Trade Update: Repositioning after earnings

Wednesday was a big day for Opportunities! We added to our positions in Consol Energy (CEIX), Canadian Pacific (CP), Five Below (FIVE), SS&C Technologies (SSNC), and Verra Mobility (VRRM) on behalf of clients in our Opportunities strategy. 

We also trimmed our positions in Raytheon Technologies (RTX) and WillScot Mobile Mini Holdings (WSC) following strong performance over the past several months. 

And finally, we exited our position in Hasbro (HAS) given weakening demand for toys and our thesis breaking around key growth drivers. Let’s dive in:

Tactical additions

Consol Energy (CEIX) has provided better than expected earnings results over the last three quarters and continues to present compelling IRRs for investors. Our thesis continues to track and the recent negative sentiment around natural gas has allowed us to add to the position at attractive levels.

The Canadian Pacific (CP) and Kansas City Southern merger remains on track to be closed in Q1 and the derisked Q4 earnings print provides confidence in the company’s growth plans moving forward. Adding 1% to CP is in line with our continued optimism around the rails in 2023.

With plans to open more than 200 new stores while converting 400+ to the new format, Five Below (FIVE) has been firing on all cylinders. Despite trading close to all time highs, we believe FIVE is an ideal conduit to gain exposure to the consumer in today’s economy. Although we trimmed this name last year on the back of consumer weakness, we believe that earnings may have bottomed and are now taking the opportunity to resize this name to a larger position.

We added 1% to SS&C (SSNC) on the back of resilient organic growth despite an uncertain macro backdrop. With 96% of revenues recurring in nature, this highlights the stability of the business in an industry with high barriers to entry. In a time when sentiment is low and tailwinds for the industry are long, we remain confident in the company’s growth story moving forward. 

To round out the additions, we added 1% to our Verra Mobility (VRRM) starter position as a result of elevated travel demand. Airline earnings have been positive and the company’s strong market positioning and high barriers to entry give us confidence in VRRM’s potential for outperformance.

Taking profits

Raytheon (RTX) reported strong Q4 results and the stock has moved +25% since the start of Q4. Our commercial aerospace thesis continues to track but taking some profits here is in line with our general sentiment on the sector’s outperformance (a la Safran trim in Titan Offshore). 

WillScot Mobile Mini’s (WSC) all weather business has allowed the storage company to continuously beat estimates despite a challenging macroeconomic environment. Gaining +33% over the past several months, trimming here allows us to take some chips off the table.

Weakening wizards and more

We exited our position in Hasbro (HAS) yesterday after continued weakness in their toys segment and disappointing developments centered around their Wizards franchise. 

Our team underestimated just how much toy sales would decline in an inflationary environment. Using the Great Financial Crisis as a point of comparison, toy sales declined mid-single-digits yet the segment experienced double digit year over year declines in the fourth quarter of 2022. 

The passionate fanbase is the heart of Hasbro’s business. As the company has looked to grow its user base, they have seemingly done this at the cost of their most loyal following. We misjudged the Hasbro leadership team and thought Chris Cocks was the right man for the job - this, in hindsight, was incorrect and is being showcased through the backlash in the Magic: The Gathering and Dungeons and Dragons communities. 

Although we believe the company can still re-energize this cohort with a variety of launches coming down the pipeline, we felt it was prudent to exit the position as management navigates a new normal.

The results of the trade allow us to maintain net exposure while adding to names we have high conviction. Like all of our strategies, we continue to hold high levels of dry powder and have a laundry list of companies we are actively monitoring to the extent prices move lower.

As always, let us know if you have any questions about the recent trades; we’re happy to assist.

Best,

Titan Investment Team

Disclosures:

Titan Global Capital Management USA LLC ("Titan") is an SEC registered investment adviser. Trade communications are meant for informational purposes only. All investments involve risk and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not ensure a profit or protect against loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions and clients may lose money, including their original investment and principal. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. This is not an offer, solicitation of an offer, or advice to buy or sell securities, or any other product offered by Titan or any third party. Please visit www.titan.com/legal for important disclosures.