Investment Pitches

Pitch Summary:
In a similar case of post-COVID market normalization, drug distributor McKesson lowered profit guidance for its medical-surgical business twice during the period, most likely due to continued post-COVID headwinds as primary care sites are consuming less of its equipment, while its prescription technology solution segment is tied to volumes of certain high-value specialty drugs. We still believe McKesson's core pharma distribution business is very healthy, however, and it is ramping up its Optum contract in the second half of the year, while its most recent oncology practices acquisition should be accretive over the long term, enabling McKesson to continue delivering low-double-digit earnings growth without much economic sensitivity.

BSD Analysis:
The manager remains bullish on McKesson despite recent guidance cuts in the medical-surgical segment, attributing weakness to post-COVID normalization rather than structural issues. The core pharmaceutical distribution business is viewed as healthy and resilient. Key growth drivers include the ramping Optum contract in the second half and recent oncology practice acquisitions expected to be accretive long-term. The manager emphasizes McKesson's ability to deliver low-double-digit earnings growth with minimal economic sensitivity, highlighting the defensive characteristics of the pharma distribution model. The temporary headwinds in medical-surgical equipment and specialty drug volumes are seen as cyclical rather than permanent impairments. The investment case rests on the stability and growth potential of the core distribution franchise, supported by strategic contract wins and accretive acquisitions in higher-margin oncology services.

Pitch Summary:
In the information technology (IT) sector, Intel has come under additional pressure due to continued softness in the company's core PC and server markets as well as concerns on the company's longer-term competitive position. While Intel's turnaround is not happening overnight, we are constructive on the outlook into 2025: the company's product positioning should be much improved and it should be positioned to gain market share in a cyclical upswing in which it has strong earnings power. A somewhat adverse spending environment due to AI myopia has weighed on shares, but we still think the market is undershipping PCs and general servers following a COVID normalization period that saw demand get pulled ahead and then languish as companies froze IT budgets. The installed base is now getting older, and we expect a strong refresh cycle into next year. The delay is actually beneficial to Intel, whose product positioning will be all the more improved. While our investment case is not predicated on an M&A transaction, and we believe one is unlikely, the expression of interest in the company speaks to the value of the assets, which we think still trade at a meaningful discount to fair value.

BSD Analysis:
The manager maintains a constructive view on Intel despite near-term headwinds in PC and server markets. The investment thesis centers on an anticipated cyclical recovery in 2025 driven by an aging installed base requiring refresh cycles. The manager believes Intel's product positioning will significantly improve by next year, positioning the company to gain market share during the expected upturn. Current weakness is attributed to post-COVID demand normalization and AI-related spending shifts rather than fundamental deterioration. The manager views the stock as trading at a meaningful discount to fair value, with the delay in recovery actually benefiting Intel's competitive positioning. While not banking on M&A activity, recent acquisition interest validates the underlying asset value. The pitch reflects confidence in Intel's earnings power during cyclical upswings despite acknowledging the turnaround timeline extends beyond immediate quarters.

