Investment Pitches

Pitch Summary:
Chevron (CVX) – CVX underperformed during 4Q as oil prices fell, 3Q results missed expectations, and CVX negatively adjusted 2024-2025 cash flow guidance for its key asset in Kazakhstan. It is also notable that CVX announced a deal to acquire Hess Corp in a stock-for-stock transaction. While we generally do not maintain a high degree of exposure to pure commodity businesses, we continue to view CVX favorably for its conservative balance sheet, focus on returns, and commitment to the dividend.

BSD Analysis:
The London Company maintains a favorable view of Chevron despite acknowledging the company's commodity exposure and recent operational challenges. The manager recognizes several near-term headwinds including falling oil prices, disappointing third quarter results, and reduced cash flow guidance for Kazakhstan operations. The Hess Corporation acquisition announcement adds strategic complexity to the investment thesis. However, the firm emphasizes three key fundamental strengths that support their continued positive stance. CVX's conservative balance sheet provides financial stability and flexibility during commodity price volatility, distinguishing it from more leveraged energy peers. The company's disciplined focus on returns demonstrates capital allocation discipline, prioritizing shareholder value over growth at any cost. Chevron's strong commitment to dividend payments offers income stability and reflects management confidence in cash flow generation. While The London Company typically avoids pure commodity plays, they view CVX as an exception due to these quality characteristics. This represents a defensive approach to energy exposure, emphasizing balance sheet strength and shareholder returns over commodity price speculation.

Pitch Summary:
Air Products & Chemicals (APD) – APD came under pressure in 4Q due to weakening industrial production in the Asia/Pacific region as well as fears of inflation affecting the cost of megaprojects. At this point, the majority of APD's project pipeline has been de-risked with updated project costs and these investments are all expected to achieve return thresholds >10%. CEO Seifi Ghasemi purchased >$5M worth of stock in November on a pullback in the stock price.

BSD Analysis:
Despite fourth quarter pressure, The London Company maintains confidence in Air Products & Chemicals based on strong project fundamentals and insider conviction. The manager acknowledges near-term headwinds from weakening Asia/Pacific industrial production and inflation concerns affecting megaproject costs. However, they emphasize that APD's project pipeline has been substantially de-risked through updated cost estimates, reducing execution uncertainty. All major investments are expected to achieve return thresholds above 10%, indicating attractive risk-adjusted returns despite higher costs. The significant insider buying by CEO Seifi Ghasemi, purchasing over $5 million in stock during the November pullback, demonstrates strong management confidence in the company's prospects. This insider activity often signals that leadership believes the market has overreacted to temporary challenges. APD's position in industrial gases provides exposure to long-term secular growth trends in energy transition and industrial development. The combination of de-risked projects, attractive return thresholds, and strong insider conviction suggests current weakness represents a buying opportunity in a quality industrial franchise.

Pitch Summary:
Norfolk Southern (NSC) – NSC rebounded in 4Q after hitting a three-year low in late October. NSC reported a strong earnings report, provided more visibility into the Ohio derailment and suggested pricing power remains solid, and will be evident going forward to offset inflationary pressures.

BSD Analysis:
The London Company views Norfolk Southern's fourth quarter rebound as validation of the company's fundamental strength following temporary setbacks. The manager highlights several positive developments supporting their bullish stance. NSC delivered a strong earnings report, demonstrating operational resilience despite earlier challenges. Management provided greater visibility into the Ohio derailment situation, reducing uncertainty that had weighed on the stock. The company's solid pricing power represents a key competitive advantage, enabling NSC to offset inflationary cost pressures through rate increases. This pricing discipline is crucial in the capital-intensive railroad industry where cost inflation can significantly impact margins. The stock's recovery from three-year lows in late October suggests the market recognized the temporary nature of earlier concerns. The combination of strong operational execution, pricing power, and resolution of derailment uncertainties positions NSC for continued performance. This represents a quality industrial play with defensive characteristics and inflation protection through pricing power.

Pitch Summary:
Charles Schwab (SCHW) – SCHW posted growth in net assets, with some of the headwinds around the TD integration clearing. We believe SCHW is well positioned to show a sharp rebound in 2024 and 2025 earnings as near-term issues resolve naturally. We continue to like SCHW's strong competitive position, growth outlook, high incremental margins, and excellent management team.

