In a recent Barron’s interview, an activist value investor and the founder of NYC-based Marathon Partners Equity Management, Mario Cibelli, shared his thoughts on several stocks in his portfolio. Before we summarize the most important insights from this interview, let’s take a look at the investor’s background.
The beginnings of his professional career in investing are linked to famous Mario Gabelli’s GAMCO Investors where he got a job right after college. He graduated with a Bachelor’s degree in Business Management from Binghampton University. Before launching his own investment management firm Marathon Partners Equity Management (previously known as Cibelli Capital Management) in 2001, he also worked at Prudential Securities, and Robotti & Co. As it turns out, the biggest influence on his investment philosophy made billionaire Mario Gabelli as his Marathon Partners also takes a similar approach to value investing.
The fund usually runs a concentrated portfolio, giving advantage to stocks belonging to consumer goods and services sectors. Mario Cibelli named it Marathon Partners wanting to emphasize the importance of the long-term orientation the fund has. Aside from the long term investment horizon, the fund is known for its activist value approach and intensive research. Its success worth mentioning was an early investment in Netflix, Inc. (NASDAQ:NFLX), when the stock’s potential was unrecognized by the market, and was trading at around $10.
Since its inception Marathon Partners generated an annualized return of 13.6%, beating the S&P 500, which delivered 8% in the same period. In the last couple of years, its return figures fluctuated, as the fund delivered an impressive 37.65% in 2013, and lost 0.58% in the following year. In 2015 it brought back 5.86%, in 2016 7.46%, and in 2017 13.75%. Last year through October it generated a return of 1.01%. At the beginning of January, the fund held around $274.79 million in regulatory assets under management on a discretionary basis.
The seventh largest position in the fund’s portfolio at the end of March was in Grubhub Inc. (NYSE:GRUB), with the fund holding 160,000 company’s shares, which were valued $11.12 million. This position comprised 4.91% of its equity portfolio. The stock was interesting to comment as its price decreased to around $70 from $146.11 it had in on September 10th, 2018. Hence, in the above-mentioned interview, Mario Cibelli said this big price drop happened due to the strong competition. Nevertheless, the activist investor still thinks there’s a big potential hidden in the stock, which is just unrecognized by the market. He said that food delivery through online ordering is becoming more popular every day, and that will eventually completely substitute phone ordering, which is one of the things that make this business attractive. What makes it more appealing than its competitors are good economic qualities of its delivery services, with Grubhub focusing on independent restaurants instead of big restaurant franchises like McDonald’s, for example, because one order from an independent restaurant could possibly generate the same profits like nine orders from McDonald’s. He also emphasized that Grubhub’s business model, which mirrors a restaurant owner’s perspective is what makes it special.
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Mario Cibelli also discussed his biggest Q1 2019 position, which was in e.l.f. Beauty, Inc. (NYSE:ELF) with his fund holding 4.43 million shares, worth $46.91 million. Here is where Mario Cibelli showed some of his activist skills. For instance, in January, he sent an open letter to e.l.f. Beauty’s board of directors stating he was Disappointed With The Management. More recently, in the interview, he talked about the company’s discouraging revenues in 2018, which didn’t reach expectations, resulting in a price drop to around $13 from $20 it had 18 months ago. Fortunately, Mario Cibelli thinks that a downhill road has come to an end for e.l.f. Beauty, as it has started growing again, and at a much faster rate than the overall cosmetics market. The company’s trademark is “absurdly low price” of its products that are reaching consumers through social media advertising and selling in places like Target, Ulta Beauty, and Walmart. He further explained that e.l.f. Beauty offers a $3 lipstick similar to one Kyle Jenner sells for more than five times that price. Mario Cibelli sees this stock as misunderstood by the market and its shares undervalued, and thinks there’s a potential for the company to get acquired by some big names in the industry, such as L’Oréal, Revlon, and Estée Lauder, for example.
Let’s take a look at Marathon Partners’ top five holdings at the end of Q1 2019.
As written above, its most valuable position at the end of March was in e.l.f. Beauty. The second biggest position comprising 13.31% of Marathon Partners’ 13F portfolio was in US Foods Holding Corp. (NYSE:USFD) and it counted 862,500 shares with a value of $30.11 million. Its third largest stake, worth $27.96 million on the basis of 645,000 shares was in HD Supply Holdings, Inc. (NASDAQ:HDS). The fund also reported big positions in PayPal Holdings, Inc. (NASDAQ:PYPL) and Facebook, Inc. (NASDAQ:FB), counting 227,500 shares with a value of $23.62 million and 112,500 shares worth $18.75 million, respectively.
This article is originally published at Insider Monkey.