Investment Pitches

Pitch Summary:
SelectQuote presents a compelling investment opportunity due to its undervaluation and several growth catalysts. The company benefits from higher Medicare Advantage reimbursement rates, which are expected to enhance carrier profitability and advertising spend on SelectQuote's platform. Additionally, its SelectRx pharmacy benefits management platform is expanding its member base, contributing to recurring revenue growth. Operational improvements, such as increased sales efficiency and a new distribution facility, are expected to bolster margins. Despite recent challenges, including a disappointing fiscal Q3 and a seasonal business model, SelectQuote's low valuation and growth prospects make it an attractive buy.

BSD Analysis:
SelectQuote's current valuation at less than 6x forward adjusted EBITDA suggests that much of the risk is already priced in, providing a margin of safety for investors. The company's strategic focus on enhancing sales efficiency and expanding its SelectRx platform is crucial for long-term growth. The recent approval of a 5% increase in Medicare Advantage reimbursement rates is a significant tailwind, likely to boost carrier marketing budgets and, consequently, SelectQuote's revenue. However, the company's reliance on the Medicare Advantage enrollment period introduces volatility, as seen with the recent sales representative shortage and policy sales decline. The SelectRx segment, while growing rapidly, faces profitability challenges due to the competitive nature of the pharmacy benefits management industry. Investors should monitor the company's ability to navigate these challenges and capitalize on its growth initiatives, particularly as it aims to improve margins and leverage its technology to enhance agent productivity. Overall, SelectQuote's strategic initiatives and valuation present a favorable risk-reward profile for long-term investors.

Pitch Summary:
MicroStrategy (MSTR) is positioned as a leveraged play on Bitcoin's potential price increase. The company has amassed a large Bitcoin holding, which could lead to substantial gains if Bitcoin's price appreciates as expected. Additionally, MicroStrategy's involvement in AI analytics could further enhance its growth prospects and investor sentiment.

BSD Analysis:
MicroStrategy's strategy of holding Bitcoin as a primary treasury reserve asset provides a unique leverage to Bitcoin's price movements. Historically, MSTR has outperformed Bitcoin during bull markets, suggesting that it could offer higher returns if Bitcoin's price rises. The company's high gross margin of 71% indicates strong operational efficiency, although it remains unprofitable due to Bitcoin impairment losses. Analysts project profitability by 2027, contingent on Bitcoin's price trajectory and operational adjustments. Furthermore, MicroStrategy's AI offerings could diversify its revenue streams and enhance long-term growth, aligning with current market trends favoring AI. Investors should consider the volatility and risks associated with Bitcoin and MSTR, particularly during bear markets, where MSTR could experience significant drawdowns.

Pitch Summary:
Costco has been a stellar performer in the stock market, with significant multiple expansion over the past decade. However, its current valuation at 54 times earnings suggests limited room for further multiple expansion. While the company continues to deliver consistent revenue and earnings growth, driven by membership fees and footprint expansion, the high valuation poses a risk of multiple contraction, making it challenging to justify a buy at current levels.

BSD Analysis:
Costco's historical performance has been remarkable, with its stock price increasing over eightfold in the last decade, outpacing major indices like the S&P 500. This growth was supported by a combination of revenue growth, margin improvement, and stable share count. However, the current PE ratio of 54 suggests that future returns may be constrained by potential multiple contraction. The company's business model, characterized by high membership renewal rates and steady store expansion, supports ongoing earnings growth. Yet, with the market pricing in high expectations, any deviation from projected growth could lead to valuation adjustments. Investors should weigh the potential for continued operational excellence against the risk of a declining valuation multiple, especially given the broader market's current valuation trends. For more context, see [Costco's financials on Yahoo Finance](https://finance.yahoo.com/quote/COST/financials).

Pitch Summary:
Ford Motor Company is positioned as a buy due to its diversified approach across ICE, hybrid, and EV platforms, which provides resilience amid regulatory changes. Despite current macroeconomic challenges, Ford's robust free cash flow and secure dividend yield offer a compelling investment case. The company's ability to pivot production based on policy updates and consumer demand further strengthens its prospects.