BSD Analysis:
The London Company expresses strong bullish conviction on Charles Schwab, anticipating a sharp earnings rebound in 2024-2025 as integration headwinds from the TD Ameritrade acquisition resolve. The manager highlights several fundamental strengths supporting their thesis. SCHW's strong competitive position in the brokerage industry provides sustainable advantages and market share protection. The company's growth outlook remains attractive as the integration challenges are temporary rather than structural. High incremental margins indicate strong operational leverage, meaning revenue growth should translate efficiently to earnings growth. The excellent management team provides confidence in execution during the transition period. Recent growth in net assets demonstrates the business is performing well operationally despite integration complexities. The manager views current challenges as temporary headwinds that will naturally resolve, positioning the company for significant earnings recovery. This represents a turnaround opportunity within a fundamentally strong franchise.

Pitch Summary:
BlackRock (BLK) – BLK rallied in 4Q after underperforming earlier in the year. BLK performance from quarter to quarter is often a function of market performance, which drives the company's assets under management. Our conviction in BLK remains high based on the company's durable competitive position, under-levered balance sheet, persistently strong profitability, and capital return.

BSD Analysis:
The London Company maintains high conviction in BlackRock based on several fundamental strengths. The manager emphasizes BLK's durable competitive position in asset management, which provides sustainable competitive advantages. The company's under-levered balance sheet offers financial flexibility and reduced risk during market volatility. BlackRock demonstrates persistently strong profitability, indicating effective operational execution and pricing power. The firm's commitment to capital return through dividends and share repurchases enhances shareholder value. The manager acknowledges that BLK's performance is closely tied to market performance due to its asset-based fee structure, but views this as acceptable given the company's market-leading position. The quarterly rally following earlier underperformance suggests the market recognized the company's fundamental value. This represents a quality-focused investment aligned with The London Company's emphasis on balance sheet strength and consistent cash flow generation.

Pitch Summary:
FedEx (FDX) – After a very positive start to the year, FDX lagged during 4Q after a weak earnings report and lowered guidance. Fundamentals improved throughout the year as FDX enacted major cost cuts, but a decline in volumes in the quarter was too much for the new cost structure to overcome. Longer term, FDX has the potential to be a strong player in the transportation industry, but it will have to continue adjusting its fleet and network to an evolving marketplace.

BSD Analysis:
The London Company views FedEx as a long-term transportation industry winner despite near-term execution challenges and volume pressures. The manager acknowledges that while significant cost-cutting efforts improved fundamentals throughout the year, declining volumes in Q4 overwhelmed the benefits of the new cost structure. The investment thesis centers on FedEx's potential to emerge as a stronger competitor through ongoing operational restructuring and network optimization. The company's ability to adapt its fleet and network to changing market dynamics will be critical for future success. Despite current headwinds, the firm believes FedEx's scale, brand recognition, and operational capabilities position it well in the evolving logistics landscape, though continued operational adjustments remain necessary to fully capitalize on market opportunities.

Pitch Summary:
Chevron (CVX) – CVX underperformed during 4Q as oil prices fell, 3Q results missed expectations, and CVX negatively adjusted 2024-2025 cash flow guidance for its key asset in Kazakhstan. It is also notable that CVX announced a deal to acquire Hess Corp in a stock-for-stock transaction. While we generally do not maintain a high degree of exposure to pure commodity businesses, we continue to view CVX favorably for its conservative balance sheet, focus on returns, and commitment to the dividend.

BSD Analysis:
The London Company maintains a favorable view of Chevron despite recent operational challenges and commodity price headwinds affecting near-term performance. The manager acknowledges the firm's general reluctance to hold pure commodity plays but makes an exception for CVX based on its superior capital allocation discipline and financial strength. The investment thesis emphasizes Chevron's conservative balance sheet management, disciplined approach to returns, and reliable dividend policy that differentiates it from peers. The Hess acquisition demonstrates management's strategic focus on high-quality assets while maintaining financial discipline. Despite Kazakhstan asset challenges and volatile oil prices, Chevron's commitment to shareholder returns and conservative financial management provides downside protection and positions the company well through commodity cycles.

