A fund manager who specializes in profiting from corporate restructuring and turnarounds said there’s a silver lining when international stock markets are disrupted by the types of events occurring in Turkey and Argentina, as well as the fear of tariffs and trade wars between the U.S. and other countries.
David Marcus is the CEO of Evermore Global Advisors of Summit, N.J., which has about $1.3 billion in assets under management, including $687 million in the Evermore Global Value Fund EVGBX, -1.48% and money managed for institutional clients. The fund is rated four stars (out of five) by Morningstar and seeks to buy shares of companies undergoing a transformation, including restructuring and spin-offs, as well as value plays that become more compelling during periods of uncertainty.
Here’s the fund’s geographic breakdown as of June 30:
Three examples of opportunity amid crises
When discussing the currency crises in Turkey and Argentina in an interview on Aug. 14, Marcus said people are often overly fearful that contagion will spread and that “these kinds of bad runs in the market are good for investors who are not using short-term thinking but take the long-term view.”
One example of a stock that might be overly punished by the spreading of market fear is Codere S.A. CDR, -1.81% which is headquartered in Spain and runs gambling machines and facilities.
“Argentina is their biggest market,” Marcus said. The Evermore Global Value Fund has held shares of Codere for about a year and a half, and the obvious fear of sliding sales in Argentina in the short term might enable Marcus to “use this kind of a stressful market environment to add to our positions.”
Marcus then pointed to another industry that many investors continue to shy away from: shipping. This industry is still recovering from the disruption caused by a glut of capacity that was brought online just when the movement of goods into and out of China slowed during 2016. And now, the brewing trade war with China sets up opportunities for Marcus to “nibble” on shares of shipping companies that the fund already owns. Those include two small-cap companies — Scorpio Bulkers SALT, -2.24% and Genco Shipping & Trading GNK, -4.55%
Marcus said the fund holds about 7% of Scorpio’s and 4.5% of Genco’s shares.
He said “shipping companies can actually have a benefit from tariffs.” For example, if China decided to import soy beans from Latin America instead of from the U.S., the total amount of ton-miles of shipping would increase.
Marcus believes too many investors are looking back at the problems of the global shipping industry, instead of looking ahead.
“The day rates charged for shipping are ticking up very nicely. Demand is starting to grow,” he said, adding that “there is a rational thinking process going on because so many of these investors were burned.”
A giant restructuring opportunity
Irrespective of any market disruption, corporate restructuring can unlock a lot of value for patient investors.
DowDuPont DWDP, -1.63% was formed when the old DuPont & Co. merged with Dow Chemical in September 2017. The companies’ plan was to separate the combined DowDuPont into three companies. The first spin-off is expected to be Dow, the chemicals unit, by the end of the first quarter, followed by Corteva, specializing in agricultural materials, by the end of the second quarter, leaving the new DuPont, the specialty-products business.
Marcus called DowDuPont “a company that investors can hold for three to five yeas for a gift that keeps on giving,” because investors tend to value a conglomerate too low. “The commodity business will always trade lowest in the marketplace. Analysts will always value the whole pie as they would its lowest multiple business,” he said.
This translates to an estimated value of “over $100 a share” for DowDuPont, which closed at $66.59 on Aug. 13, down 3% from the end of July.
Marcus also said that many investors thought it was too early to consider DowDuPont because the actions unlocking its value will not take place until next year. That only makes the current opportunity to buy the shares more lucrative, he said.
Looking further ahead, Marcus expects more breakups to unlock even more value.
“Once you spin off the DuPont, pieces, we think there is even more scope as each subsidiary gets its own multiple,” he said. Then more unrelated business units within the new companies might be spun off.
Holdings and performance
Here are the top 10 holdings (of 51) of the Evermore Global Value Fund as of June 30:
|Company||Ticker||U.S. ticker or ADR||Country||Industry||Share of fund||Total return – 2018 through Aug. 13|
|MagnaChip Semiconductor Corp.||MX, -1.31%||Luxembourg||Semiconductors||3.9%||17%|
|Universal Entertainment Corp.||6425, -2.66%||UETMF, -18.75%||Japan||Recreational Products||3.8%||-7%|
|Vivendi S.A.||VIV, +0.00%||VIVHY, -1.14%||France||Movies/Entertainment||3.5%||-1%|
|Scorpio Bulkers Inc.||SALT, -2.24%||Germany||Marine Shipping||3.4%||-10%|
|Ice Group AS||ICE-NO||Norway||Wireless Telecommunications||3.1%||3%|
|Bollore S.A.||BOL, -0.10%||BOIVF, -0.22%||France||Other Transportation||3.0%||-10%|
|Codere S.A.||CDR, -1.81%||CODEF, -20.25%||Spain||Casinos/Gaming||3.0%||2%|
|Enzo Biochem, Inc.||ENZ, -2.91%||United States||Biotechnology||2.9%||-50%|
|AURELIUS Equity Opportunities SE & Co. KGaA||AR4, +1.39%||AULRF, -4.42%||Germany||Investment Managers||2.9%||-10%|
|Navios Maritime Containers Inc.||NMCI-NO||Monaco||Marine Shipping||2.8%||N/A|
|Sources: FactSet, Morningstar Direct|
The fund generally buys shares in the local market where they are listed. The fund holds Scorpio Bulkers stock that is listed in the U.S. We have included a second column for U.S. tickers of American depositary receipts.
Here’s how the Evermore Value Fund has performed against its Morningstar category and the MSCI All Countries World Index 892400, -1.08% :
|Total return – 2018 through Aug 13.||Total return – 2017||Average annual return – 3 years||Average annual return – 5 years|
|Evermore Global Value Fund – Investor class||-1.1%||19.0%||9.9%||10.2%|
|Morningstar World Small/Mid Stock category||0.2%||25.4%||10.6%||8.4%|
|MSCI All Countries World Index||1.5%||24.6%||9.6%||10.6%|
|Sources: Morningstar, FactSet|
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