Speculative Spotlight 3.0
No Risk, No Reward
It's time to revisit our most electric segment of stocks, the speculatives.
Our 1.0 pick, Gannett ($GCI), roared 93% from our $1.85 entry in December to our sell point in May. Since then it has gained an additional 61%, bringing the total gain to over 200% since our call.
Our 2.0 pick, Largo ($LGO), has risen a modest 33% since our entry in April, and continued to be our top and only holding within the speculative segment, until today...
The returns in this segment have been spectacular as we balance risk and reward to create outsized opportunities, and today's pick follows the same formula.
The key ingredients to a great speculative pick, that also falls under our company-wide value investing methodology, often lies in leverage and distress... two words that don't usually come to mind when thinking of value.
Looking for companies, that despite possible rough financials of late, still provide a product or service that we believe in. Or on the other hand, maybe it's a company that has fallen victim to market shifts that have forced them to pivot, and the market hasn't bought into that narrative just yet.
Gannett fell under this category as share prices cratered to all time lows as the market moved away from legacy news stocks in favor of digital and even social media like X and Instagram as mainstream news sources. Gannett's management got in front of this and began a transformational process of converting to digital media, something that the market, at the time, did not value. We bought into this, and it worked out beautifully as the transition was successful.
On the other hand, a name like Largo, whose full report and thesis can be found here, is purely speculation on the future of an emerging industry... trying to get in front of a trend rather than picking names to catch up.
With that being said, today's pick is a combination of all these elements. A name that is undergoing a transition, in a growing industry, but has fallen victim to a higher rate environment and lower consumer spending, stressing their financials.
With these trends expected to reverse in the coming months and years as rates fall, we can expect this name to, ideally, explode...