BSD Analysis:
Ford's valuation appears elevated with a forward P/E of 10.82x, compared to its historical averages and peers like GM and Stellantis. The company's free cash flow generation remains strong at $5.66B, supporting its dividend yield of 5.07%, which is significantly higher than the sector median. However, the automotive industry faces headwinds from tariffs and potential declines in EV sales due to policy changes. Ford's strategic flexibility in production and its healthy balance sheet, with a net cash position of $14.3B, provide a buffer against these challenges. Investors are advised to wait for a price retracement to the $9-$10 range for a better margin of safety, given the potential downside risk and market volatility.

Pitch Summary:
Great Elm Capital Corporation (GECC) is positioned as a resilient player in the business development sector, offering attractive yields exceeding 8% on its baby bonds. Despite facing sector-wide pressures, GECC has maintained stable yields, making it an appealing option for investors seeking high returns with a relatively short investment horizon. The company's focus on senior secured loans and absence of secured debt enhance its risk profile, providing a balanced risk-reward proposition.

BSD Analysis:
GECC's financial metrics reveal a mixed picture. While the company boasts a high yield on its baby bonds, its leverage ratio of 57.6% and asset coverage of 173% suggest only a modest buffer above regulatory requirements. The return on assets at 0.3% lags behind industry averages, and a 2.9% non-accrual rate in its loan portfolio raises concerns about credit quality. However, the company's strategic focus on senior secured loans, which comprise 58% of its assets, mitigates some risk. The absence of secured debt is a double-edged sword; while it reduces immediate financial obligations, it also indicates a need for GECC to diversify its financing sources to bolster investor confidence. Compared to industry leaders like Ares Capital (ARCC), GECC's financial management appears less robust, yet its high-yield offerings remain attractive in a low-interest-rate environment.

Pitch Summary:
Corporacion America Airports presents a compelling investment opportunity due to its robust traffic growth and strategic positioning in the global airport industry. Despite recent macroeconomic challenges and a temporary stock pullback, the company's fundamentals remain strong. The election of a pro-business president in Argentina and the country's economic recovery are expected to drive further growth in air traffic, benefiting CAAP. The company's diversified revenue streams, with significant operations outside Argentina, provide a buffer against local economic volatility.

BSD Analysis:
Corporacion America Airports is trading at an attractive valuation, with a forward P/E ratio that is unusually low for a company experiencing double-digit passenger volume growth. The recent selloff in Argentine equities, driven by profit-taking and concerns over economic reforms, offers a buying opportunity. The company's exposure to international passengers, paid in U.S. Dollars, reduces its vulnerability to Argentine Peso fluctuations. Additionally, CAAP's operations in Brazil and other countries provide further diversification. As Argentina's GDP growth accelerates and economic reforms take hold, CAAP is well-positioned to capitalize on the improving business environment. The company's strategic focus on expanding its airport management portfolio and leveraging traffic growth trends should support long-term earnings growth and stock appreciation.

Pitch Summary:
Wheaton Precious Metals reported a strong Q1 2025 with record revenue and operating cash flow, driven by increased gold and silver sales and high precious metal prices. The company maintains a robust balance sheet with significant net cash and no debt. Despite its impressive growth profile and leading position in the streaming sector, the stock appears fully valued at current levels, suggesting limited upside potential.

BSD Analysis:
Wheaton Precious Metals' valuation reflects its pure precious metals streaming portfolio, which is more concentrated compared to peers like Franco-Nevada. The company trades at a premium due to its growth prospects, with expected production growth from new assets coming online over the next few years. However, its high concentration in a few key assets, such as Salobo and Penasquito, poses a risk if any operational issues arise. The company's strong cash flow generation and low-risk business model make it an attractive option for exposure to precious metals, but the current stock price offers limited margin of safety. Investors may find better opportunities in smaller-cap royalty companies like Vox Royalty, which offer higher upside potential.

Pitch Summary:
GeoPark Limited is strategically positioned in Latin America, benefiting from less mature markets with potential for oil reserve discoveries. Despite recent oil price volatility, GeoPark's robust production management and cost control have maintained profitability. The stock is undervalued, trading at a discount to its historical and peer valuations, suggesting significant upside potential.