Pitch Summary:
Albemarle (ALB) – ALB underperformed as weak lithium prices drove downward revisions to earnings expectations, and sentiment became more negative regarding demand for electric vehicles. Commodity prices are inherently uncertain, but we continue to view ALB as a winner in this growing industry and favorably positioned on the cost curve. Our long-term view of ALB is not affected by short-term supply-demand dynamics for the commodity.

BSD Analysis:
Despite near-term headwinds from weak lithium prices and negative EV sentiment, The London Company maintains conviction in Albemarle's long-term positioning in the lithium market. The manager acknowledges commodity price volatility but emphasizes ALB's favorable cost curve position and leadership in the growing lithium industry. The investment thesis focuses on structural demand growth for lithium driven by electric vehicle adoption and energy storage applications, despite short-term supply-demand imbalances. Albemarle's integrated operations and low-cost production capabilities should provide competitive advantages as the market matures. The firm views current weakness as cyclical rather than structural, maintaining confidence in ALB's ability to capitalize on long-term electrification trends regardless of near-term commodity price fluctuations.

Pitch Summary:
Martin Marietta (MLM) – MLM outperformed in 4Q as it continued to exhibit strong pricing power despite lower aggregate volumes. Management noted their expectations for strong revenue growth next year supported by higher prices and accelerating infrastructure spend. MLM's leadership position within aggregates and exposure to key markets gives us confidence that it will benefit from growth in construction and infrastructure spending for years to come.

BSD Analysis:
The London Company highlights Martin Marietta's exceptional pricing power in aggregates, demonstrating the company's ability to offset volume weakness through price increases. Management's guidance for strong revenue growth driven by both pricing and accelerating infrastructure spending supports the bullish thesis. The investment case centers on MLM's market leadership position in aggregates and strategic exposure to high-growth construction markets. With significant infrastructure spending expected from government programs, Martin Marietta appears well-positioned to benefit from multi-year construction and infrastructure investment cycles. The company's pricing discipline and market positioning provide confidence in sustained profitability growth despite cyclical volume fluctuations in the near term.

Pitch Summary:
Charles Schwab (SCHW) – SCHW posted growth in net assets, with some of the headwinds around the TD integration clearing. We believe SCHW is well positioned to show a sharp rebound in 2024 and 2025 earnings as near-term issues resolve naturally. We continue to like SCHW's strong competitive position, growth outlook, high incremental margins, and excellent management team.

BSD Analysis:
The London Company views Charles Schwab as positioned for significant earnings recovery as TD Ameritrade integration challenges subside and net asset growth accelerates. The manager expects a sharp earnings rebound in 2024-2025 as operational headwinds from the massive acquisition naturally resolve. The investment thesis emphasizes Schwab's dominant competitive position in discount brokerage and wealth management, supported by high incremental margins that should drive outsized earnings leverage as volumes recover. The firm's scale advantages and excellent management execution provide confidence in the turnaround story. With integration costs behind them and net asset growth resuming, Schwab appears well-positioned to capitalize on its expanded market share and operational efficiency gains.

Pitch Summary:
BlackRock (BLK) – BLK rallied in 4Q after underperforming earlier in the year. BLK performance from quarter to quarter is often a function of market performance, which drives the company's assets under management. Our conviction in BLK remains high, based on the company's durable competitive position, under-levered balance sheet, persistently strong profitability, and capital return.

BSD Analysis:
The London Company maintains high conviction in BlackRock despite quarterly volatility tied to market performance and AUM fluctuations. The manager emphasizes BLK's structural advantages including its dominant market position as the world's largest asset manager and conservative financial profile with low leverage. The investment thesis centers on the company's ability to generate consistent profitability through market cycles while returning capital to shareholders. BlackRock's scale and technology platform create durable competitive moats in the asset management industry. The manager views quarterly performance variations as noise rather than fundamental concerns, focusing instead on the company's long-term earnings power and market leadership position.

