“Don’t judge each day by the harvest you reap but by the seeds that you plant.” –Robert Louis Stevenson
We seized the moment afforded by Brexit to increase our position in Diageo, plc (“DGE”) in late June, now at 2.4% of holdings. DGE was one of our better performers last month.
Brexit presented a potential opportunity to buy companies we liked on the cheap, particularly when investors (mostly American) fail to properly distinguish winners from losers. At month-end, DGE share price fell precipitously relative to its peers. DGE generates the least revenues from the UK and Eurozone of its peers and has the “E” Externality, therefore, of reporting in the depreciating British Pound, while generating significant and growing revenues in the appreciating US Dollar.
We are invested in DGE, however, as based on our work, they are both in a substantially better position to return capital to shareholders via dividend increases and/or share buybacks, and restructure their business, potentially jettisoning non-core (but highly coveted) assets (the “R” Revaluation Catalyst).
The above post has been excerpted from a letter of Tiburon Capital Management.
Peter Lupoff on Learning from Marty Whitman