BSD Analysis:
GeoPark's operations in countries like Colombia and Brazil offer a competitive edge due to their political stability and moderate competition compared to more mature markets like the US. The company's focus on cost management is evident in its improved operating leverage and high operating margins, despite a challenging pricing environment. GeoPark's liquidity is strong, with a low Net Debt/EBITDA ratio of 0.9x, indicating financial resilience. The stock's valuation metrics, such as a P/E ratio of 4.7x and a P/S ratio of 0.58, highlight its attractiveness relative to peers. Technical indicators, including the 50-day SMA and MACD, suggest a bullish trend, reinforcing the investment thesis. Overall, GeoPark's strategic positioning, financial health, and market conditions support a buy recommendation.

Pitch Summary:
Micron Technology is strategically positioned to benefit from the growing demand for high-bandwidth memory (HBM) driven by AI and data center expansion. The company is transitioning from a cyclical DRAM supplier to a critical infrastructure provider for AI applications. Micron's focus on advanced DRAM nodes and HBM, coupled with disciplined capital expenditure and supply management, positions it to capture significant market share in high-margin segments. Despite competitive pressures from SK Hynix and Samsung, Micron's unique capabilities in co-designing with hyperscalers and its investment in next-generation packaging technologies provide a competitive edge.

BSD Analysis:
Micron's strategic pivot towards AI-centric memory solutions is underpinned by its investment in advanced DRAM nodes and HBM technologies. The company's capital expenditure, focused on high-margin areas, is yielding strong operating cash flows and maintaining a robust balance sheet. Micron's ability to lock in long-term contracts with hyperscalers ensures stable revenue streams, mitigating traditional DRAM cyclicality. The company's valuation, with a forward P/E of 15.6x and EV/EBITDA of 9x, appears undervalued compared to peers like Texas Instruments and Analog Devices. This mispricing overlooks Micron's structural shift and margin resilience, driven by its HBM program and strategic partnerships. As AI and data center demands grow, Micron's embedded position in these ecosystems suggests significant upside potential, making it an attractive investment opportunity.

Pitch Summary:
EZCORP is positioned as a strong buy due to its robust business model in the pawn lending industry, which has shown resilience and efficiency over the years. The company has consistently delivered high margins and profitability, even in volatile macroeconomic conditions. Its recent financial performance, including a 7% revenue increase and an 18% net income growth in Q2 2025, underscores its ability to thrive despite potential headwinds. The company's strategic expansion in Latin America and a favorable credit rating from Moody's further enhance its growth prospects.

BSD Analysis:
EZCORP's financial health is underscored by a strong balance sheet, with cash and cash equivalents more than doubling year-over-year, providing significant liquidity to cover short-term debts and fund growth initiatives. The company's forward P/E ratio of 10.75 is competitive within its industry, suggesting an attractive valuation relative to peers like FirstCash Holdings and World Acceptance Corporation. A DCF analysis reveals substantial upside potential, with scenarios projecting fair values significantly above the current share price, particularly under optimistic growth assumptions. The company's strategic acquisitions in Mexico and a new Ba1 credit rating from Moody's highlight its aggressive expansion strategy and market confidence. However, investors should remain vigilant about regulatory risks in the pawn lending sector and currency fluctuations impacting Latin American operations. Overall, EZCORP's solid fundamentals and strategic initiatives position it well for long-term growth, making it a compelling investment opportunity.

Pitch Summary:
The First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) is recommended for risk-averse investors seeking exposure to the AI industry without the volatility of individual tech stocks. The ETF's diversified portfolio, with only 20.5% in its top 10 holdings, provides a balanced approach to capturing the upside of AI-related sectors. This strategy mitigates risk by not overly relying on a few large technology companies, making it a safer option compared to more concentrated ETFs.