Pitch Summary:
Woodward is a mission-critical supplier of components and systems used in the aerospace and industrial sectors. We believe aerospace is one of the most attractive segments of the global economy. The company has a unique growth story within this industry. Design wins have allowed it to triple the dollar value of the components it manufactures for the new generation of narrowbody aircraft—predominantly the Airbus A320neo and the Boeing 737 Max. Narrowbody aircraft are the backbone of commercial aviation, flying most domestic routes as well as shorter international ones. Because it takes decades for the global fleet to turn over, the economic impact of these wins on aftermarket revenue has scarcely begun. These share gains should allow Woodward to outgrow competitors during the next decade and post EPS growth in the mid-to-high-teens. In addition, its earnings mix should improve over time as it becomes more concentrated in the aerospace aftermarket. This may cause investors to give it a premium valuation. Despite this outlook, Woodward trades at a discount to peers at a low 20s multiple of 2025 free cash flow. We estimate that 70% of Woodward's profit next year will come from aerospace and 30% from industrial. Within aerospace, 57% of segment profit comes from commercial aftermarket, 13% from new commercial aircraft, and 30% from defense. Aerospace is an attractive end market. The demand side exhibits growth well above that of the overall economy. From 1970-2020, global passenger traffic grew at a 6% CAGR. This increase was driven by a rising global middle class, the continued buildout of global airport infrastructure, and the expansion of low-cost airlines. Despite this growth, nearly 80% of the world's population has never flown on an airplane. The supply side exhibits strong moats supported by technical differentiation, regulation, and 20-year platform cycles. Components must be certified by the FAA, and leasing companies also have strict mandates. These forces lead to strong pricing power. Woodward supplies critical engine components to both CFM, a joint venture between GE and Safran, and Pratt & Whitney. These products include fuel pumps, fuel metering units, actuators, air valves, fuel nozzles, and thrust reverser actuation systems. In essence, Woodward's components support the nervous system of an airplane, translating pilot inputs into precise mechanical actions and ensuring that all parts work together smoothly. Woodward's products are typically sole-sourced, meaning it is the only company supplying the part once a system is selected for a plane or engine. The company makes modest profits selling the original equipment and higher margins selling replacement parts. Because a given model is sold for two decades, this translates to a more than 40-year aftermarket period over the platform's life, resulting in high predictability and pricing power. Woodward's technical capabilities in engine controls are unmatched. Our diligence indicates that GE tried to insource some of these capabilities but could not match Woodward's technical prowess. Pratt & Whitney uses several Woodward parts even though its sister company, Collins, sells competing ones. Within its industrial segment, Woodward sells into three primary end markets: 1) transportation (marine, natural gas trucks, and off-highway equipment), 2) power generation (natural gas turbines and diesel power systems), and 3) oil & gas. Woodward's tripling of its content share on the new generation of narrowbody aircraft is a unique growth driver versus industry peers. Current financials understate the company's potential earnings power because new generation aftermarket revenue has yet to come in, a dynamic that is about to change. The early A320neo and 737 Max aircraft are just beginning their initial scheduled engine overhauls. Over the next decade, Woodward should durably outgrow its market as older aircraft retire and the fleet transitions to this new generation. Aerospace industry aftermarket revenue should grow high single digits over time, comprised of ~4-5% passenger traffic and 3-4% price. On top of this, Woodward's content gains should contribute another 5%, leading to low double-digit civil aerospace aftermarket growth. This aftermarket revenue growth comes with attractive incremental margins, likely 45% or higher. Compared to aerospace segment margins of ~20% and overall company operating margins of ~15%, this mix shift should lead to significant margin expansion. We expect aerospace segment margins to expand from ~20% to ~28% over the next decade, with overall company margins increasing from ~15% to 23%. There is further margin upside from additional pricing actions, which we believe are a core focus of Woodward's new management team. Over time, we expect aerospace's contribution to Woodward's earnings to increase from 70% to more than 80%, and aftermarket to shift from 57% of aerospace profit to 70%. This increase in aerospace aftermarket exposure should reasonably lead to multiple expansion. The public markets have rewarded commercial aftermarket-focused companies like Transdigm, GE, and Heico with high multiples, which trade at 32x, 32x, and 60x EPS, respectively. Eagle initially invested in Woodward during the early stages of the pandemic. The stock market extrapolated a temporary travel disruption as a permanent situation. Later, the company faced supply-chain disruptions and inflation shocks that pressured its P&L and further pushed out its recovery. These challenges had little impact on our view of its long-term earnings power, enabling Eagle to build our position. Because Woodward is relatively underfollowed, it has occasional stock price dislocations, which can offer good opportunities. For example, the stock declined more than 15% on a soft earnings report in the most recent quarter, and we were able to add more to our investment. With Boeing machinists recently on strike, we would not be surprised to see aftershocks from that disruption. None of this should affect multiyear earnings. Woodward is transitioning from a good business to a great business. It was once a company that, when compared to peers, grew its aerospace business in-line, had more exposure to industrial end markets, had below-average margins, and had correspondingly higher earnings volatility. It deserved to trade at a discount. Looking forward, we expect its aerospace segment to grow at a premium to peers. Industrial end markets will become less relevant, margins will significantly rise, and earnings volatility will decline. It shares commonalities with our investments in Marriott and Hilton as they transitioned from more volatile and capital-intensive businesses to the high-growth, high-margin fee companies they are today. In 2022, Woodward brought on CEO Chip Blankenship, who we believe is an excellent fit. He is well-suited to maximize the company's long-term opportunity, both operationally and financially. He has a successful track record in aerospace and industrial businesses, having spent 24 years at GE and leading its commercial aviation division. Blankenship has meaningfully improved Woodward's operations and commercial execution, particularly around pricing, which had underperformed under prior leadership. He has also driven lean manufacturing practices to reduce unnecessary SKUs and create more consistency in the production process, an emphasis that has yielded strong results. Aerospace segment margins increased by approximately 400 basis points from 2022-2024, and industrial margins increased by more than 800. We expect Blankenship to continue these initiatives, driving further margin upside. He recently told investors, 'We're still in the early innings of this journey. I don't know whether it's inning two or inning three, but we're not at the halfway point, and we're not at the seventh inning stretch by a long shot. We have numerous value streams under transformation.' Over the coming 5-10 years, we believe that Woodward can compound revenue at high single digits with margin expansion, leading to low-teens operating profit growth. The company can use its prodigious free cash flow to repurchase stock, enabling EPS growth in the high teens. Because Woodward trades at a discount to peers and in line with the overall market, valuation risk is limited. The stock's return should roughly track with earnings growth. In the downside case, where the company doesn't execute as well as we expect, strategic buyers may be interested in acquiring it. Just as we are, larger aerospace firms are attracted to Woodward's premium aftermarket growth. Moreover, an acquirer could use its scale to drive higher margins. Investing in Woodward is analogous to owning an expanding set of royalties on global air travel. Cashflow streams with this high level of certainty should rationally be priced at a low discount rate, offering investors a skinnier return for taking less risk. Yet Woodward is priced the opposite.

