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Why Silver Ring Value Partners is Bullish on Berkshire Hathaway and Medifast

Alex Smith
·3 mins read

Silver Ring Value Partners LP is a Boston-based investment management firm that specializes in delivering long-term value by utilizing an intrinsic and robust approach to investing. The company was founded in 2016 by Chief Investment Officer and Managing Partner Gary Mishuris. Recently, Silver Ring Value Partners released its Q1 2020 Investor Letter – a copy of which can be downloaded here. In its Q1 2020 Investor Letter, Silver Ring Value Partners LP reported 15 investments with a 0.0% cash level and a 57% option-adjusted net exposure. At the end of the quarter, the fund reached a 46% price to base case value estimate.

In the said letter, Gary Mishuris highlighted a few stocks and Berkshire Hathaway Inc. (NYSE:BRK-B) is one of them. Berkshire Hathaway is a multinational conglomerate holding company. Here is what Gary Mishuris said:

"I began building a position in Berkshire Hathaway during the quarter. It is part of my “resilient” group of investments that I described earlier in this letter. If there is any company that has the financial staying power to weather a prolonged crisis, Berkshire is it. I made the purchase close to Book Value for a business that is worth substantially more. I made the purchase at ~ 65% of my Base Case value and with ~ 20% downside to my Worst Case."

Silver Ring Value Partners comments on Medifast

In the said letter, Gary Mishuris also highlighted Medifast Inc (NYSE:MED) stock. Medifast is a nutrition and weight loss company based in Maryland. Year-to-date, MED stock lost 38.1% and on April 23rd it had a closing price of $67.36. Its market cap is of $796.4 million, and MED is trading at a price-to-earnings ratio of 10.53x. Here is what Gary Mishuris said:

"This is a company that I had done substantial research on and that was in my inventory of ideas prior to the crisis. The basic business is selling to people who are busy and want lose weight a meal replacement plan combined with support from a “coach” who has recurring conversations with them throughout the process. What makes this not a multi-level marketing (ehem, pyramid) scheme is that the coaches, while they do sell to the clients, do not hold the inventory and just direct the clients to the company site. The key to this plan is the combination of tasty, convenient nutrition that works with the support from the coach. Some percentage of the clients become coaches, and the flywheel continues to work with the company growing the number of coaches and the number of end clients. The company has no net debt, meaningful cash, positive FCF and was trading at 7x my estimate of normalized EPS at the time of purchase. When I bought the stock in the midst of March’s sell-off it was at ~ 50% of my Base Case value estimate. The story is not without risk as there have been some recent execution issues that management is addressing, but the risk/reward ratio is very attractive and the business, which is mostly online, should be resilient to a prolonged shutdown of the economy should one occur."

In Q3 2019, the number of bullish hedge fund positions on MED stock increased by about 16% from the previous quarter (see the chart here).

Disclosure: None. This article is originally published at Insider Monkey.