BSD Analysis:
ROBT's diversified holdings across technology services, electronic technology, and producer manufacturing position it to benefit from the AI market's projected growth to $4.8 trillion by 2033. The ETF includes smaller firms like Upstart and Symbiotic, which are poised to capitalize on the increasing demand for AI solutions in finance and logistics. Additionally, industry leaders such as Meta Platforms and Synopsys are included, aligning with strong earnings trends in AI advertising and chip design software. The anticipated Federal Reserve rate cuts in 2025 should further support ROBT's growth stocks by reducing borrowing costs, particularly benefiting its mid to small-cap holdings. Despite its lower liquidity, ROBT's diversified composition offers consistent growth potential while insulating investors from the volatility associated with the AI sector's rapid evolution.

Pitch Summary:
Micron Technology is poised for significant growth due to its advancements in high-bandwidth memory (HBM) technology, which is crucial for AI and data center applications. The company's recent launch of HBM4, which offers superior power efficiency and performance, positions it well to capitalize on the explosive demand for AI infrastructure. Despite its strong growth prospects, Micron is trading at a discount compared to its peers, making it an attractive investment opportunity.

BSD Analysis:
Micron's strategic focus on HBM technology aligns with the increasing demand for AI-driven data centers, where high memory bandwidth is essential. The company's HBM4 offers a 20% improvement in power efficiency and a 60% performance boost over previous generations, catering to the needs of tech giants like Google and Nvidia. Financially, Micron is undervalued, trading at a P/E ratio significantly lower than the sector median, suggesting a 44% undervaluation. Its PEG ratio of 0.3x-0.4x further indicates that the market has not fully recognized its earnings growth potential. However, competition from well-funded rivals like Samsung and SK Hynix poses a risk, as they are also advancing their HBM technologies. Nonetheless, Micron's innovative products and current valuation present a compelling buy opportunity for investors seeking exposure to the semiconductor industry's growth.

Pitch Summary:
ProFrac's stock has shown resilience despite challenges in the oilfield services sector, partly due to cost-cutting and increased proppant production. However, the company's weak balance sheet and the declining onshore US rig count suggest financial difficulties ahead. While the stock has risen over 20%, the outlook remains negative unless demand conditions improve and debt is reduced.

BSD Analysis:
ProFrac's financial health is precarious, with a significant debt load of approximately $1.15 billion and high annual interest expenses of around $150 million. The company's reliance on natural gas basins, which have been more stable, provides some insulation against market volatility. However, the decline in US drilling activity and the frac spread count poses a risk to revenue and margins. ProFrac's strategic initiatives, such as automation and electric fleets, offer potential efficiency gains but may not offset broader market headwinds. The potential IPO of its proppant segment could alleviate some financial pressure, yet an extended downturn could still strain the company's liquidity and operational stability.

Pitch Summary:
The John Hancock Preferred Income Fund (HPI) is currently not an attractive investment due to its high leverage and sensitivity to interest rate changes. The fund's distribution rate is unsustainable, with a significant portion coming from return of capital rather than income. Furthermore, the fund is trading at net asset value, which limits upside potential, especially in a market where credit spreads are narrow and preferred equities are priced for perfection.

BSD Analysis:
HPI's leverage ratio of 38% amplifies both gains and losses, making it particularly vulnerable in volatile markets. The fund's recent performance, with a 15% drawdown since September 2024, highlights its sensitivity to interest rate fluctuations and market sentiment. The fund's reliance on realized capital gains for distributions, rather than stable income, raises concerns about its long-term sustainability. Additionally, the current tight credit spreads in the investment-grade and preferred equity markets suggest limited room for price appreciation. Given these factors, along with the potential for an economic downturn, HPI presents more downside risk than upside potential. Institutional investors should consider waiting for a significant market correction before reevaluating this fund as a potential investment.

Pitch Summary:
Daimler Truck Holding AG has been downgraded from a Hold to a Sell due to its recent outperformance relative to peers and the broader market, despite no significant company-specific catalysts. The stock now appears to be trading at fair value, and profit-taking could lead to a decline in its price.