BSD Analysis:
Eagle Capital presents a compelling bull case for Woodward based on the company's tripling of content share on new-generation narrowbody aircraft (A320neo and 737 Max), positioning it for significant aftermarket revenue growth as these planes enter their maintenance cycles. The fund emphasizes Woodward's sole-source supplier status and technical moats in aerospace engine controls, which provide pricing power and predictable cash flows over 40+ year platform lifecycles. Management expects aerospace segment margins to expand from 20% to 28% over the next decade, driven by higher-margin aftermarket revenue mix and operational improvements under CEO Chip Blankenship. The thesis centers on Woodward's transformation from a cyclical industrial company to a premium aerospace aftermarket business, similar to Eagle's successful investments in Marriott and Hilton. Eagle views the current valuation at low-20s FCF multiple as attractive given the company's growth prospects and margin expansion potential. The fund has been opportunistically adding to the position during temporary market dislocations, viewing short-term disruptions as irrelevant to the long-term earnings power. The investment represents a play on global air travel growth with high cash flow visibility and multiple expansion potential as the business mix shifts toward higher-quality aerospace aftermarket revenues.

Pitch Summary:
EW is a medtech company focused on heart disease. The main segments/products are the Transcatheter Aortic Valve Replacement (TAVR) and the Transcatheter Mitral and Tricuspid Therapies (TMTT). Both are artificial valves to replace malfunctioning ones. The market for TAVR is maturing and EW has a 60/65% market share. Each valve costs around $35k and are the most expensive ones in the market. EW created this market but now they are suffering from competition from Medtronic and Abbot. In Q2 the company revised guidance downwards for this segment (which is 90% of profits) from ~9% to ~6% - ouch. European healthcare systems are more focused on price than the US one, so the lower price point for similar valves is having an impact. I think EW will be a market share loser in Europe and to a lesser extent, in the US. The company blamed the TAVR slowdown on decreased hospital capacity for heart procedures. Which is possible, since I believe the whole TAVR market is growing, but maybe we are just witnessing a normalization of the level of procedures after the Covid backlog. TMTT is another valve for both the tricuspid and the mitral valves (These ones suffer from different issues vs the aortic valve, the main one is when the valves don't close properly, allowing some blood to go back to the auricle). This segment is growing almost triple digits and there are not any other valves in the market. Although not a valve, Abbott has the MitraClip, which consists in "clipping" parts of the valve to facilitate closure. The company has been hit by max pessimism as the multiple has come down to accommodate for HSD growth in TAVR while we wait for TMTT to become a meaningful part of revenues. I think the asymmetry comes from the expansion of the TAVR market led by EW. When new data comes out, we will see if the surgeons start placing these valves for asymptomatic patients that nonetheless have a severe aortic stenosis. Hey, even maybe the management is right and revenues reaccelerate in the US (I doubt Europe can be saved, in more than one sense) at the same time that TMTT becomes are real driver of the share price.

BSD Analysis:
Benedetti presents a contrarian bull case on Edwards Lifesciences despite recent headwinds in the core TAVR business. The manager acknowledges significant challenges including market share losses to Medtronic and Abbott, particularly in price-sensitive European markets, and Q2 guidance cuts from 9% to 6% growth. However, he sees asymmetric upside potential driven by two key catalysts: expansion of the TAVR addressable market through new clinical data supporting treatment of asymptomatic severe aortic stenosis patients, and the rapid triple-digit growth in the TMTT segment where EW maintains monopolistic positioning. The investment thesis hinges on the company's dominant 60-65% TAVR market share and premium $35k valve pricing power, combined with TMTT's potential to become a meaningful revenue driver. Benedetti views current valuation multiples as reflecting maximum pessimism, creating an attractive risk-reward profile. The timing appears opportunistic following the Q2 disappointment that compressed valuations while the underlying structural heart disease market continues expanding.

