Palm Valley Capital Fund (PVCMX) Third Quarter 2022 Commentary

Heartland Express contributed more than 10 basis points to third quarter performance; the author reduced its weighting as shares neared fair value and the company announced a material acquisition that increased leverage.

“The Fund had two equities contributing more than 10 basis points to third quarter performance: Heartland Express (ticker: HTLD) and Preformed Line Products (ticker: PLPC). We reduced our weighting in Heartland as the shares neared fair value and the company announced a material acquisition that increased leverage.”

The Fund exited Preformed Line Products after the shares exceeded the author's intrinsic value estimate; the author views the business as historically cyclical and believes the sale may be near peak operating performance.

“The Fund exited its stake in Preformed Line Products (ticker: PLPC) during the third quarter after the shares exceeded our intrinsic value estimate. During the second quarter, PLP's currency neutral sales jumped 27%, with a 41% gain in operating profit. The business is historically cyclical, and we believe we could be selling near peak operating performance.”

SSR Mining was repurchased in late September after the Copler mine restarted; the author believes it should generate significant free cash flow at current metal prices and is selling at an attractive price relative to its asset-heavy balance sheet and net asset valuation.

“We also purchased SSR Mining (symbol: SSRM) during the quarter. SSR Mining is a precious metals mining company that we previously sold in November 2021 after it reached our valuation. SSR Mining's stock has fallen significantly this year due to lower precious metal prices and the temporary closure of its Copler mine. We repurchased its shares in late September after the Copler mine restarted on schedule, since the stock remained depressed. SSR Mining should generate significant free cash flow at current gold and silver prices and has a very strong balance sheet with over $600 million in net cash and $4.1 billion in stockholders' equity. While we expect the stock to remain volatile, we believe the company is selling at an attractive price relative to its asset-heavy balance sheet and our net asset valuation.”