Hedge fund conversation

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Wed, 02/27/2013 - 10:38am -- Seth Golden

Martin Costa had the opportunity to speak with a hedge fund manager with positions in both SODA and GMCR recently and we have provided an exert from the conversation.

Martin: When you analyze these two stocks, where do you see the differences?
Hedge Fund: There aren't as many as investors assume. With a razor/razor blade
business, the razors are usually very expensive, so they can only reach so
much of the market. There's a limit to how much market share they can
capture by sheer cost of the razor blades. I agree there are underlying
differences, but they may not be that significant in the grand scheme of
things.
Martin: So are you depicting an end game or a ceiling in your investment thesis?
Hedge Fund: You have to. We aren't saying when it will happen, but eventually it does
with this particular business model given pricing.
Martin: Who is most at risk of reaching that ceiling in the future? What are you looking
at so far to identify this?
Hedge Fund: Its basic speculation, but you'd have to say Green Mountain. If they don't
find a profitable way to get beyond the U.S. then what do you have?
Martin: Are you of the opinion they can?
Hedge Fund: No, not given their gross margins. Where are they gonna find a
Manufacturer centrally located, let's say in Europe, that can build and ship
Keurigs to the region with any profit margin?
Martin: So why invest in SODA or GMCR if you feel there is only so much growth?
Hedge Fund: Anything can happen and a ceiling may not be reached for years. Right
now earnings and revenues are growing, can't ignore this to speculate
on when the downturn will come. What if they merger with a
conglomerate or get bought out or tomorrow announce another deal?
Martin: And SODA, at least with GMCR they are home-grown and without threat of
Regional conflict. Wouldn't you see more cons in SODA than GMCR?
Hedge Fund: On the contrary, SODA has much more room and years of growth ahead.
It's an early stage play on GMCR for those who missed out on GMCR in
2009. Regional conflict is part of the risk with SODA, but it's almost
always noise. They have never had a shut down or anything like that. You
want a con for SODA I'll give you one; it's a soda machine and its not a
coffee machine. I wake up in the morning and have a cup of coffee like
millions of people around the world. We don't wake up and have a glass
of soda. Some people physically need that cup of coffee.

mark jackson's picture
Submitted by mark jackson on

great article Seth! I'm following this trade to the T. I locked in profits on the second positin actually at $47.20 so I'm in better shape than expected. Huge profits in this trade. Good job man!!

Jennyaec's picture
Submitted by Jennyaec on

LOL, Hey Mark I was beginning to think I was the only one in this trade. Glad to see I'm not but I know a lot of people don't post on the message board. I bought my original position at $44.35 and bought a second position at $45. I cashed the $45 position in at $47 today with a limit order. Doing so good and just 2 months into the new year!!!! Nice trading!!!

mark jackson's picture
Submitted by mark jackson on

I'm sure it's not just the two of us. Not a lot of hedge funds use a message board and most clients of Capital Ladder are hedge funds so... Nice positioning Jenny and it has been a great start to the year. I did really well on GMCr, SODA and UVXY so far and waiting for the next trade idea. Got a recent newsletter saying they were increasing the amount of trades YOY.

israel dejesus's picture
Submitted by israel dejesus on

Been in it too guys...and gals (Miss Jenny)!! What a great trade I'm out at $49 even!!!!!

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