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Mar 07, 2023

Opportunity Equity Update for Week Ended 3/3/23

William Keenan

Cleveland-Cliffs Rises on Price Hike and Credit Rating Upgrade While Silvergate Falls on Delayed Form 10-K Filing

Last week, the Opportunity Equity Strategy's representative account gained 2.79%, outperforming the S&P 500’s 1.96% rise. (Exhibit 1). The strategy ended the week up 18.23% YTD, 1,254 basis points ahead of the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 3/3/231

Time Period Opportunity Equity Representative Account S&P 500
Last Week (2/24 - 3/3) 2.79% 1.96%
MTD 2.49% 1.93%
QTD 18.23% 5.69%
YTD 18.23% 5.69%
1 Year -15.13% -5.70%
5 Year 4.39% 10.42%
10 Year 10.15% 12.44%
Inception (annualized since 6/26/00) 6.49% 6.63%

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

Cleveland-Cliffs Inc. (CLF) rose after the company announced it would increase the current spot market base prices for all carbon hot rolled, cold rolled and coated steel products by a minimum of $100 per net ton, effective immediately with all new orders, raising the minimum base price to $1,100 per ton. Later in the week, Cleveland-Cliffs announced it would increase current base prices for its steel plate products by a minimum of $60 per net ton. Moody’s raised it credit rating to Ba2 with a stable outlook, while Fitch affirmed its BB- rating, revising its outlook to stable from negative.

Meta Platforms, Inc. (META) CEO Mark Zuckerberg posted on Facebook that the company will create a new "top-level product group" focused on generative AI — AI that can create content — to focus on "building delightful experiences around this technology into all of our different products.” Later in the week, the Wall Street Journal reported that Meta had accepted various recommendations from an outside advisory group to reform content moderation on its site, but “rejected important provisions intended to enhance transparency and prevent political favoritism.”

Coinbase Global, Inc. (COIN) rose above the 200-day moving average. The company announced it had launched its own Layer-2 network, Base, designed to lower the gas fees associated with transacting on Layer-1 blockchains. Coinbase also announced it had acquired One River Digital Asset Management, and that it was no longer accepting or initiating payments to and from Silvergate Bank.

Alphabet Inc. (GOOGL) rose above the 50-day moving average. Waymo, Google’s self-driving robotaxi subsidiary, announced it had laid off 137 employees, or 8% of its workforce.

United Airlines Holdings, Inc. (UAL) rose on limited news.

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 2/24/23 - 3/3/23

Name Type Net Return
Cleveland-Cliffs Inc. Equity 15.6%
Meta Platforms, Inc. Equity 8.7%
Coinbase Global, Inc. Equity 10.4%
United Airlines Holdings, Inc. Equity 5.7%
Alphabet Inc. Equity 5.1%

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

Silvergate Capital Corporation (SI) fell after the bank delayed the filing of its form 10-K, and in a regulatory filing outlined that a series of events have left it at risk of "being less than well-capitalized."  The company is evaluating those events' impact on its ability to continue as a going concern. Canaccord Genuity lowered its price target to $9 from $25 (42% upside), while Wedbush lowered its price target to $9 from $13 (42% upside).

ADT Inc. (ADT) fell after reporting in-line 4Q earnings. Revenue came in ahead of consensus expectations at $1.65B vs. $1.62B expected while EBITDA beat at $629M vs. $602M expected. The company showed very strong customer retention, with TTM customer attrition hitting an all-time low of 12.5%, down from 13.5% last year. The company guided for $6.725B in revenue in FY 2023, marginally below consensus at $6.855B, and adjusted EBITDA was in-line with consensus at $2.575B.

Farfetch Limited (FTCH) fell below the 50-day moving average. Oppenheimer raised its price target to $7.50 from $7.00 (38% upside).

Morningstar lowered its fair value estimate on Mattel, Inc. (MAT) to $24 from $27.50 (33% upside).

Norwegian Cruise Line Holdings Ltd. (NCLH) fell following 4Q results. The company reported revenue of $1.52BM above consensus of $1.50B while adjusted EBITDA of -$41M was worse than expected at -$9M leading to an EPS miss of -$1.04 vs -$0.87. 1Q 2023 profitability guidance also disappointed at -$0.45 in adjusted EPS vs. -$0.38 expected, but CapEx guidance came in well below expected at -$170M vs. -$244M for consensus. Citi lowered its price target to $16 from $18 (-2% downside).

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 2/24/23 - 3/3/23

Name Type Net Return
Silvergate Capital Corporation Equity -62.4%
ADT Inc. Equity -3.2%
Farfetch Limited Equity -1.8%
Mattel, Inc. Equity -1.0%
Norwegian Cruise Line Holding Ltd. Equity -1.0%

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. The net return shown above for each individual security represents the change in market price of the security during the week, according to a third-party pricing service, or for the partial period held in the portfolio during the week.  Net returns also include any purchases or sales that were made 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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