Value Investing Q3 Letter Recaps: CL, KMX, BOLSAA

Our Value Investing Letter Recaps keep things simple. 

Each email focuses on three value investing hedge fund letters, three ideas, all digestible in three minutes

Within each idea we answer four main questions: 

  • What does the business do? 
  • Why is it a good bet? 
  • Why does the opportunity exist? 
  • What is the prize if you’re right?

Quick housekeeping note that nothing you read is investment advice and please do your own due diligence before investing. Also, I do not own any of the below-mentioned securities as of this writing. 

Finally, we get each investment letter from r/SecurityAnalysis, which you can find here

This week we analyzed Colgate-Palmolive (CL), CarMax (KMX), and Bolsa Mexicana de Valores (BOLSAA.MXN).

**Note: Enrollment into our Collective kicks off today and will be running until the end of the week. The Collective is our full-kit soup-to-nuts service that provides research, theory, and a killer community that consists of dedicated traders, investors, and fund managers from around the world. We’ve been told that there’s nothing else like it on the web. If you’d like to tackle markets with our group (whom, I should note, has been having a great year in markets), then just click the button below and sign up. And, as always, don’t hesitate to shoot me any Qs!***

Alright, let’s get after it. 

Top 3 Value Investing Letters You Need To Know About


1. Third Point Capital: Colgate-Palmolive (CL)

Dan Loeb released his Q3 letter last week, which you can read here. You can also listen to the audio version of Dan’s letter in my latest Value Hive: Investor Audibles series (listen here). 

Third Point ended the quarter down -2.3% in its equity book and -18.2% YTD. This week we discuss one of his latest ideas, CL. Particularly, Loeb sees hidden value in one of CL’s most prized assets: it’s animal/pet food business. 

What does CL do? 

“Colgate has a strong portfolio of brands and operates across four categories that should perform well across most economic conditions: oral care, home care, personal care, and pet nutrition.”

Why is it a good bet? 

“The business is defensive and has significant pricing power in inflationary conditions. 

Second, there is meaningful hidden value in the company’s Hill’s Pet Nutrition business, which we believe would command a premium multiple if separated from Colgate’s consumer assets. 

Third, there is a favorable industry backdrop in consumer health, with new entrants via spin-offs and potential for consolidation. 

Finally, the current valuation is attractive both because earnings growth is poised to inflect higher, and because shareholders are paying very little for the optionality around Hill’s or Colgate’s ability to participate in further consolidation in the consumer health sector. ”

Why does the opportunity exist? 

“Although Colgate has delivered organic sales growth of 5-6% over the past few years, earnings growth has been disappointing, and the stock has become a perennial underperformer. 

Foreign exchange headwinds have pressured reported results. Business reinvestment, supply chain disruption, and inflationary pressures have weighed heavily on margins; those headwinds are now reversing. ”

What is the prize if you’re right? 

“We believe that as a stand-alone business, Hill’s could deliver even faster growth and better margins, and would command a premium multiple of 25-30x EPS for an aggregate valuation approaching $20 billion on CY23 numbers … 

Colgate’s valuation provides a strong margin of safety coupled with significant upside. On our numbers, shares now trade for a low 20x multiple on CY23 EPS. Looking ahead, we see shares compounding at a mid to high teens rate over the next several years just from earnings growth and the nearly 3% dividend. Any strategic actions around Hill’s or the consumer health sector could add materially to our expected return.”

Further Research Material

2. Giverny Capital: CarMax, Inc. (KMX)

Giverny Capital is a new edition to our weekly Investor Hedge Fund Letter series. You can read their latest Q3 letter here

The fund declined -4.64% in Q3 and is down -28.71% YTD. 

Let’s check out one of the fund’s long investments, KMX. 

What does KMX do?

“CarMax is the largest used auto retailer in the country.”

Via TIKR: KMX offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles; and extended protection plans to customers at the time of sale, as well as sells vehicles that are approximately 10 years old and has more than 100,000 miles through wholesale auctions. The company also provides reconditioning and vehicle repair services; and financing alternatives for retail customers across a range of credit spectrum through its CarMax Auto Finance and arrangements with various financial institutions.

Why is it a good bet? 

“Carmax continues to have, by far, the best business model for selling used cars. The success of its Instant Offer program means it has an efficient system to acquire inventory from consumers. It has the lowest costs for refurbishing those cars for resale and the lowest freight costs for moving cars to the markets where they’ll sell most profitably. It has the lowest costs in percentage-of-revenue terms of national advertising, because of its scale. The TV ads build the brand. It turns inventory faster than peers, and because used cars lose value at a rate of about $10 per day, a 15-day advantage in inventory turn amounts to $150 per car of higher profit.”

Why does the opportunity exist? 

“Demand for used cars can be cyclical, and right now sales are off as cars become less affordable. The current soft patch comes as Carmax has ramped up investment in its ability to sell more cars online. So, we have a double whammy of lower sales and higher investment in future growth. Earnings may fall in half this year, which succinctly explains the stock falling in half.” 

What’s the prize if you’re right? 

“I continue to believe Carmax could earn $10 per share in a few years, while still only commanding a mid-single digit percentage of all used car sales. The stock has been as low as $60 recently”

Further Research Material 

3. Upslope Capital: Bolsa Mexicana de Valores (BOLSAA.MXN)

George Livadas runs Upslope Capital, a long/short hedge fund specializing in midcap situations. You can read his latest Q3 letter here. The fund lost -4.7% in Q3 and is down -4.2% YTD. Impressive YTD returns given the S&P 500’s 20%+ decline. 

Let’s dissect Upslope’s latest long, BOLSAA. 

What does BOLSAA do? 

“BOLSAA is a leading financial exchange (equity, fixed income, and derivatives) operator, primarily in Mexico.”

Why is it a good bet? 

“The company is extremely profitable (60%+ EBITDA margins), has an overly conservative balance sheet (1x net cash), strong cash flows supporting a large dividend (6% yield), and is very cheap (12x earnings vs. most developed market peers trading closer to 20x – and virtually all these peers carry 1-3x of net debt).” 

Why does the opportunity exist? 

“Major risks for investors include FX, political/regulatory uncertainty, and a newer competitor in equities (BIVA).” 

What is the prize if you’re right? 

“While I do not see any specific near-term catalysts, I view BMV as a cheap call option on either a broader Mexico resurgence (logical “reshoring” beneficiary – more on this below) or a one-sided bet on a broad (global) market rebound.”

Further Research Material

Wrapping Up This Week’s Value Investing Letters: What To Read Next

Thanks for reading, and I hope you learned something. If you enjoy this series, let me know by shooting an email or retweeting on Twitter. 

Also, please let me know if there’s an investor letter I should read that I didn’t cover here.

Free Global Macro Investing Course

Learn the history, success factors, and analytical frameworks unique to Global Macro Investing. Sign up below for this free video course:

Subscribe To Our Newsletter

Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.