Pitch Summary:
Blend Labs operates an expanding ecosystem of technology, data, and service providers that power financial service firms' consumer finance and mortgage applications. After recognizing the platform opportunity created by financial institutions spending inordinate amounts of time and money on antiquated, inflexible, and siloed technology stacks that stifled product quality and innovation, key Palantir employees founded Blend Labs to flip financial services technology stacks from vertically to horizontally integrated. After a thirteen-year journey, a collapse in its historical end markets, and a transitioned business model, Blend Labs is near an inflection point in revenues and earnings. We see five main paths to value creation. First, under the cover of fourteen straight quarters of contracting mortgage origination volumes, Blend Labs has transitioned its business model from a point solution covering mortgage applications to a platform company powering infrastructure for the banking industry. Leading this transition is Blend Builder, a development platform with modular components and integrations that enable financial institutions to create and deploy white label product offerings without having to manage back-end processes. In giving financial institutions a rich application ecosystem that frees them from design, engineering, implementation, and maintenance, Blend removes customers' internal product based silos and creates a standardized system of record that aids transparency, lowers operating costs, increases customer acquisition and conversion, and minimizes risk across their businesses. As more financial services firms use the platform, more consumers use the platform, and more service providers join the platform to serve those customers. This self-fulfilling flywheel then feeds greater scale and diversity of the customer base, accruing benefits to Blend Labs on the cost side as transaction volumes support cost advantages in technology and data services, and on the product side as greater scale supports greater product complexity and deeper industry expertise. Blend Lab's partner ecosystem and expanding horizontal integration across the financial services industry have occurred under the cover of a heavily depressed mortgage market, and we believe the benefits of the transitioned business model will be significant upon market normalization. Second, after cutting over $100 million in annualized costs, Blend Labs is free cash flow positive at trough mortgage and refinance volumes and as a platform with minimal variable costs, Blend Labs has meaningful operating leverage in a market recovery. Blend Labs has doubled its revenue mix (to 60%) in usage-based agreements where revenue growth is aligned with customer success (funded loans, new account opening, API calls, etc). This 60% revenue mix in usage based agreements coincides with a near doubling in mortgage origination market share (to 20.2% in 2024), which, when considering that Blend's customer base consists predominantly of scale players who have been investing through the downturn, represents a meaningful opportunity for market share gains in a recovery and requisite high incremental margins on pass through earnings from growing penetration of usage based agreements. Third, Blend Labs' revenue mix is shifting to less cyclical end markets that merit a higher market multiple. Today, a majority of Blend Labs' revenue mix is attributable to cyclical mortgage revenue. With the release of the Blend Builder development platform, pass through platform fees tied to consumer banking products become an outsized driver of revenue growth. The repeatable nature of constantly changing consumer banking demand profiles represent a far larger addressable market than the one or two mortgages a person gets in their lifetime. As the revenue mix shifts from mortgage to consumer banking applications, a more resilient revenue profile stands to be revalued. Fourth, Blend Labs has a significant opportunity to use its scale and captive customer demand advantages to increase average revenue per customer at high incremental margins. Today, Blend Labs charges bank customers success-based fees of roughly 7% of the value created per approved loan. The size of the market opportunity has dictated the pricing strategy with the intent of expanding product penetration across the industry before flexing any pricing power. Moving to value-based pricing would multiply revenues and earnings from core mortgage products alone. When one factors in product attachment from the growing list of products available today, there is meaningful upside as Blend Builder monetizes its platform as a development tool for customers. The historical fact pattern of Salesforce's go-to-market strategy provides an illustrative example of how this white space is developing for Blend Labs. When Salesforce went from selling to business line leaders to selling to IT departments, the business transitioned from a series of point solutions to a platform business. Blend Labs go to market strategy began with selling point solutions to business line leaders in the mortgage space, but IT departments began to realize that they could work with Blend and slim out their tech stacks as they consolidated with one vendor that can support many business lines. As usage proliferates across business lines, Blend Lab's average revenue per user has a long runway to grow both from increasing product attachment rates, and, eventually, pricing power. Fifth, we see meaningful optionality inherent in Blend Builder as a development platform with vast white space to drive horizontal integration beyond the domestic financial services industry. When Blend started rebuilding its platform four years ago, a goal was to enable scalable international growth on the rails of its domestic platform. With an initial focus on Europe and Canada, Blend has a long runway to use its playbook of proving out use cases on the largest, most demanding customers and then working across the industry to gain market share. In addition to geographic expansion, Blend has a long runway for expansion in the unautomated, undigitized financial services market for the thirty-three million small and medium sized businesses in the US. We see additional upside as Blend Labs follows Apple's App Store playbook and opens the Blend Builder platform to Independent Software Vendors to add further depth to the application ecosystem. In Blend Labs, we see an emerging platform that is horizontally integrating financial services technology stacks, and with free cash flow profitability at trough volumes and meaningful operating leverage, we see multiple long runways of earnings growth.

BSD Analysis:
The manager presents a compelling bull case for Blend Labs, viewing it as a transformative fintech platform at an inflection point. The thesis centers on Blend's successful transition from a mortgage point solution to a comprehensive banking infrastructure platform through Blend Builder, which enables financial institutions to deploy white-label products without managing back-end processes. The manager highlights five key value drivers: platform network effects creating a self-reinforcing flywheel, significant operating leverage with free cash flow positivity at trough volumes and 60% usage-based revenue mix, diversification into less cyclical consumer banking markets, substantial pricing power opportunity with current 7% success fees having room for value-based pricing expansion, and international expansion optionality. With market share doubling to 20.2% during a depressed mortgage cycle and over $100 million in cost cuts already implemented, the manager sees multiple long runways for earnings growth as the mortgage market normalizes and the platform scales across financial services.

Pitch Summary:
Sonova is a Swiss hearing aid manufacturer. Hearing aid companies generally have de-rated on increasing generic competition and the growing distribution strength of warehouse stores such as Costco. Sonova had a strong relationship and 50% share at Costco historically, but it was dropped in 2022. One of the key reasons investors are excited about Sonova is their re-entry at Costco. We are less enthusiastic about it, expecting their "me too" product to perhaps get 20% market share over time against several other strong competitors. We expect earnings to disappoint and the 80% premium valuation versus peers to shrink.