BSD Analysis:
Daimler Truck's recent outperformance is puzzling given its mixed financial results and lack of clear catalysts. Its net profit for 2024 was significantly lower than the previous year, and while its gross profit margin has slightly improved, it does not justify the recent stock price surge. The company's P/E ratio is in line with peers like Volvo but higher than others such as Triton, suggesting it is not undervalued. Additionally, the rollback of environmental regulations in the U.S. may not provide a significant competitive advantage over peers. With the stock trading at fair value and no clear growth drivers, investors might consider reducing their exposure to Daimler Truck.

Pitch Summary:
Micron Technology is strategically positioned to benefit from long-term trends in artificial intelligence, data center expansion, and edge computing. Despite its cyclical nature, the company has demonstrated strong market share gains in the DRAM sector and is making significant advancements in high-bandwidth memory (HBM), which is crucial for AI workloads. With robust in-house manufacturing capabilities and a focus on high-margin markets, Micron is poised for substantial growth, making it an attractive investment for those willing to endure its inherent volatility.

BSD Analysis:
Micron's competitive edge lies in its technological leadership and manufacturing scale, being one of the few companies capable of producing advanced DRAM and HBM at commercial scale. The company's strategic investments in R&D have positioned it ahead of peers in process technology, particularly with its 1α and 1β nanometer nodes, which enhance cost efficiency and energy performance. As AI and data center demands surge, Micron's HBM products are gaining traction, with management projecting a significant increase in market share. Despite challenges in the NAND market, Micron's focus on high-value segments and disciplined capital expenditure are expected to stabilize its financial performance. The company's valuation remains attractive, trading at a forward P/E of 10x, suggesting potential for significant upside as the semiconductor cycle progresses.

Pitch Summary:
During the market drawdown we also began to redeploy our cash. We added to our positions in Builders FirstSource (BLDR), Schlumberger, and Generac (GNRC). We also initiated a new investment in liquor producer Brown-Forman Company (BF.B). Over the past year and a half, the alcoholic beverage industry has lost favor with investors. Sales and unit volumes have fallen by 1-2% after booming during the COVID-19 pandemic, leading to concerns that alcohol usage may be in a new secular decline. The prevailing narrative supporting this view is three-fold: • Gen Z is "health conscious": This cohort is believed to drink less than previous generations. • GLP-1 weight loss drugs: These drugs are thought to be curbing alcohol usage. • Increasing cannabis usage: Legalization efforts in various states are perceived as taking market share from alcohol. While it's fair to acknowledge these factors may have some merit, we believe there's no strong evidence to suggest they are significant enough to cause a 5-6 point decline in liquor sales. For example, Gen Z consumers are experiencing a broad decline in spending. According to a Circana report, spending by 18-24 year-olds on video games, apparel, and beauty is down 24%, 12%, and 10% respectively. Frankly, Gen Z consumers are bearing the brunt of macro headwinds. Another study from Statista Consumer Insights found that 18% of Gen Z regularly consumes spirits, which is consistent with older generations: Baby Boomers (18%), Gen X (19%), and Millennials (22%). The lower alcohol consumption among Gen Z is entirely confined to beer and wine usage. Alternatively, we believe the pause in spirits growth is a normal cyclical slowdown driven by inflation and macroeconomic weakness, which particularly impacts consumers with less disposable income, such as the Gen Z cohort. This pause is also a healthy recalibration following the significant growth in alcohol, especially spirits volumes, during the 2021-2023 COVID-19 period. Looking at volume growth over a five-year period, spirits sales grew at a 4-5% compound annual growth rate (CAGR), which aligns with historical long-term growth rates. We believe the spirits industry could remain under pressure in 2025 due to continued economic weakness, changing tariff regimes, and elevated inventories in wholesale channels and personal at-home liquor cabinets. However, we expect the spirits industry to return to its long-run growth rate as the economy improves, spirits continue to gain market share from beer and wine, and the global population increases and ages. Over the next six years, approximately 600 million new legal-purchase-age consumers are expected to enter the global spirits market. Fears over the structural collapse of the spirits industry have created a tremendous opportunity for investors. We have long admired Brown-Forman as one of the top liquor companies with world-class brands. They hold a dominant position in the American Whiskey category with brands like Jack Daniel's and Woodford Reserve, as well as the Herradura label in the Premium Tequila category. The company is a compounder, delivering 32% operating margins over the last decade and a nearly 40% Return on Equity (ROE). They also boast an excellent balance sheet and a generous dividend policy with an attractive 3.5% yield. Amazingly, Brown-Forman's stock price has fallen by 62% in the last two years, while its price-to-earnings (P/E) ratio has dropped to 15x. The last time Brown-Forman traded this cheaply was during the depths of the great financial crisis in 2009. We have never had an opportunity to own the company, as it has consistently traded at rich valuations above 25x earnings. We ultimately believe the spirits industry will return to its long-run growth rate, with whiskey and tequila continuing to gain share in spirits and prices rising due to a shift toward premiumization. These tailwinds should drive 4-5% growth in Brown-Forman's U.S. business, while international sales accelerate at a 5-7% pace. Gross margins should expand back to pre-COVID levels of 63-67% from the post-COVID 60% level as the company increases international distribution, outsources barrel-making operations, rationalizes inventory, and increases its mix of premium sales. We believe this should boost operating margins to 32-36%, resulting in normal earnings power of $2.15-$2.50 per share. Given their brand portfolio, high returns on capital, and solid balance sheet, we believe an appropriate multiple for Brown-Forman is 18-23x normal earnings power, resulting in an intrinsic value of $39-$57 per share. We initiated our position at a price of $25.84 per share, representing a significant discount for a company of this quality.

