It’s been one week since we hit the official deadline for 13Fs this month, giving me just enough time to make my rounds, read through each filing, and dive a little deeper into those that piqued my interest.
With all the paperwork out of the way, today we’re going to look at two filings that caught my attention.
These 13Fs are fantastic because they allow us to follow the smart money. The best money managers, family offices, and hedge funds not only have to disclose their new stock positions, but whether they’ve increased their positions, decreased their positions, or if they totally had an exit of a position.
Studying the filings is pure exploration. But more often than not, the end result is discovering either a new idea, a new trend, or in today’s case, a couple of stocks worth adding to your radar.
Bill and Melinda Send An Alarming Signal
One of the more interesting filings this month came from the Bill and Melinda Gates Foundation.
While the power couple does a lot in the world of philanthropy, their foundation does have some directly owned stocks in its portfolio.
To what may come as a surprise by many, the Gates Foundation does not hold a very tech heavy portfolio to begin with. Perhaps Bill’s friendship with Warren Buffett has rubbed off on the Microsoft (MSFT) mogul’s personal investing style as the foundation’s top five holdings are Berkshire Hathaway (BRK.A), Waste Management (WM), Caterpillar (CAT), Canadian National Railways (CNI), and Wal-Mart (WMT).
But that’s not to say the Foundation owns no tech stocks whatsoever.
While big tech is only a small portion of their portfolio, I found that what they did with these positions last quarter is quite alarming.
The Gates Foundation was selling a lot of tech.
The charity sold all of its Alibaba (BABA) and Uber (UBER) positions… and half of their Apple (AAPL), Amazon (AMZN), and Google (GOOG) positions during the final quarter of the year.
If one of the richest and most influential tech guys of all time is selling tech, do you really want to be buying it at these levels?
More importantly, the Gates Foundation only bought one stock in the quarter: 200 million shares of Schrodinger (SDGR).
Schrodinger is a fascinating company that has developed a physics-based computational platform that leverages a deep understanding of physics, chemistry, and predictive modeling to accelerate innovation in life sciences.
Schrodinger sells its software to biotech companies, academic labs, and anyone else working on discovering new therapies. Schrodinger is also using their own platform to discover new treatments and develop new drugs. Most of their candidates right now are cancer-related therapies.
They also have a drug discovery partnership with Bristol Myers Squibb (BMY) that could eventually be worth as much as $2.7 billion according to Schrodinger. That deal would also produce a royalty stream on any drugs that Bristol Myers took to market.
Look, Bill Gates is a brilliant guy who has long been interested in helping people, especially underprivileged people around the world. When he is buying a company that is doing cutting-edge drug and material discovery platforms, we should probably keep an eye on it.
I am not saying run out and buy Schrodinger stock today. The stock has doubled from its lows in Q3 2020 and I suspect that the Gates Foundation bought their shares at a far better price than what it’s trading at today.
Regardless, it should be near the top of your learn and watch lists.
At some unknowable point in the future, stock prices will fall for a sustained period of time. When it happens, you can then deploy a small portion of your capital into a potentially life-changing company on more reasonable terms.
A Fleet Of Growth
Towle and Company is a small-cap deep value firm out of St. Louis, Mo. that has been referred to as the best investment firm no one has ever heard of before. I read their filings every quarter and have made loads of money by swiping some of their ideas.
In the final quarter of 2020, the biggest addition to the portfolio was U.S. Express (USX), a trucking company based here in the United States. U.S. Express has both an asset-based trucking operation that includes over-the-road and contract services, and a brokerage business that provides freight services.
The customer base at U.S. Express includes giants like Wal-Mart (WMT), FedEx (FDX), Target (TGT), Home Depot (HD), and Amazon (AMZN). The customer base is diverse, with exposure to industries outside of traditional retail. This means they do not have to rely on seasonal swings in the retail business in order to boost margins.
The big story here, however, is the ongoing development of the Variant fleet – a new line of trucks that are planned, staffed, dispatched, and managed using new digital and artificial intelligence platforms developed by U.S. Express. The Variant fleet has improved utilization, reduced driver turnover, and safety incidents.
Right now there are 688 tractors in the fleet, with goals of hitting 900 by the end of the first quarter 2021, and 1500 by the end of the year.
U.S. Express has also recently added a digital platform to the brokerage business. As a result, the fourth quarter of 2020 saw brokerage revenues of $76.4 million compared to $54.1 million in the fourth quarter of 2019.
CEO Eric Fuller talked about the future he sees for U.S. Express, telling us:
“Our Company is at a clear inflection point as we proved the Variant business model over the last year while also implementing a digital platform in our Brokerage Segment, which we believe positions the Brokerage business for profitable growth. Looking ahead, we see a large, fragmented market where we believe we can take meaningful share as we scale our digital platforms.”
Based on earnings estimates for 2021 and the price-to-sales ratio of this company, the stock should probably trade for two to three times the current stock price over the next year or so.
I suggest adding this one to the top of your watchlist as well. If and when the market dips over the next few months, you should have two buy orders ready to fill.