BSD Analysis:
The manager presents a contrarian bear case on Sonova, challenging the market's optimism about the Costco re-entry opportunity. The broader hearing aid industry faces structural headwinds from generic competition and warehouse store distribution power, creating a challenging operating environment. Sonova's historical 50% Costco share and subsequent loss in 2022 demonstrates the retailer's negotiating power and willingness to switch suppliers. The manager's skepticism about regaining meaningful market share (only 20% versus historical 50%) suggests limited upside from the Costco re-entry. With multiple strong competitors now established at Costco, Sonova faces an uphill battle to differentiate its offering. The 80% valuation premium to peers appears unjustified given these competitive challenges, creating an attractive short opportunity as reality disappoints expectations.

Pitch Summary:
Plug is a U.S.-based hydrogen company that has struggled to build a viable business. While the company aims to offer a fully integrated hydrogen solution for customers keen on transitioning to a hydrogen economy, it has struggled to make a profit, burning through $200 to $400 million per QUARTER for several years. Plug has become a habitual capital-raising machine that has massively diluted shareholders. The company's financial success hinges on the eventual emergence of a hydrogen economy – an outcome we remain skeptical about given the current economic, technical, and political challenges. We believe Plug will continue to struggle, burning cash and putting pressure on its share price.

BSD Analysis:
The manager presents a fundamental bear case on Plug Power based on persistent cash burn and questionable business model viability. The company's quarterly cash burn of $200-400 million demonstrates an inability to achieve profitability despite years of operation and investment. Continuous capital raising and shareholder dilution indicate a broken business model that destroys value rather than creates it. The manager's skepticism about the hydrogen economy's emergence addresses the core investment thesis, suggesting the entire market opportunity may be overstated. Economic, technical, and political challenges facing hydrogen adoption create multiple headwinds for the company's success. This appears to be a classic 'cash burn' short where the company faces existential funding challenges without a clear path to profitability.

Pitch Summary:
This short position is part of a broader theme we have identified in the Chinese automotive industry. Although Guangzhou produces a significant number of self-branded vehicles, the company's historical profits have been driven almost entirely by joint ventures with Toyota and Honda in China. The crushing competitive environment (led by BYD's dramatic ascent) has wiped out these foreign JV profits, with the dynamic playing out across the industry. Sales are collapsing, and the company recently reported two consecutive quarterly losses for the first time in a decade. With no clear path to recovery, we see no end in continued disappointing financial results.

BSD Analysis:
The manager presents a compelling bear case on GAC Group as part of a broader Chinese automotive industry collapse thesis. The company's historical dependence on Toyota and Honda joint ventures for profitability has become a liability as BYD's electric vehicle dominance destroys traditional automotive economics. The competitive intensity has eliminated foreign JV profits industry-wide, suggesting this is a structural rather than cyclical challenge. Two consecutive quarterly losses mark a significant deterioration for a historically profitable company, indicating the severity of the competitive pressure. With no clear differentiation strategy or path to profitability recovery, the manager expects continued financial deterioration. This short represents a structural decline story rather than a cyclical downturn, making it an attractive risk-reward proposition.

Pitch Summary:
Turning Point Brands (TPB) is a 3.5% position in the Deep Value Fund. The company holds a dominant market share in several tobacco-related end markets, most notably rolling papers/cigarette wraps and oral tobacco. Combined, these segments are expected to grow at a steady mid-single-digit rate. However, we anticipate double-digit EPS growth as the company continues to pay down debt and repurchase shares. With a 16x P/E multiple, we believe shares offer an attractive (albeit modest) return. What excites us even more is TPB's launch of its nicotine pouch product, FRE. The nicotine pouch market is large ($3bn) and growing fast (50% annually); even a low-single-digit market share could significantly move the needle for TPB and its growth prospects.

BSD Analysis:
The manager views Turning Point Brands as a stable cash generator with significant optionality in the growing nicotine pouch market. The core tobacco business provides steady mid-single-digit growth with dominant market positions in rolling papers and oral tobacco, creating defensive cash flows. Double-digit EPS growth despite modest revenue growth demonstrates strong capital allocation through debt reduction and share repurchases. At 16x P/E, the valuation appears reasonable for a stable, cash-generative business. The key upside catalyst is the FRE nicotine pouch launch, targeting a $3 billion market growing 50% annually. Even modest market share gains could materially impact growth prospects and valuation. This represents a classic 'bond with a call option' structure - stable base business with meaningful upside optionality.

Pitch Summary:
Talen is a 3% position in the Deep Value Fund. As an independent power producer (IPP), it owns the 6th largest nuclear power plant in the U.S., located in a region poised for significant power price increases driven by rising demand from data centers. Talen already secured a contract with Amazon to supply power to a data center campus at prices 50.0% above the forward curve and has the capacity to sign similar agreements in the future. While the stock may seem expensive on current earnings, it is only 12x our 2026 free cash flow estimates, a significant discount to its peers. Management continues to capitalize on this gap through an aggressive repurchase program.