BSD Analysis:
Pelican Bay initiated a position in Brown-Forman at $25.84 per share, viewing the 62% stock decline over two years as creating an exceptional opportunity in a quality spirits company. The manager argues that current industry headwinds are cyclical rather than structural, driven by inflation and macro weakness rather than permanent shifts in consumer behavior. They dismiss concerns about Gen Z drinking habits, GLP-1 drugs, and cannabis competition as insufficient to justify the industry's decline. Brown-Forman's dominant position in American whiskey (Jack Daniel's, Woodford Reserve) and premium tequila (Herradura) provides durable competitive advantages. The company has demonstrated strong fundamentals with 32% operating margins, nearly 40% ROE, and a solid balance sheet with 3.5% dividend yield. Trading at 15x P/E (lowest since 2009 financial crisis), the manager expects margin expansion to 32-36% and earnings power of $2.15-$2.50 per share as the industry normalizes. With an 18-23x target multiple, intrinsic value is estimated at $39-$57 per share, representing 51-121% upside from the entry price.

Pitch Summary:
We added to Fiserv during the quarter. In May, Fiserv reported slower growth for its Clover payment processing business – Clover is one of several portable terminals that you may have seen restaurants use to process credit card payments. When Clover grew 8% during the first quarter rather than the expected 10%, the stock dropped by 30%. Again, Mr. Market gets hyper sometimes. Fiserv is one of the most durable growth stories of the past four decades, having grown earnings by at least 10% for 39 straight years. It acts as the primary technology provider to several thousand regional banks. In turn, the banks actively sell Fiserv products like Clover to their customers, allowing them to transmit credit card payments directly to their bank accounts with a full accounting of the day's receipts. Clover itself is only about 15% of Fiserv's total business – the company has a menu of other products that its bank partners sell to their own customers – but it has great potential. Even with temporarily slower growth from Clover, Fiserv should grow earnings about 15% this year, to roughly $10 per share. Wall Street analyst consensus calls for EPS of nearly $12 in 2026. We added to the position at about $169 in May and it closed the quarter a bit higher than that. The current price is just over 14x next year's earnings estimate in a market that trades for more than 20x forward estimates. There are certainly competing payment terminals that restaurants and small retailers can buy, but none have a massive installed base of regional banks that actively sell and support the product.

