Our material long positions (>3% of the portfolio) at the end of February were as follows (in order of size): Trex Co. (TREX), Alliance Fiber Optic Products (AFOP), Mesa Laboratories (MLAB), Colfax Corp. (CFX), Core Laboratories (CLB), Eagle Materials (EXP), Caesarstone Sdot-Yam (CSTE), Kirby Corp. (KEX), American Vanguard (AVD), Chart Industries (GTLS), NOW Inc. (DNOW), Masonite International (DOOR), Primoris Services Corp. (PRIM), Astronics Corp. (ATRO), Hudson Technologies (HDSN), Trimble Navigation (TRMB), and Team, Inc. (TISI).
There were no material longs completely exited in February. Materion Corp. (MTRN), Valmont Industries (VMI), and Geospace Technologies (GEOS) remain positions, but we have trimmed them to below 3% of the portfolio.
The additions to the list were Astronics Corp. (ATRO) and Team Inc. (TISI). Astronics primarily makes in-seat power and entertainment systems for airplanes; it also makes equipment that tests and measures communication signals. The in-seat power and entertainment systems business has surged in recent years as airlines have tried to catch up with the times; however, in recent quarters, the test and measurement business has struggled due to erratic and underwhelming order patterns by Apple (AAPL). In our view, test and measurement (T&M) equipment sales are near a bottom, and more importantly, we argue that T&M’s weakness is masking the strength of the aerospace business. We
Team, Inc. provides test, inspection, and repair services to the “process” industries (e.g., pipelines, refineries, petrochemical facilities, power generation), and is a direct competitor to one of our shorts, Mistras Group (MG). TISI shares, unlike those of MG, have tanked in recent months as downstream and integrated oil and gas companies have restrained their maintenance spending at the same time a surplus of labor has hit the market (which affects TISI’s pricing power). Basically, what we have set up with TISI and MG is a pair trade. TISI has already been hit hard and we don’t think there’s much downside left. We also think it is the higher-quality of the two companies and that its recent acquisition of Furmanite presents some company-specific upside (via synergies and long-term pricing power).
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