BSD Analysis:
The manager presents Talen as a prime beneficiary of the data center power demand boom, with nuclear assets providing clean, reliable baseload power. The Amazon contract at 50% premium to forward curves demonstrates the company's ability to monetize the power shortage and validates the pricing power thesis. Owning the 6th largest nuclear plant in a high-demand region creates significant competitive advantages and barriers to entry. The valuation disconnect between current earnings and 2026 free cash flow (12x) versus peers suggests meaningful upside as cash generation becomes apparent. Management's aggressive share repurchase program should accelerate per-share value creation while the market recognizes the quality of the asset base. This appears to be a classic infrastructure play benefiting from secular data center growth trends.

Pitch Summary:
One of the "spicier" names in the portfolio (about a 5% position), Red Cat (RCAT) is a leading supplier of drones, primarily for military applications. The stock surged in 2024 following a major $500mm contract with the U.S. Army to provide field reconnaissance drones. Based on current orders, RCAT trades on a price-to-earnings multiple of 100x next year's earnings. However, the company's recent transformative Army contract opens the door to additional opportunities with other military branches and NATO countries. We expect the momentum of the drone theme/narrative to drive the stock's growth as the incoming Trump administration is highly supportive and weary of alternative (primarily Chinese) suppliers.

BSD Analysis:
The manager acknowledges Red Cat as a high-risk, high-reward position with significant momentum potential. The $500 million Army contract represents a transformative win that validates the company's technology and creates a platform for expansion. While the 100x P/E appears expensive, the manager focuses on the optionality this contract creates with other military branches and NATO allies. The geopolitical backdrop favors domestic drone suppliers as concerns about Chinese alternatives intensify under the Trump administration. The 'drone theme' provides narrative momentum that could drive continued multiple expansion despite rich valuation. This appears to be a momentum play betting on continued government contract wins and thematic investor interest. The manager seems comfortable with the risk given the 5% position size and transformative contract potential.

Pitch Summary:
Osaka Soda is a 3% position in the Deep Value Fund. Superficially, the company appears to be an unexciting chemicals company. A closer look, however, finds its healthcare (HC) segment, while only representing 12.5% of sales, accounted for 54% of operating profit in 2024. This success is driven by the company's market-dominant position in supplying silica gel beads, a key ingredient in the production of peptide drugs, including the blockbuster weight loss drugs, Ozempic and Wegovy. While struggling to add capacity to keep up with demand, we believe sales in the HC division will grow 20-30% for the next several years. With a P/E of 14x forward earnings, we see more than 100% upside.

BSD Analysis:
The manager has identified a hidden gem within Osaka Soda's seemingly mundane chemicals business. The healthcare segment represents a classic 'sum of the parts' opportunity, generating 54% of profits from just 12.5% of sales, indicating exceptional margins and profitability. The company's dominant position in silica gel beads for peptide drug production directly benefits from the GLP-1 weight loss drug boom, creating a compelling secular growth tailwind. Capacity constraints suggest strong pricing power and demand visibility, while 20-30% healthcare division growth should drive significant earnings expansion. At 14x forward P/E for a company with such high-quality, high-growth exposure to a massive pharmaceutical trend, the valuation appears deeply discounted. The manager's 100% upside target reflects the potential for multiple expansion as investors recognize the quality of this healthcare exposure.

Pitch Summary:
This 4.5% position is an under-the-radar Korean electrical equipment company. High-margin export sales of transformers are expected to drive a more than 50% increase in earnings for 2025. Trading at just 12x earnings, with orders booked through the end of the decade, we anticipate robust growth and a potential re-rating, which should propel the stock much higher.

BSD Analysis:
The manager identifies Iljin Electric as an overlooked Korean electrical equipment manufacturer with compelling growth prospects. The 50% earnings growth expectation for 2025 driven by high-margin transformer exports suggests strong operational leverage. At 12x earnings, the valuation appears reasonable for a company with such robust growth visibility. The key differentiator is the order book extending through the decade, providing exceptional revenue visibility and reducing execution risk. This long-term contract coverage should support both earnings growth and multiple expansion as investors recognize the quality of the business model. The combination of strong growth, reasonable valuation, and exceptional visibility makes this an attractive risk-adjusted opportunity in the Korean market.

Pitch Summary:
Hallador is just over a 4% position in our Deep Value Fund. The company owns a coal mine and an electric power plant in Indiana, where it is poised to benefit from a dramatic increase in average power prices in 2026 when current contracts expire. We believe Hallador could potentially earn twice as much as the Street is estimating for 2026. Trading at just over 4x P/E for 2026, the stock is valued at less than half of its peers. We think the timing is favorable as Indiana is a key hub of data center activity, which could further drive power demand and prices upwards. We anticipate that growing sentiment driven by this theme, along with announcements of lucrative power contracts, should result in both upward revisions to earnings estimates and increased investor attention.

