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Mar 16, 2021

Opportunity Equity Update for Week Ended 3/12/21

Christina Siegel Malbon

Desktop Metal Rebounds on Aluminum Sintering Breakthrough, While Stitch Fix Falls on Earnings

Last week, the Opportunity Equity strategy gained 5.66%, outperforming the S&P 500’s 2.69% increase (Exhibit 1). The strategy ended the week up 23.9% YTD, 1,857 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 3/12/211

Time Period Opportunity Equity S&P 500
Last Week (3/5 - 3/12) 5.66% 2.69%
MTD 6.65% 3.55%
QTD 23.90% 5.33%
YTD 23.90% 5.33%
Inception (annualized since 6/26/00) 9.87% 7.00%

Source: Bloomberg, Miller Value Partners

Desktop Metal Inc. (DM) rose above the 100-day moving average as news broke that the company considered an acquisition of SLM solutions for nearly $713mm before ultimately walking away from the talks. The company also got a boost as they announced a breakthrough on Aluminum Sintering for Binder Jet Technology with Uniformity Labs to allow the company to sinter aluminum in a low-cost fashion with good yield strength. Vroom, Inc. (VRM) bounced back after a sharp post earnings drop the previous week. The company benefitted from a report from Wells Fargo arguing that auto lending fundamentals are strong and will be a tailwind to the industry. ADT Inc. (ADT) rose above the 100-day moving average as Deutsche Bank lifted their price target from $8 to $10 (upside of 20.2%). The stock benefitted from the CEO, Jim DeVries buying $1m worth of stock. Boeing Co. (BA) got a boost as the company announced they sold 82 aircraft in February while delivering 22 aircrafts during the month. There was limited news on Quotient Technology Inc. (QUOT).

Exhibit 2: Significant Contributors to Performance, 3/5/21 - 3/12/21

Name Type Return
Desktop Metal Inc. Equity 30.2%
Vroom, Inc. Equity 17.6%
ADT Inc. Equity 14.9%
Quotient Technology Inc. Equity 15.3%
Boeing Co. Equity 20.6%

Source: Miller Value Partners

Stitch Fix (SFIX) fell below the 100-day moving average after the company announced 2Q results. Revenue of $504 was below consensus estimates of $512mm, and missed the bottom end of the company’s guidance ($506mm-$515mm). EBITDA came in at -$8.9mm in the quarter, below estimates of -$4.2mm. The poor results were a result of longer cycle times for Fixes, and gross margin coming in at 42.9% (-190bps YoY), as the company was unable to manage higher costs related to shipping. Diamondback Energy Inc. (FANG) fell despite several positive price target changes. Truist increased their price target from $80 to $105 (upside of 28.0%), while Morgan Stanley increased their target from $71 to $103 (upside of 25.6%). Diamondback’s acquisition of QEP is under pressure as Glazer Capital, the holder of over 12.8m shares (5.7% outstanding QEP), announced in an open letter to shareholders that it plans to reject the proposed acquisition by Diamondback in the upcoming special meeting on March 16th. There was limited news on Alphabet Inc. (GOOGL) and Canada Goose Holdings (GOOS) during the week.

Exhibit 3: Significant Detractors from Performance, 3/5/21 - 3/12/21

Name Type Return
Stitch Fix, Inc. Equity -26.2%
Diamondback Energy Inc. Equity -3.8%
Alphabet Inc. Equity -2.2%
Canada Goose Holdings Equity -2.4%
*New Security* Equity -2.9%

Source: Miller Value Partners

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1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. 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. 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. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

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