Editor’s note: This article was first published in September 2013; the contest dates and prizes, Jack in the Box’s twelve-month share performance and the service prices of LifeLock and its competitor are figures from that time. These long and short ideas date from September 2013 and are kept as a historical record. They are not investment advice.
On 16 and 17 September, hundreds of investors will gather at the Value Investing Congress (VIC), where the winner of a contest for investment ideas (the Value Investing Challenge) will be decided. A jury of stock market experts will choose the “bet” they consider the winner, awarding a prize of 50,000 dollars to the winner and 10,000 and 5,000 dollars to second and third place respectively.
So far, the winning investment ideas in this contest have been on the mark: last year’s winning idea, Jack in the Box, has risen 54% over the last 12 months. This year’s finalists bring two short positions and one long, and for all of them the participants, who are usually financial analysts at various firms, study the company the way Benjamin Graham, the “inventor” of value investing, would. Here are the three finalist investment ideas:
1. Short LifeLock (NYSE: LOCK), by David Swart, financial analyst at Pacific West Land
According to Swart, this company, which provides identity theft protection services, does not seem to be compatible with some of the marketing restrictions imposed in the United States. What’s more, the company’s own CEO suffered 13 cases of identity theft after he put his Social Security number on LifeLock.
On top of that, the service costs about 350 dollars, while its most direct competitor (INTX) charges 50 dollars. David Swart believes this company is overvalued whichever way you look at it.
An interesting bet, especially because we will see fundamental analysis having to fight technical analysis on this stock: technically it is very bullish, having broken through a major resistance level, and it is now rising with no resistance overhead.
2. Short Exact Sciences Corporation (NASDAQ: EXAS), by Travis Cocke, co-founder of the investment firm Southpaw Capital
Travis is bearish on Exact Sciences, a molecular diagnostics company that focuses on cancer detection. In his view, the company is far too optimistic, and its product has not yet been approved by the FDA. The company also has a long history of spectacular commercial failures.
The stock has risen a lot because shareholders have blind faith in the company’s new CEO. Even if the product worked and were finally approved by the FDA, the shares would still be highly overvalued. Travis sees only one direction for this company in the medium term, and that is down.
3. Long Ashland (NYSE: ASH), by Daniel W. Lawrence, founder of Elmrox Investment Group
Ashland is a chemicals company that, from 2009 onwards, began a steady, low-volatility climb, and Lawrence sees continued potential in it, just as it has shown so far.
Everything suggests this could be the winning investment idea, although he will need to explain the reasons for his “thesis” much better, because personally I can’t see any bargain in buying shares in this company.
See also: The best of Warren Buffett
Featured image: Gnesener1900, CC BY-SA 4.0, via Wikimedia Commons.
