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Dec 06, 2022

Opportunity Equity Update for Week Ended 12/2/22

William Keenan

Alibaba Gains on Moderating Zero-COVID Policies While Farfetch Declines on Disappointing Capital Markets Day Guidance

Last week, the Opportunity Equity Strategy's representative account rose 1.77%, outperforming the S&P 500’s 1.19% rise. (Exhibit 1). The strategy ended the week down -27.34% YTD, 1,408 basis points behind the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 12/2/221
Time Period Opportunity Equity Representative Account S&P 500
Last Week (11/25 - 12/2) 1.77% 1.19%
MTD -0.33% -0.18%
QTD 15.72% 13.93%
YTD -27.34% -13.26%
1 Year -28.03% -9.60%
5 Year 3.84% 10.98%
10 Year 11.97% 13.31%
Inception (annualized since 6/26/00) 6.37% 6.72%

Source: Bloomberg, Miller Value Partners. Visit the Strategy page for Opportunity Equity performance through the most current month end period.

Alibaba Group Holding Limited (BABA) rose above the 100-day moving average in sympathy with the broader Chinese Internet sector on dissipating fears of rising COVID-19 cases in the country and the possibility of eventual easing of COVID-19 prevention measures. Bloomberg news reported references to “dynamic COVID Zero” language surfacing in official Communist Party literature suggesting a pivot to a more nuanced approach to managing the spread of the virus.

Green Thumb Industries Inc. (GTBIF) rose after Wedbush initiated on the name with an $18 price target and outperform rating (16% upside). Cowen also published a multi-sector report highlighting that Cannabis has gained 2x the number of younger users as alcohol in the past 10 years and is expected to gain 4x the number of alcohol users in the next 5 years.

PureTech Health PLC (PRTC LN) rose after the company announced a new therapeutic candidate, LYT-310, an oral form of cannabidiol (CBD) designed to treat seizures resulting from rare conditions, but with reduced side effects to expand the therapeutic application potential of the compound through oral administration, and higher dosage for greater therapeutic effect. This is the second candidate to be advanced toward clinical trials on the company’s Glyph platform, with clinical studies expected to begin in Q4 2023.

Meta Platforms, Inc. (META) rose above the 50-day moving average as the company announced it would not renew its leases at 30 and 55 Hudson Yards in New York City as part of its efforts to scale back costs and reduce headcount. Founder and CEO Mark Zuckerberg also spoke at the New York Times DealBook Summit, where he re-affirmed the company’s commitment to social media until the metaverse “becomes a bigger thing” and his “completely optimistic” view on the company’s 5–10-year outlook.

Splunk Inc. (SPLK) rose above the 50-day moving average after reporting strong Q3 results but lowering full year guidance. Revenue came in ahead of expectations at $930M vs $847M expected, with total ARR growing 23% y/y in-line with consensus estimates. The company reported strong EBIT with margins hitting 21% vs consensus expectations at 7% leading to an adjusted EPS beat at $0.83 vs expectations at $0.24. The company marginally lowered full year Cloud ARR guidance to $1.79B (+33% YoY) down from at least $1.8B in the prior quarter. The guide down is due to a continued delay in the timing of large cloud transformation deals. The company raised full year revenue guidance to $3.47B from $3.375B, full year operating margins to 12-13% from 8%, and FCF of at least $420M ($2.57 per share, 2.9% yield) up from $400M. Deutsche Bank lowered its price target to $90 from $117 (2% upside), while Barclays raised its price target to $110 from $100 (24% upside).

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 11/25/22 - 12/2/22
Name Type Return
Alibaba Group Holding Limited Equity 19.3%
Green Thumb Industries Inc. Equity 16.6%
PureTech Health PLC Equity 10.0%
Meta Platforms, Inc. Equity 10.8%
Splunk Inc. Equity 13.2%

Source: Miller Value Partners. See below for additional information.

Farfetch Limited (FTCH) fell after its investor day where the company issued long term guidance above consensus expectations but below buy-side expectations. 2025 GMV guidance came in ahead of consensus at $10B vs. $6.9B expected. Revenues were slightly behind consensus at $3.5B vs. $3.8B expected, while EBITDA of $350M with a 10% margin came in ahead of consensus estimates at $289M and 7.7%, respectively. Wells Fargo cut its price target to $18 from $25 (201% upside), while Wedbush cut its price target to $6 from $8.50 (0% upside).

Silvergate Capital Corporation (SI) fell in sympathy with the broader cryptocurrency sector after BlockFi filed for Chapter 11 bankruptcy protection. Silvergate announced that BlockFi accounted for less than $20M in deposits with no outstanding loans.

Teva Pharmaceutical Industries Limited (TEVA) fell below the 100-day moving average.

Stitch Fix, Inc. (SFIX) fell below the 50-day moving average.

Capital One Financial Corporation (COF) fell below the 50-day moving average. Morgan Stanley cut its outlook to underweight from equal weight, and its price target to $90 from $115 (-8% downside). Wolfe Research raised its price target to $81 from $77 (-17% downside).

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 11/25/22 - 12/2/22
Name Type Return
Farfetch Limited Equity -24.4%
Silvergate Capital Corporation Equity -9.1%
Teva Pharmaceutical Industries Limited Equity -2.4%
Stitch Fix, Inc. Equity -8.9%
Capital One Financial Corporation Equity -4.0%

Source: Miller Value Partners. See below for additional information.

Check out the Income Strategy weekly Update. Click to Read.

As of prior week's market close unless otherwise stated.

1The performance figures for the representative Opportunity Equity account reflect the deduction investment management fees and certain other expenses. Returns greater than 1 year are annualized.

For additional information about Opportunity Equity Strategy performance, please click on the Opportunity Equity Strategy Composite Performance Disclosure. Past performance is no guarantee of future results.

2Significant Contributors and Detractors are based on holdings that had the greatest effect on representative account performance for the week. Holdings that have been in the portfolio since the end of the most recent calendar quarter are identified by name. Returns listed above represent the market performance of the individual security during the week, or for the partial period held in the portfolio during the week.  For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. There is no guarantee that market trends discussed herein will continue. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners. 

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