Pitch Summary:
Initiated: Endava (DAVA) – DAVA is one of the largest next-generation IT servicers in the world, specializing primarily in custom application development. DAVA benefits directly from the trend towards increasing sophistication of enterprise IT environments (more variety, faster, more convenience, etc.). With a workforce exceeding 10,000 and a culture that fosters agile technology solutions, DAVA has an edge over less nimble competitors while also having a deep bench of skilled developers. We believe that the shortage of quality technical talent will persist for the near future, which supports a very favorable pricing and margin environment for DAVA. DAVA also has a strong balance sheet, minimal capital expenditures, and trades at an attractive discount to our conservative estimate of intrinsic value.

BSD Analysis:
The London Company initiated a position in Endava, viewing it as a premier next-generation IT services provider with significant competitive advantages. The company's specialization in custom application development positions it well to benefit from enterprises' increasing IT sophistication demands. With over 10,000 employees and an agile culture, DAVA maintains scale advantages while preserving nimbleness versus larger, less flexible competitors. The persistent shortage of quality technical talent creates a favorable supply-demand dynamic that supports pricing power and margin expansion. The company's strong balance sheet and minimal capital requirements generate attractive returns on invested capital and free cash flow conversion. The manager's assessment that DAVA trades at a discount to conservative intrinsic value estimates suggests meaningful upside potential. The combination of secular growth tailwinds, competitive positioning, and attractive valuation creates a compelling investment opportunity in the IT services sector.

Pitch Summary:
Cable One (CABO) – The market environment remains challenging for CABO with lower move activity and greater competition from fixed wireless offerings. Despite muted subscriber trends, the company continues to generate profitable growth for its broadband service. Management appears disciplined in striking an appropriate balance between pricing and incremental penetration while prioritizing free cash flow generation. CABO is well positioned as an advantaged provider of high-speed internet in rural markets. We believe its relatively low penetration, superior service, and M&A prowess are supportive of long-term earnings growth.

BSD Analysis:
The London Company acknowledges the challenging operating environment for Cable One, including reduced customer mobility and intensifying fixed wireless competition. Despite these headwinds, the manager highlights the company's ability to maintain profitable broadband growth through disciplined pricing strategies. Management's focus on balancing pricing with penetration while prioritizing free cash flow generation demonstrates operational sophistication. CABO's competitive advantages in rural markets, where it faces less competition and provides superior service quality, create defensive moats. The relatively low penetration rates in these markets provide runway for organic growth over time. The company's M&A capabilities offer additional avenues for expansion and market consolidation. While near-term subscriber trends remain muted, the combination of rural market positioning, superior service quality, and acquisition expertise supports the long-term earnings growth thesis.

Pitch Summary:
Hasbro (HAS) – Shares of HAS underperformed in Q4 due to concerns of another weak holiday season. Hasbro has been taking costs out of the business by eliminating roughly one-third of its headcount this year. However, results for the 3Q were disappointing with revenues continuing to decline in Consumer and Entertainment, causing none of the cost-saving efforts to flow through to the bottom line. Management lowered guidance based on the results. The company completed the sale of eOne in December 2023 and will use the proceeds to de-lever the balance sheet, which should help protect the dividend. We believe reduced corporate complexity and improving fundamentals are both near-term catalysts for the stock.

BSD Analysis:
The London Company acknowledges Hasbro's near-term challenges while maintaining a constructive long-term view based on structural improvements. The significant cost reduction through eliminating one-third of headcount demonstrates management's commitment to rightsizing the business, though benefits have yet to materialize due to revenue declines. The sale of eOne represents a strategic simplification that reduces corporate complexity and provides proceeds for debt reduction. Deleveraging the balance sheet should help protect the dividend, which is important for income-focused investors. The manager views both reduced complexity and improving fundamentals as near-term catalysts that could drive stock performance. While Q3 results were disappointing with continued revenue declines in key segments, the structural changes position Hasbro for better operational leverage when demand recovers. The combination of cost actions and balance sheet improvement creates a foundation for earnings recovery.

Pitch Summary:
White Mountains (WTM) – We believe the relative underperformance of WTM in 4Q reflected dovish comments from the Fed and a rotation into more aggressive stocks. During the quarter, WTM launched a private investment fund led by John Daly, who founded Alleghany Capital (since Berkshire Hathaway acquired Alleghany and no longer needed a separate Alleghany Capital). We have confidence in management's ability to increase book value per share over time, through both conservative underwriting and portfolio changes.

