Charles Lemonides Likes His Investors to Pay 50 Cents on the Dollar for His Value Stock Portfolio

January 4, 2019

Charles Lemonides, CFA, is Founder, Chief Investment Officer and Portfolio Manager at ValueWorks LLC. He leads investment research and portfolio management and has final authority for all investment decisions. He started his career at regional brokerage Gruntal & Co. in the firm’s research department in 1986 and covered risk arbitrage, the banking industry and special situations.

In this exclusive 4,260 word interview in the Wall Street Transcript, Mr. Lemonides details the careful value based orientation of his portfolio:

“ValueWorks is the business that derives from something I started as a unit of Gruntal & Co. 20-odd years ago. It’s a firm designed to bring a value investment discipline to the table, where everything we do is wrapped around the notion of finding a dollar’s worth of assets for $0.50 in the public markets.

We primarily work in the large-cap space in U.S. equities but will go anywhere in terms of market capitalization when the valuations are there and are attractive, and will sometimes go up and down the capital structure to capture the best risk/reward.”

Mr. Lemonides details this philosophy with this example:

“The acquisition was not loved by United Natural’s shareholder base. The stock went down significantly when the deal was announced. The stock went down significantly when the deal closed, and the stock went down significantly when the company came out and announced recent operating results and revised estimates going forward for the combined company, and management clearly has had some significant missteps in orchestrating this acquisition. The share price has gone down from $45 back in July to $10 today.

Today, it’s a $500 million equity cap. On a combined basis, these two companies are going to do $20 billion worth of sales and have roughly $650 million to $700 million worth of EBITDA. Again, the equity cap is now $500 million. The debt load on the company is $3 billion. It’s in two layers of bank debt, on $700 million or $650 million worth of cash flow basis, that should be easily sustainable.

Obviously, that debt was put in place very, very recently. So it’s hard to see how anyone is uncomfortable with that bank debt at this point in time. At an overall valuation, debt plus equity cap of something like $3.5 billion, you’re buying this company at a lower multiple of cash flow than seems sustainable to me. The upside is clearly potentially two to four times your money on the common stock.”

Get all the portfolio picks from this professional money manager in his 4,260 word interview in the Wall Street Transcript.