium have seen their prices rise 100% to many times that over the past few years. Impala’s share price has risen, but still reflects significant skepticism around the sustainability of these metals’ prices with the shares trading at just 3x EBITDA and 5x earnings. We think Impala is an “ugly” mining company sitting at the heart of a “green” agenda being aggressively embraced around the world. This trend is not going to be a traditionally shaped boom-bust cycle, but it could sustain much longer than the market is giving it credit for. With no debt and enormous cash flow generation, we see Impala’s shares rising 50-100% from current levels.

Swancor Holding Co., Ltd. (Taiwan – $500mm market cap)

Swancor in Taiwan, which we highlighted in last quarter’s letter, offers attractive growth prospects as one of the beneficiaries of the upcoming expansion in the offshore wind market, yet at a much more reasonable valuation than other, more widely recognized “green” energy stocks. Swancor generates more than 75% of its revenues from resins and carbon fiber that are used in offshore wind turbines and their blades. The company had early success supplying to Chinese wind turbine producers, but had not broken into the major international producers until recently. Helped by localization requirements in the burgeoning Taiwanese offshore wind market, Swancor signed its first supply deals with major turbine players Siemens Gamesa and MHI Vestas in 2018 and 2019, respectively, which are now starting to bear fruit. The Taiwanese market will be one of the fastest growing offshore wind markets in the next 10 years, growing installed capacity by a 55% CAGR and providing Swancor with plenty of runway for growth. In fact, Swancor should also benefit from the growth in other Asian markets like Japan and South Korea which are forecasted to expand offshore installed capacity by 10 year CAGRs of 81% and 50% respectively, compared to a CAGR of just 15% in Europe over the same time frame. Thanks to Swancor’s new customer wins and exposure to the fast-growing Taiwanese market, we forecast core earnings to grow by approximately 50% in 2021. This puts the stock on a very reasonable 15x P/E, especially compared to other renewable energy suppliers like TPI Composites (TPIC US) on 37x, CS Wind in Korea on 38x, or Gurit (GUR SW) on 27x.

Maire Tecnimont S.p.A. (Italy – €630mm market cap)

Maire Tecnimont is a well-known EPC (engineering, procurement, and construction) company based in Italy that helps its customers design and manufacture different types of production facilities across the world. Historically focused on hydrocarbon projects (oil & gas, petrochemicals, and fertilizers), it has recently been expanding into the renewable segment with projects in hydrogen, wind, railway, etc. In particular, it is starting to work on exciting projects in green hydrogen, or hydrogen produced via electrolysis.

Because of COVID-19, its working capital has been stretched and shares have become oversold. It now trades at 2x its peak free cash flow, or 5.4x trailing EPS. Interestingly, management has guided its green business to produce €50mm of EBITDA by 2023, and if you applied a 10x multiple to that (there is precedent for a much higher multiple on a green energy business, by the way!), you would get €500mm in equity value. That’s nearly the market cap of the entire company today. The core business is expected to inflect with Q4 results, and we view the green business like a “free option,” which could double the shares by itself.

Neowiz Corp. (South Korea – KW500bn market cap)

Neowiz is a Korean game developer and publisher that has been around since 1997 and was started by former employees of Nexon. Most of its sales come from popular casual games in Korea, such as Pmang Poker and Pmang Slots, but it is also one of the most well-respected publishers of 3rd party games in Japan. Neowiz is by far the cheapest stock among its gaming peers at 9x Street EPS (8x ex-cash), despite growing at an impressive 15-20% clip. Part of its valuation discount is due to its historical focus on casual games and recent loss of a publishing deal in Japan, but we think things are about to change.

The Street is modeling revenue growth deceleration in Q4 and 2021, but this is far too conservative in our opinion. Neowiz is about to release a very well-reviewed self-developed game called Bless Unleashed and has two large games it will be publishing in Japan (to replace the one it lost). Not to mention its large casual games business is getting a boost from recent deregulation in Korea and continued COVID-19 lockdowns. We anticipate these catalysts will create both better-than-expected results and multiple expansion over the next few quarters with rock-bottom valuation, creating an attractive risk-reward scenario.

Firm Update

During the 4th quarter, the firm onboarded and implemented Enfusion, which will strengthen our current infrastructure and operational processes by providing enhanced institutional methods to combine our order management & execution, portfolio management, real-time risk monitoring, and a general accounting ledger into a fully integrated, cloud-based system. We will also be using the Enfusion Managed Services offering to outsource and further support our middle- and back-office functionalities.

In addition to these updates, we continue to focus on expanding and diversifying our firm’s overall asset base by leveraging the long-term alpha generated for our partners. More specifically, we’ll seek to strengthen our investor mix by introducing new institutional clients to our successfully launched Global Discovery long-only Fund, which ended its inaugural year up in excess of +70% net.

As always, we encourage your questions and comments, so please do not hesitate to call our team here at Apis or Will Dombrowski at +1.203.409.6301.

Sincerely,

Daniel Barker

Portfolio Manager & Managing Member

Eric Almeraz

Director of Research & Managing Member

Apis Capital Flagship Fund

The post Apis Capital Up 39 Percent In 2020, Gains On Penumbra Short appeared first on ValueWalk.

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The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…

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March 9, 2024

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The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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9 hours ago

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March 9, 2024

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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10 hours ago

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March 9, 2024

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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