The new positions on the list are IPG Photonics (IPGP), Balchem Corp. (BCPC), Proto Labs (PRLB), and Materion Corp. (MTRN). Of the four companies, Proto Labs is the only one that has not been in our portfolio before, and even with that one, we have been monitoring the company closely for years.

IPG Photonics and Proto Labs join our collection of high-quality, secular growth but also industrial/cyclical businesses that have been hit by a double whammy of tougher end-market conditions and unforgiving capital markets. IPGP is the dominant producer of fiber lasers, which continue to take market share from more traditional laser types, such as CO2 and YAG, due to their ability to cut/weld a variety of materials, lower electricity usage, lower maintenance costs, and smaller physical footprint. While investors may have been disappointed with IPGP’s 1Q:16 results and outlook in the context of the company’s historical growth rates, we viewed them as decent considering the weakness in global industrial capital equipment spending trends. We bought the stock on the post-earnings dip and plan to hold for a while.

Like IPGP, Proto Labs delivered 1Q:16 results and guidance that were decent in the context of a weak capital equipment spending environment but disappointing compared to the company’s historical growth rate. In our view, both companies’ secular growth and market share gain stories remain well intact. In PRLB’s case, what makes the company special is its proprietary software that automates, and in turn, greatly speeds the process and reduces the cost of manufacturing industrial parts/prototypes. In our view, the case for PRLB’s system relative to traditional part outsourcing is similar to that of relative to store-based retailers— the selection is much greater, the prices are much lower and the process is much faster.

Balchem does not have quite the secular growth story of IPGP or PRLB, however, it too is a high-quality company. BCPC dominates highly-niche, specialty chemicals markets/applications including medical device sterilization, oil/gas well clay stabilization, human and animal nutritional supplements, and powder-based ingredients/flavor additives. We like BCPC at this point for choline’s likely increased adoption in human diets (due to FDA suggestions), for the clay stabilization business’ cyclical recovery potential, and for the long-awaited ramp up of encapsulation solutions for an autism drug being developed by Curemark.

While we would be lying if we described Materion as a high-quality business (we have often been short the stock in the past based on the opposite), we do think the company’s end markets are near cyclical lows, the balance sheet is in good shape, and the stock and earnings have significant snap-back potential if the economic outlook improves.


The above post has been excerpted from a letter of Liberty Park Capital Management.

This monthly letter, furnished on a confidential basis to the recipient, does not constitute an offer of any securities or investment advisory services. It is intended exclusively for the use of the person to whom it has been delivered by Liberty Park Fund, LP and it is not to be reproduced or redistributed to any other person without the prior written consent of the Fund.

This information has been compiled by Liberty Park Capital Management, LLC and while it has been obtained from sources deemed to be reliable, no guarantee is made with respect to its accuracy. The Fund does not represent that the information herein is accurate, true or complete, makes no warranty, express or implied, regarding the information herein and shall not be liable for any losses, damages, costs or expenses relating to its adequacy, accuracy, truth, completeness or use.

This monthly letter is subject to a more complete description and does not contain all of the information necessary to make an investment decision, including, but not limited to, the risks, fees and investment strategies of the Fund. Any offering is made only pursuant to the relevant private offering memorandum, together with the current financial statements of the Fund, if available, and a relevant subscription application, all of which must be read in their entirety. No offer to purchase interests will be made or accepted prior to receipt by an offeree of these documents and the completion of all appropriate documentation.

Liberty Park Fund, LP’s 2011 returns are audited; however, all other figures are estimated and unaudited. Net results reflect the net realized and unrealized returns to a limited partner after deduction of all operational expenses (including brokerage commissions), management fees and performance allocations. Performance data assume reinvestment of all distributions. Actual returns will vary from one limited partner to the next in accordance with the terms of the fund’s limited partnership agreement. Past performance is not indicative of future results and investors risk loss of their entire investment. Performance results are shown for the period from February 2011 through May 2016.

References in this presentation are made to the Russell 2000 Index for comparative purposes only. Liberty Park Fund, LP may be less diversified than the Russell 2000 Index. The Russell 2000 Index may reflect positions that are not within Liberty Park Fund, LP’s investment strategy.