BSD Analysis:
The London Company attributes White Mountains' Q4 underperformance to market rotation away from conservative investments following dovish Fed commentary. The manager views this as a temporary headwind rather than a fundamental issue with the investment thesis. The launch of a private investment fund led by John Daly, formerly of Alleghany Capital, represents a significant strategic development that could enhance returns. Daly's track record at Alleghany Capital before Berkshire Hathaway's acquisition provides credibility to this new initiative. The manager maintains confidence in management's dual approach of conservative underwriting combined with strategic portfolio changes to drive book value growth. This combination of insurance expertise and capital allocation skills positions WTM well for long-term value creation. The temporary underperformance may present an attractive entry point for patient investors focused on book value compounding.

Pitch Summary:
Trex (TREX) – TREX continued its rally through the Q4 on optimism for future rate cuts as a potential help to demand for composite decking and all things construction. The company performed very well in 2023 primarily due to an improving macro outlook. TREX entered the decking slowdown from a position of strength, and we have been pleased but not surprised by the company's execution. We continue to have a high degree of confidence in the competitive positioning of TREX as market leader in an oligopoly, and the ability of management to execute well operationally, allocate capital rationally, and maintain a strong balance sheet.

BSD Analysis:
The London Company maintains strong conviction in Trex's market leadership position within the composite decking oligopoly. The manager highlights the company's resilient execution during the construction slowdown, demonstrating operational excellence when industry conditions were challenging. Management's track record of rational capital allocation and maintaining balance sheet strength provides confidence in their stewardship. The anticipated benefit from potential rate cuts positions TREX well for a construction recovery, as lower rates should stimulate housing activity and home improvement spending. The oligopolistic market structure provides pricing power and competitive moats that protect margins. The manager's satisfaction with execution during difficult periods suggests confidence in management's ability to capitalize when conditions improve. TREX's market leadership combined with structural industry dynamics creates a compelling long-term investment thesis.

Pitch Summary:
Deckers (DECK) – DECK thoughtfully manages top brands in the footwear industry, which has allowed them to outperform other retailers in the current environment. UGG and HOKA are benefitting from brand heat, and management stays focused on acquiring and retaining customers. The company continues to diversify revenue through the growth of HOKA (non-seasonal), and the expansion of UGG into new categories. The cash balance sheet with no debt provides an additional element of downside protection.

BSD Analysis:
The London Company praises Deckers' brand management capabilities, particularly highlighting the strength of its UGG and HOKA franchises. The manager emphasizes the company's ability to outperform retail peers through effective brand stewardship and customer acquisition strategies. HOKA's growth is particularly valuable as it provides non-seasonal revenue diversification, reducing dependence on UGG's winter-focused sales patterns. The expansion of UGG into new product categories demonstrates management's ability to leverage brand equity for growth. The company's debt-free balance sheet with cash provides significant financial flexibility and downside protection in uncertain economic conditions. This conservative capital structure is especially valuable in the current retail environment where many competitors face leverage constraints. The manager's confidence in DECK reflects both the quality of its brand portfolio and prudent financial management.

Pitch Summary:
MBIA (MBI) – Shares of MBI rose significantly in Q4 after the company announced a special dividend of $8 per share. The stock was trading in the $13 range at the time. MBI is no longer writing municipal bond insurance and is slowly winding down operations.

BSD Analysis:
The London Company highlights MBIA as a top contributor to relative performance in Q4 2023, driven by a substantial special dividend announcement. The $8 per share special dividend represented a significant return to shareholders, particularly given the stock was trading around $13 at the time of announcement. The manager notes that MBIA has exited the municipal bond insurance business and is in a wind-down phase, suggesting this is a liquidation play rather than an ongoing business investment. This positioning indicates the company is returning capital to shareholders as it monetizes remaining assets. The substantial dividend yield relative to the stock price demonstrates management's commitment to shareholder returns during the liquidation process. The strong Q4 performance validates the manager's thesis on this special situation investment. This appears to be a value realization play as the company distributes proceeds from its wind-down operations.