BSD Analysis:
The manager presents a compelling value thesis on Hallador Energy, highlighting a significant catalyst in 2026 contract expirations that should drive power price increases. The fund believes earnings could double Street estimates, creating substantial upside potential. At 4x 2026 P/E, the valuation appears deeply discounted versus peers, suggesting meaningful multiple expansion opportunity. The Indiana data center theme provides additional demand tailwinds that could accelerate power price appreciation. The combination of contract repricing, data center growth, and extreme valuation discount creates multiple paths to value realization. The manager expects both earnings revisions and increased investor attention as catalysts materialize. This appears to be a classic deep value play with clear fundamental catalysts and asymmetric risk-reward.

Pitch Summary:
Las Vegas Sands is well on its way to recovering from the COVID-related travel moratoriums that persisted in China long past much of the rest of the world. LVS's properties in Macao are also benefiting from increasing visitation and the company's leading market share in "premium mass" gamblers, although the recovery has been slowed by China's broader economic weakness and renovations at a significant property in Macao. Despite this economic malaise in their largest market, shares appreciated by 36% in the month following China's announcement of a substantial stimulus package to aid their ailing economy. We chose to exit the position at a valuation that better reflects the company's risk/reward.

BSD Analysis:
The manager adopted a neutral stance and exited Las Vegas Sands after the stock appreciated 36% following China's stimulus announcement, suggesting disciplined profit-taking. The investment thesis was based on COVID recovery in Macao with the company benefiting from leading market share in premium mass gambling. However, the recovery has been hampered by China's broader economic weakness and property renovations. The manager's decision to exit reflects a risk/reward assessment where the stock price had reached levels that no longer offered attractive upside relative to the risks. This demonstrates tactical portfolio management where the manager capitalizes on sentiment-driven rallies to exit positions at favorable valuations. The neutral stance likely reflects the inherent volatility and China dependency of the Macao gaming market, where stimulus-driven rallies may not reflect sustainable fundamental improvements.

Pitch Summary:
Thermo Fisher Scientific is a leading purveyor of life science tools, supplies, and services to global pharmaceutical, biotechnology, academic, government, health care, and industrial customers. The business has evolved from being a distributor of lab supplies to an engine driving innovation for customers' R&D efforts, a dynamic that has helped revenues and EPS grow at a 13% and 15% annualized rate over the past decade, respectively. The industry typically grows at a rate equal to or greater than global GDP growth and with less cyclicality than the broader economy. Shares came under pressure during the quarter on rising tensions with U.S. trading partners, particularly China, and fears of domestic policy changes that may put a chill on drug development, particularly regarding vaccines. Our view is that demand for new therapies will persist despite the potential impact of such policies – which may or may not come to pass – driving demand for Thermo's tools, consumables, and services.

BSD Analysis:
The manager's bullish thesis on Thermo Fisher centers on the company's transformation from a lab supply distributor to an innovation enabler with strong historical growth (13% revenue, 15% EPS annually). The life sciences tools industry offers attractive characteristics including GDP-plus growth rates and lower cyclicality than the broader economy. Despite near-term headwinds from China trade tensions and potential policy changes affecting vaccine development, the manager believes underlying demand for new therapies will persist. The investment reflects confidence in the secular growth of pharmaceutical and biotech R&D spending regardless of short-term political uncertainties. Thermo Fisher's diversified customer base across pharma, biotech, academic, and government sectors provides stability. The manager appears to be taking advantage of temporary weakness to invest in a high-quality compounder with defensive growth characteristics. This represents a classic healthcare tools play where innovation-driven demand should drive long-term outperformance.

Pitch Summary:
Shares of Applied Materials continued to experience volatility after we used that very same volatility to initiate a position in September. The near-term sentiment is largely being driven by concerns around trading tensions and the general weakening of demand in China, which accounted for 37% of sales in fiscal 2024, up from 30% in recent years. However, we continue to have confidence in the long-term drivers of demand for Applied's equipment used to manufacture semiconductors. These include increasingly complex chip architectures that require more steps in the manufacturing process at each successive node, increasing chip content across industrial, communications, automotive, power, and sensor end markets, global initiatives to re-shore/onshore semiconductor manufacturing, AI-related demand for leading-edge logic and memory chips, and increasing demand for Applied Global Services, which maintains the ever-growing installed base of equipment at customer sites.

BSD Analysis:
The manager maintains a bullish long-term view on Applied Materials despite near-term headwinds from China exposure (37% of sales) and trade tensions. The investment thesis is built on multiple secular growth drivers that should sustain equipment demand over time. Increasingly complex chip architectures require more manufacturing steps, directly benefiting Applied's equipment portfolio. The manager identifies broad-based chip content growth across industrial, automotive, and sensor markets beyond traditional computing applications. Geopolitical reshoring initiatives and AI-driven demand for advanced logic and memory chips provide additional tailwinds. The growing installed base creates recurring revenue opportunities through Applied Global Services. This represents a contrarian value play where the manager is using short-term volatility to establish a position in a company with strong long-term fundamentals. The bullish stance reflects confidence that secular semiconductor trends will outweigh cyclical and geopolitical headwinds over the investment horizon.