BSD Analysis:
The manager capitalized on market overreaction to Clover's modest growth deceleration, adding to Fiserv at attractive valuations. The 30% stock decline following Clover's 8% growth versus 10% expectations created a compelling opportunity given Clover represents only 15% of total business. Fiserv demonstrates exceptional consistency with 39 consecutive years of 10%+ earnings growth, serving as primary technology provider to thousands of regional banks. The company's competitive moat stems from its massive installed base of bank partners who actively sell and support Fiserv products like Clover to their customers. This distribution advantage is difficult to replicate for competing payment terminals. Despite Clover's temporary slowdown, Fiserv expects 15% earnings growth in 2025 to $10 per share, with analyst consensus projecting nearly $12 EPS in 2026. At 14x forward earnings versus 20x+ market multiples, the valuation appears attractive for a durable growth franchise with strong competitive positioning.

Pitch Summary:
In terms of additions, we purchased more shares of our insurer Kinsale Corp. during the quarter. Mr. Market is a volatile fellow and periodically he does weird things, such as sell great companies because they miss short-term growth targets. He did this in April when Kinsale reported slightly disappointing revenue growth and losses related to Southern California wildfires. We added to our position in late April at $419. Kinsale continues to have the lowest expense structure of its peer group, and among the highest growth rates and profit margins. Insurance is a commodity business, so players like Progressive in car insurance and Kinsale in commercial property and casualty are going to win over time by being efficient. Kinsale stock finished the quarter at $480.

BSD Analysis:
The manager opportunistically added to Kinsale during a market overreaction to temporary headwinds in April. The stock declined after slightly disappointing revenue growth and wildfire-related losses, creating an attractive entry point at $419. Kinsale maintains structural competitive advantages with the lowest expense structure among peers while delivering among the highest growth rates and profit margins in commercial property and casualty insurance. The manager views insurance as a commodity business where efficiency drives long-term success, positioning Kinsale similarly to Progressive's dominance in auto insurance. The company's specialized focus on excess and surplus lines provides pricing power in hard-to-place risks. The stock's recovery to $480 by quarter-end (+15% from purchase price) validates the manager's contrarian timing. Kinsale's operational excellence and market positioning support continued outperformance in the specialty insurance segment.

Pitch Summary:
We trimmed our large holding in Progressive Corp. during the quarter at roughly $282. We also sold some shares in the first quarter, such that through June 30th we sold 29% of the holding in the model portfolio. Clients who have been with us for any length of time will have significant capital gains, as Progressive stock doubled in the past two years. Selling winners because they've exceeded your price target generally does not work. The best companies tend to outperform expectations over time and when you own a business that does this, the smarter strategy is to rethink your expectations rather than take profits. We still own a substantial weight in Progressive, and I continue to believe it is among the best managed companies in our portfolio. But auto insurance has a cycle, and right now we appear to be at the top of the cycle: rates are at historically high levels, industry profitability is rising rapidly (which could catch the eyes of regulators and create downward future pricing pressure), and rivals are ramping up their advertising to try to grow faster. Meanwhile, Progressive is earning record earnings and trading at high multiples of those earnings, while also growing far faster than the industry. Barring a major surprise over the next six months, Progressive will double its revenue over the five years ending December 2025 and nearly double its net income. Competitor Allstate, by comparison, will grow revenue about half as fast as Progressive over the five-year period, and likely will earn less money in 2025 than it did five years ago. Progressive has managed through this strange post-pandemic period far better than its leading rivals and is well-positioned for the future. I suspect, however, that we are entering a period in which rate competition will lead to weaker profitability for all players. I feel Progressive's future return is likely to be lower than the past five years. So, I'm comfortable holding it at a smaller size. As car insurance has cyclical characteristics, I remain open to increasing the position in the future.

BSD Analysis:
The manager maintains a bullish long-term view on Progressive while tactically reducing position size due to cyclical concerns. Progressive has demonstrated exceptional execution, doubling revenue and nearly doubling net income over five years ending December 2025, significantly outpacing competitor Allstate. The company's superior management navigated the post-pandemic period better than rivals and continues growing faster than the industry while earning record profits. However, the manager recognizes auto insurance cyclicality and believes the industry is at peak cycle with historically high rates and rising profitability that may attract regulatory scrutiny. Increased competitor advertising and potential rate competition suggest future returns may moderate from the exceptional past five years. The stock has doubled in two years and trades at high multiples, prompting prudent position sizing. The manager retains substantial exposure and remains open to increasing the position during future cycle downturns.