Pitch Summary:
SHAK - Shake Shack, Inc. is a company in which we have repurchased some shares as valuations in the restaurant space contracted this summer. As a business, the company has a number of things going for it, including a very strong brand with ample white space for store expansion. Additionally, the company has recently made significant strides in improving its store-level operating margins (SLOP). For the first time since before the pandemic, the company regained the 20% margin level after instituting several cost optimization measures. The improvement seems noteworthy as the company has managed to do so despite traffic remaining down nearly 40% at about half of its store locations (those with primarily urban footprints). Moreover, further gains look achievable, particularly after developing a better appreciation for the impact a roll-out in kiosks across the store base could affect. As another fast casual peer, Panera's successful deployment of kiosks provides likely the most informative case study. In their case, as an early adopter when customers were still developing familiarity and acceptance around using the new technology, the company saw a sustained lift in average order sizes as customers ordered more items. Additionally, after a certain level of volumes began going through the new automated ordering platforms, the company was able to re-allocate certain employees and labor-hours to other uses. On net, the company saw a sustained mid-single digit or better boost to store volumes, lower costs and better operating leverage that drove a couple-hundred-basis-points improvement in restaurant level operating margins. Shake Shack looks capable of achieving something similar. Such an improvement in profitability could have a material impact on total store economics and accelerate cash flow and revenue growth. For a concept that has ample white space that appears to be just hitting its stride, a boost to store level profitability could drive a meaningful improvement in earnings power.

BSD Analysis:
The manager presents a compelling turnaround thesis for Shake Shack centered on operational improvements and technology deployment. The fund repurchased shares during summer valuation contractions, viewing the restaurant as undervalued. Key investment drivers include strong brand recognition with significant expansion opportunities and meaningful margin recovery to 20% store-level operating margins despite urban traffic remaining 40% below pre-pandemic levels. The manager sees substantial upside from kiosk rollouts, drawing parallels to Panera's successful implementation which drove mid-single digit volume increases and 200+ basis point margin improvements. With ample white space for growth and improving unit economics, the manager believes Shake Shack is positioned for accelerated cash flow generation and earnings power expansion as operational leverage benefits materialize.

Pitch Summary:
Our investment in Ebix was in two periods. Ebix began as one of the initial positions in the strategy at a price of $14.11. We later exited the investment in June 2015 at $33.21. When we invested, the company was in a whirlwind of gloomy headlines. There were negative reports being released by short-sellers alleging fraudulent accounting and fake sales. Additionally, there were simultaneous investigations of the company by the IRS, DOJ, and SEC. In 2014, I did a channel check with a customer which gave me the opinion that the allegations of fraud were likely an exaggeration. During this period, Ebix took advantage of their low share price to buyback large amounts of stock. The IRS investigation concluded finding only minor underpayment of taxes. The SEC and DOJ investigations seemed in 2015 to be less serious than initially feared and later concluded with no action taken against the company. As a result, the share price quickly rallied and we exited the position once it was fairly valued. Later in 2019, we reentered an investment once the share price had declined back to a level we considered undervalued again. However, new short reports came out targeting some of their operations in India and highlighting potential issues, and these seemed to possibly have more merit than the previous ones. Furthermore, I became concerned about the rising amount of debt held by Ebix and was worried that the pandemic would undermine their travel-related lines of business. We exited our investment in 2021. Our second period of investing in Ebix resulted in a slight loss. On December 17, 2023, Ebix filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Northern District of Texas. An investment in a company that eventually ended up in bankruptcy wound up being one of our most successful. We were definitely very fortunate with the timing of our Ebix investments.

BSD Analysis:
Blue Tower's Ebix investment demonstrates exceptional timing and risk management in a controversial situation. The manager's initial 2014 investment was based on contrarian analysis that short-seller allegations were exaggerated, supported by independent channel checks with customers. The company's aggressive share buybacks during the controversy and eventual vindication through regulatory investigations validated the investment thesis. The first investment period generated a 135% return as investigations concluded with minimal findings and the stock price normalized. The manager's decision to re-enter in 2019 showed disciplined value investing, but new concerns about Indian operations, rising debt levels, and pandemic impact on travel-related businesses led to a prudent exit in 2021. The company's subsequent bankruptcy filing in December 2023 highlights the importance of exit timing and ongoing risk assessment. This case study illustrates how successful contrarian investing requires not just identifying mispriced securities, but also maintaining vigilance about changing fundamentals and knowing when to exit even profitable positions.