Rebalancing July 5/6, 2021: Selling Euronav NV and Buying AutoNation Inc
SELL: EURONAV NV
I am late this time but finally here my update on the July 5/6 rebalance. I sold Euronav ($1.8B market cap) for roughly 12% pretax gain after a holding period of about 10 months (bought on September 3, 2020). The stock went through a volatile sideways movement over the last year, however, the trade still ended up with a positive return.
The Belgium based company Euronav NV operates in the international maritime shipping and storage of crude oil and petroleum products. The company owns and operates tankers (majority of revenue), floating storage vessels and offloading activities. So it can be assumed that the stock somewhat profited from the recent rise in oil prices, even though the business didn’t. YoY, Ebit is down 44% and revenue is down 18% according to gurufocus.com.
The stock still looks cheap but the lack of momentum and fundamental deterioration (e.g. F-Score of only 4) makes it an unattractive hold from here.
BUY: AUTONATION INC
the replacement was AutoNation Inc ($8.3B market cap), a US based automotive dealer in the United States. The business operates about 230 dealerships, 5 used-vehicle stores, 4 auction sites and 74 collision centers across 16 states primarily in Sunbelt metropolitan areas. New-vehicle sales generate the majority of the revenue.
The following table shows a comparison of ranks in my screen for Euronav and Autonation in comparison (at date of rebalance):
The stock had a very good run over the past year (4x since the 2020 bottom), which was also backed by the earnings boost due to the reopening “bounce”. I am pretty sure in the latest rebalances of big momentum funds, Autonation landed in many portfolios. It is a typical momentum play based both on price and fundamental momentum (F-score of 9). A Peter-Lynch chart illustrates the situation. Many stocks show charts like this recently: flat-lining over the past 5-1 years, getting killed during COVID and bouncing to new all-time highs as a multibagger in the reopening trade.
Despite the 4x stock price movement, the stock still is cheap on a naive trailing ratio basis across the board. Furthermore, ROC, cashflows and revenues are pretty stable over the years.
To clarify: I am aware that at some point a pick like this will catch the top and will revert back to lower levels. Many earnings were pulled from the future to the present due to COVID distortions. Still, please keep the following points in mind:
I have a somewhat diversified international multi-industry multi-factor portfolio,
I act/rebalance on a 6m time horizon,
tops not always are marked by a crash, often they form volatile side-markets over several months allowing the Value-Momentum screen to get out in time,
business trends often last longer than expected.
The (post)COVID world marks a unique situation. Noone knows what will happen; noone can, noone should, noone ever will. My investment philophy actually embraces uncertainty. Weird stuff happens all the time. Chaos, risk and unexpected events are no invention of the 21st century, even if it feels like it today. The performance of proven factors includes and survived all periods where event X made people go “you can’t use trailing earnings here, it doesn’t make sense” and event Y made people go “you can’t use momentum here, the market can revert soon”. I’d even say in many of those cases, the people even were right.
Still, factor investing survived any period, even more so in multi-factor land! That’s what makes me sleep well at night.
I wish you all good investing. Have a nice sunday!
Your Non-Prophet