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Aug 03, 2021

Opportunity Equity Update for Week Ended 7/30/21

Christina Siegel Malbon

Teva Rises on Settlement Optimism, While Falls on Revenue Miss.

Last week, the Opportunity Equity strategy fell -0.52%, underperforming the S&P 500’s -0.35% loss (Exhibit 1). The strategy ended the week up 14.27% YTD, 372 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 7/30/211

Time Period Opportunity Equity S&P 500
Last Week (7/23 - 7/30) -0.52% -0.35%
MTD -5.98% 2.38%
QTD -5.98% 2.38%
YTD 14.27% 17.99%
Inception (annualized since 6/26/00) 9.26% 7.44%

Source: Bloomberg, Miller Value Partners

The Greyscale Bitcoin Trust (GBTC) rose through the 50-day and 200-day moving averages as Bitcoin rebounded to $40,000. A job posting from Amazon looking for a Digital Currency and Blockchain Product Lead for its Payment Acceptance & Experience Team supported the move. GoldenTree Asset Management, with $45bn under management, was adding Bitcoin to its balance sheet. Teva Pharmaceutical (TEVA) posted earnings for the second quarter that missed expectations, with revenue coming in at $3.91bn relative to estimates for $4.02bn. The company lowered revenue guidance for the year, from $16.4-$16.8bn down to $16.0-$16.4bn. Gross Margin was in line with expectations at 53.3%, while lower operating expenses allowed the company to report adjusted EBITDA of $1.17bn, which was in line with estimates of $1.16bn. The company maintained EBITDA guidance for the year of $4.8-$5.1bn. Teva made positive comments around the potential to settle Opioid claims against the company, saying they are cautiously optimistic they will be able to complete a settlement in the next 12 months. Wells Fargo cut their price target from $12 to $11 (upside of 14.0%) while Raymond James cut their price target to $14 from $15 (upside of 45%), and Citi cut their target from $12 to $10 (upside of 3.6%). Farfetch Ltd (FTCH) rose through the-100-day moving average in sympathy with other luxury names that have continued to post strong results like LVMH and Moncler. ARK Funds, run by Cathie Wood, added to their position during the week.

Taylor Morrison Home Corp (TMHC) crossed above the 50-day moving average after reporting second quarter results that disappointed. Homebuilding revenue came in at $1.64bn below consensus estimates of $1.69bn with EPS of $0.95 coming in slightly below consensus of $0.96. Orders came in below expectations at 3,422 vs 3,771 expected. The company expects average community count to be 330-335 in 2021 and 14,500-15,000 home closings in 2021 with homebuilding gross margins expected to be in the high-19%s to 20% range vs consensus at 19.1%. They expect to reach gross margins of 22% in 2022. Wells Fargo cut their price target from $34 to $29 (upside of 8.1%).

Exhibit 2: Significant Contributors to Performance, 7/23/21 - 7/30/21

Name Type Return
Greyscale Bitcoin Trust Currency 27.8%
Teva Pharmaceutical SP-ADR Equity 9.5%
Farfetch Ltd Equity 5.4%
Taylor Morrison Home Corp Equity 6.0%
*New Security* Equity 8.8%

Source: Miller Value Partners Inc. (AMZN) fell through the 50-day and 100-day moving averages as the company reported quarterly earnings. Revenue came in at $113.1bn in the quarter against estimates for $115.4bn. GAAP Operating Income was also under expectations, with the company reporting $7.70bn against estimates of $7.83bn. The company provided 3Q guidance with revenue of $106-$112bn vs expectations of $119bn and operating income of $2.5-$6bn vs consensus of $8.2bn. The miss on revenue was largely from online stores revenue. Morgan Stanley cut their price target from $4,500 to $4,300 (upside of 29.2%), while Credit Suisse cut their target from $4,850 to $4,700 (upside of 41.2%) among others. Softbank sold 45mm shares of Uber Technologies (UBER) to help cover losses from their investment in Chinese ridesharing company Didi. Alibaba Group Holding Ltd. (BABA) continued to be hit after Bejing cracked down on the private education industry last week confirming that they would ban a swathe of the education industry from making profits sparking investor fears of continued regulation on the technology sector. Truist cut their price target to $268 from $290 (upside of 37.3%) while DZ Global cut the stock to sell with a price target of $192 (downside of 1.64%). The disappointing results in Amazon’s online store pressured other ecommerce name pushing Stitch Fix (SFIX) below the 50-day and 200-day moving average.

Exhibit 3: Significant Detractors from Performance, 7/23/21 - 7/30/21

Name Type Return
AMZN C3050 1/23 Derivative -28.5% Inc. Equity -9.0%
Uber C32 1/22 Derivative -19.8%
Alibaba Group Holding Ltd. ADS Equity -5.3%
Stitch Fix, Inc. Equity -6.9%

-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.

©2020 Miller Value Partners, LLC