Pitch Summary:
AMD is a new name for the portfolio with the thesis predicated on the idea that AMD will succeed in gaining market share in the general-purpose GPU market over the next several years. In the third quarter, AMD announced the commercialization of its second-generation general-purpose GPU, the Instinct™ MI325X, and announced that its third-generation Instinct chip would be commercialized in the second half of 2025. It also announced its fifth generation AMD EPYC™ server CPU chip. These commercialization milestones and the company's third-quarter results were in line with expectations. We suspect the weak stock performance in the quarter may have been attributable to the absence of new, hyperscale cloud-provider partnership announcements. We continue to have a favorable view of AMD's potential to experience strong revenue growth in the data center AI accelerator market over the medium term. AMD is a top five global fabless semiconductor design company with key positions in data centers, PCs and laptops, gaming consoles, and embedded chips in various consumer and industrial products. Importantly, the management team at AMD, led by CEO Lisa Su, is first-rate. Throughout the 2010s, they focused on AMD's core competencies in high-performance computing, leading to AMD gaining more than 30% market share in the data center CPU market, including the achievement of a share greater than 50% with hyperscale customers. We think there's more share for AMD to gain with the company's promising start in the general-purpose GPU market. Nvidia dominates that market today, but customers are looking for a solid second source to reduce this reliance. AMD's commercial GPUs are known to have a strong total-cost-of-ownership value proposition due to their good energy efficiency and high memory capacity. We believe many semiconductor investors focus on what will happen over the next 1-2 quarters; in contrast, we are looking at what looks probable over the next several years. We assess that AMD has great assets, a sound strategic roadmap, and the potential to drive meaningful share gains over a multi-year time horizon. While only a small weight, AMD joins other holdings in our portfolio, such as Arista Networks, Analog Devices, and Applied Materials, to form a compilation of leading companies exposed to the burgeoning AI infrastructure market.

BSD Analysis:
The manager's bullish thesis on AMD centers on the company's potential to gain significant market share in the general-purpose GPU market, challenging NVIDIA's dominance. The investment case is built on AMD's proven track record of gaining CPU market share (30%+ in data centers) under CEO Lisa Su's leadership and strong execution capabilities. The manager emphasizes AMD's competitive advantages including superior total cost of ownership, energy efficiency, and high memory capacity in their GPU offerings. Customer demand for a credible second source to reduce NVIDIA dependency creates a structural opportunity for AMD. The manager takes a contrarian long-term view, focusing on multi-year share gains rather than quarterly results, which differentiates from typical semiconductor investors. The product roadmap with Instinct MI325X and upcoming third-generation chips demonstrates technological competitiveness. This represents a classic market share gain story where the manager believes AMD's technical capabilities and customer relationships will drive sustained revenue growth in the high-growth AI accelerator market.

Pitch Summary:
Amentum provided a performance update in mid-December and reiterated the medium-term revenue and earnings guidance it had provided at its summer Capital Markets Day. While Amentum's outlook was in line with expectations, the stock sold off heavily during the quarter on news that the incoming Trump Administration would set up an advisory commission called the Department of Government Efficiency (DOGE) tasked with reducing government spending. Business leaders expected to be involved with the commission made comments about government civilian and defense agency spending and suggested severe cuts to government spending that led to negative sentiment in government contractor stocks like Amentum.

BSD Analysis:
The manager maintains a neutral stance on Amentum despite significant stock volatility driven by political uncertainty rather than fundamental deterioration. The company's operational performance remains on track with management reiterating medium-term guidance, suggesting underlying business stability. However, the Department of Government Efficiency (DOGE) initiative creates meaningful headwinds for government contractors through potential spending cuts. The manager appears to be weighing fundamental stability against political risk. This represents a classic government contractor investment where policy changes can significantly impact valuations regardless of operational execution. The neutral stance likely reflects uncertainty about the magnitude and timing of potential government spending reductions. The investment thesis may depend on the manager's assessment of whether current valuations adequately reflect political risks versus the company's long-term contract portfolio and market position.

Pitch Summary:
In its 3Q results, Google reported an acceleration in Cloud revenue growth with profitability significantly above expectations. The company continues to expand its use of AI overviews in Search with early results suggesting strong user engagement and satisfaction. In December, Google announced a breakthrough in quantum computing with its internally developed chip named Willow. Willow completed a benchmark computation in under 5 minutes that would have taken a supercomputer 10 septillion years, suggesting Alphabet remains at the forefront of innovation.

BSD Analysis:
The manager's bullish thesis on Alphabet centers on multiple growth drivers and technological leadership. Google Cloud's accelerating revenue growth with above-expected profitability demonstrates the company's success in the competitive cloud market. The integration of AI overviews in Search shows strong user engagement, protecting and enhancing the core search franchise. The quantum computing breakthrough with the Willow chip represents a significant technological moat and potential future revenue stream. The manager appears to value Alphabet's diversified technology portfolio and innovation capabilities. This investment reflects confidence in the company's ability to maintain search dominance while successfully expanding into high-growth areas like cloud computing and emerging technologies. The quantum computing development particularly highlights Alphabet's long-term competitive positioning in next-generation computing paradigms.