THE MILLEGAN MEMO: DECEMBER 2024
Brought to you by The Woodworth Contrarian Fund
(Quinn Millegan Calls In to Jim Cramer’s Lightning Round - CNBC 2024)
Black Friday, an alternative measure of inflation, and Quinn calls in on Jim Cramer’s Lightning Round on his CNBC show Mad Money. Happy Holidays and Happy Friday the 13th.
- Managing Partners Drew Millegan & Quinn Millegan
BLACK FRIDAY BEATS
(Black Friday - Powhusku 2013)
Black Friday holiday sales beat expectations. With the biggest shopping day of the year in the rear view mirror, we can now review the post-mortem to get a feel for how the American consumer is feeling this holiday shopping season. Compared to Black Friday 2023, this year’s shopping sale rush posted up 3.4% (+0.65% inflation-adjusted) according to Mastercard’s SpendingPulse report. Given that real household earnings have continued to outpace inflation, this isn’t necessarily a terribly outsized result, but it does re-affirm a generally positive direction of consumer spending. When households have more resources, they tend to spend more, and US real disposable per-capita income (adjusted for inflation) continues to hover near record highs, excluding pandemic-era outliers from stimulus payments present in the dataset.
Nobody goes to the store anymore - it’s too crowded. Most notable from shopping data is the shift away from in-person shopping. According to the same Mastercard report, online sales were up a whopping 14.6% year-over-year, whereas in-person shopping traffic on Black Friday notched up a miserly 0.7%. This is a continuation of the long-term trend away from in-person shopping to online-only shopping, and also indicates that physical shopping actually declined year-over-year in real-dollar terms, by about 2.05%. Measured foot traffic was even worse, being down by about 3.2% year-over-year according to analytics provider RetailNext. Curiously, foot traffic declines being greater than real-dollar declines could imply that, although fewer people are shopping in-person, they tend to make larger purchases when they do show up to the store.
AN ALTERNATIVE MEASURE OF INFLATION
(German Inflation Crisis where Mark Notes are weighed instead of counted - c. 1923)
Producer Price Index (PPI) report comes in warmer than expected. PPI for November posted up 0.4% for the month of November versus 0.2% consensus estimates, or up 3.0% year-over-year. Oft-forgotten except by professionals and policy nerds (such as ourselves), the PPI is an alternative measure of inflation that comes from surveys of the firms doing the selling instead of the markets doing the buying, in contrast to the Consumer Price Index (CPI). The PPI measure is usually not quoted as often because of the tendency of producers to fall in and out of the dataset, meaning that the measurement is inherently less holistic than simply quoting a basket of market prices as they actually occur. Instead, the index is most useful in the context of understanding manufacturers and adjusting total output figures.
Inflation refuses to die. This was the largest year-over-year rise since PPI notched a 4.7% rise from February 2022 to February 2023, a time when both CPI and PPI inflation measurements were coming down from pandemic peaks in the 8-9% range. Over 60% of the month-over-month increase can be attributed to final demand goods and specifically foods, which rose 3.1% in just the month of November. This, in turn, appears to have been driven largely by chicken eggs and meat, which in turn have been volatile due to widespread culling for bird flu.
BOOYAH! JIM CRAMER’S LIGHTNING ROUND: SBLK
(Quinn Millegan Calls In to Jim Cramer’s Lightning Round - CNBC 2024)
Woodworth Managing Partner, Quinn Millegan, decided to call in to Jim Cramer’s “Mad Money Lightning Round” on CNBC since the channel plays in the office every day. Turns out he got through! Although, they do a little screening and his initial request to mention Freightcar America (NASDAQ:RAIL) was not allowed due to a market cap minimum of $250MM. Alternatively, he asked for Jim’s take on Starbulk Carriers (NASDAQ:SBLK). SBLK is a worldwide drybulk carrier based in Greece with an unusual dividend yield that is tied to the company’s cash levels. The yield has historically been quite high and currently sits at about 15-16%. Jim’s quick comment on the company (aside from mentioning that his daughter spent a long time in Oregon) was that he believes it to be too much of a “China play” and that he doesn’t think it can maintain its current yield.
As contrarians, we like to hear that the street doesn’t want what we want. Although we like to have CNBC play as an information feed for our trading floor, we don’t necessarily listen for any particular advice - it’s an interesting gauge of where the street’s emotion is at, which is extremely relevant as contrarian investors. Jim Cramer’s “Mad Money” show in particular does a fantastic job at telling the viewer the current market sentiment. We aren’t necessarily against his recommendations, but we are often at odds with his trading advice given that his viewpoint is very much based on market momentum and current emotions.
(Quinn Millegan Calls In to Jim Cramer’s Lightning Round: Buy or Sell SBLK - CNBC 2024)
When it comes to Jim’s take on SBLK - this is exactly why the price of the company is so unnecessarily depressed. Jim’s sentiment does not capture the full story and the street often misunderstands the company. Firstly, the yield fluctuates tied to cash levels, which is largely secure as the company has very low debt and the management has historically been very creative with cash generation when needed. As CEO Petros Pappas has emphasized on past earnings calls, the yield is partially kept in order to encourage the market to realize the full potential of the stock price and bring it more in line with intrinsic value. SBLK’s book value per share alone is $21.30 - yet it currently trades above just $15. Buying a company yielding nearly 16% at its current price as a dividend position that stands to appreciate by 40% if it simply reaches book value is a fairly interesting dividend position in our view - we aren’t looking for an insane amount of price appreciation in our high yield dividend positions, although its historical trading range could imply a price around $40 and the company is a much better business today than when it traded above that level. Now, the company is exposed to China and that is a risk, however, we view this as a calculated risk worth taking, given both the unrealized intrinsic value of the stock and the company's diversified fleet in the global dry bulk market, in addition to the management's attention to market trends and investment in newer, more efficient vessels. Even in the case of negative Chinese import/export demand - their global fleet can adapt.
DEEP ROOTS. STUBBORN-GROWTH. OREGON-BASED.
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Drew Millegan (left) & Quinn Millegan (right) in front of the Charging Bull in New York City.
About the Managers: Drew Millegan with his brother, Quinn Millegan, (29 and 26 years old respectively) manage the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville, Oregon. They grew up in the finance world, and specialize in contrarian investment strategies in the US Public and Private markets.
Something missing from your portfolio may be a diversification into the Woodworth Contrarian Fund for accredited investors. Now is a great time to diversify your portfolio with an investment into a multi-award-winning fund. An exposure to a value-based contrarian strategy is a unique opportunity for your long term capital that you’re seeking aggressive returns for. With eight years of the Woodworth Fund under management, the Millegan Brothers are trained stock-pickers and experienced venture capital investors with a proven track record. Give us a call today to discuss a liquid investment with independent administration and independently audited monthly statements and a personal relationship.
