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New Addition to
The Billionaire’s Portfolio:Dear Member,
We exited our shares of SunEdison earlier this week (symbol SUNE). Unfortunately, we weren’t able to sell them as close to $10 as we would have liked, but we still lock in a gain of more than 250% from that date of the recommendation in October. Again, well done! If for some reason you were unable to exit those shares, I recommend you exit them today.
Now, this makes room for a new addition to the portfolio. And I have an exciting one for today, so let’s get to it…
One of our current holdings, Wet Seal (WTSL) is another pick in the portfolio that has given us a great return thus far. And as you might recall, we followed the billionaire small cap activist hedge fund, the Clinton Group, on this pick.
For those of you who don’t remember, the Clinton Group, run by George Hall, is one of the longest running and most successful small cap activist hedge funds in the business. Not only do they have a great track record of producing strong returns in any market condition, but they are also one of the toughest and most aggressive activist hedge funds on the street. And that is why I love following them into a stock.
So today, we are going to follow the Clinton Group again. This time, we will follow them into the small cap technology stock, Digital Generation (Symbol: DGIT).
The Clinton Group first acquired a nearly 9% position in this stock in January of 2013, at prices much higher than what we are paying today. Digital Generation currently sells for $7.80. That is 24% cheaper than what our billionaire investor paid for their position.
If you have read my e-book, you will know that this is one of my key ingredients to investing success. By buying the dip on a billionaire activist investor, we increase our chances dramatically of seeing a big winner on a stock. So that is one of the reasons that I am so excited about buying Digital Generation today.
Here are the details on today’s new addition …
New Trade Recommendation
Important Note: For the purposes of Billionaire’s Portfolio, I’m sizing all of my recommendations on a model account of $20,000. If your portfolio is larger or smaller, you should adjust the specific recommendations accordingly. For example, if you're managing a $5,000 portfolio, divide the number of recommended shares to purchase by 4; if you're managing a $40,000 portfolio, multiply by 2; etc.
With 5% of the funds you have set aside for the Billionaire's Portfolio, I recommend buying Digital Generation, symbol (DGIT), at a price of $8.15 or better.
In our model portfolio of *$25,850, the number of shares is 158 – at the current market price, that equals 5% of *$25,850.
(*marked to market value of the model portfolio)
Now, a little about the company…
Digital Generation operates a nationwide distribution network that connects their clients' audio and video spots to radio and TV stations and other traditional media outlets. The company connects more than 6,000 ad agencies, advertisers with more than 30,000 television, cable, radio and online publishers throughout the world.
The Clinton Group has already laid out a game plan for what they want to accomplish with their 9% stake in DGIT. They have already said in writing they are going to push the company to sell itself. And they want to make sure the board and management will accept offers from companies wanting to acquire DGIT. Secondly, the Clinton Group has said they are going to nominate members of their own team on DGIT’s board to make sure that the company is sold at the highest price that is fair to the company’s shareholders. Again, we’ve seen this playbook before. And it’s a very effective one.
So why does the Clinton Group want to sell DGIT?
It’s easy. The company is extremely undervalued and has technology that a lot of other big companies want! Less than two years ago, the online management media company Extreme Reach offered to buy Digital Generation for $20 a share (that would be a 150% plus return from DGIT’s current market price). But the board and management at DGIT rejected this offer. That mistake gives the Clinton Group and us the opportunity to participate in the next offer.
Since then, the company has hired Goldman Sachs to help them explore strategic alternatives. So we know, now, this company is “on the block” and is up for an immediate sale.
Here’s the interesting part: Clinton Group believes that DGIT is worth at a minimum $14 to $16 on a buyout, but thinks the company could be worth $20 to the right bidder.
So this is another exciting pick for our portfolio. I think we have another potential STEC here (a stock in our portfolio that was acquired for a 90% premium last month). I think DGIT is another stock that is so cheap it could literally double overnight on a takeover or buyout.
To sum up, we have been patient, and now it has paid off nicely. We get a handsome return on our SUNE shares, and now we get to replace it with one of the best risk-reward scenarios I have seen in a while.
Digital Generation has a valuable niche business, with technology that bigger companies desire. And we know it is in play -- the company has hired Goldman Sachs to find them a buyer. And now we have the added bonus of the Clinton Group on-board with a controlling stake in the company. They will be pressuring them every day to sell to the highest bidder.
Even better, we have a company that’s worth at least a double from current levels, according to our billionaire investor … and we are getting in at a discount to what they have paid.
So we have another great addition to the portfolio today. That takes us back to 20 open picks in the portfolio (with SD, double weighted) -- exactly where we want to be, fully invested.
That’s it for now. Please keep a close eye on your email as usual for our next communication.
Billionaire's Portfolio is strictly an informational publication and does not provide individual, customized investment or trading advice to its subscribers. Although many of our analytical approaches are unique, they are based on publicly available data; and although analysts may visit specific sites, companies or countries to gain a more objective on-the-ground perspective regarding specific investment opportunities, they do not seek or accept data thats not available to the public. The money you allocate to this service should be money you can afford to risk. While every effort is made to simulate the actual experience of subscribers, all performance figures must be considered hypothetical. References to examples of past performance are not intended to provide a total picture of position results, and past results are no guarantee of future performance.
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