The Oxford Communiqu

Publish date: 2024-05-08

This bull market is fast approaching its 9th birthday. We’ve taken full advantage in our Oxford investment portfolios, locking in dozens of profits over this period.

Yet I still see plenty of opportunities out there. One of them is Liberty Expedia (Nasdaq: LEXEA), a Colorado-based holding company.

One of its principal assets is 16% ownership of Expedia (Nasdaq: EXPE), through 10.8 million shares of common stock and 12.8 million shares of Class B common stock – representing an approximately 52% voting interest.

It also owns 100% of Vitalize – formerly known as Bodybuilding – a holding company with health, fitness and media-related businesses.

One of the biggest challenges facing businesses today is getting valuable but fickle customers – always alert to lower prices and better deals – to stick with them over the long haul.

Expedia – one of the world’s leading travel companies – has done that in spades. Through its website (or toll-free number), consumers and businesses can book airline tickets, hotel reservations, car rentals, cruises, vacation packages and even attraction tickets.

Expedia owns over 200 travel booking sites in more than 75 countries. It offers rooms in over 435,000 properties, tickets on more than 500 airlines, bookings for dozens of car rental companies and cruise lines, and tickets to more than 25,000 attractions.

The company also owns some of the world’s leading online travel brands, including Trivago, Orbitz, Travelocity, HomeAway, Classic Vacations, SilverRail and Hotwire.

In the past 12 months, it generated $9.8 billion in sales on gross bookings of more than $83.8 billion.

In October, however, the company reported that earnings per share rose 7% on a 15% increase in revenue.

That was below expectations, and Expedia dropped from over $150 a share to around $120.

Since Liberty’s value is tied to Expedia’s, its shares fell in unison. Looking forward, however, there are good reasons for optimism.

For example, expenses rose last quarter because Expedia made the conscious choice to advertise more heavily, something it needed to do in the face of increasing marketing efforts by competitors like Priceline and TripAdvisor.

It’s already paying off. Bookings increased 11% in the September quarter.

Plus, the industry itself is expanding. An analysis by eMarketer estimates a 45% expansion in the sales of digital travel services between 2016 and 2020. That amounts to more than $817 billion.

The total travel market is estimated at around $1.3 trillion globally. So while Expedia is already a major player, it holds only a mid-single-digit percentage market share. That means there is still enormous opportunity here.

CEO Mark Okerstrom said in a conference call following the release of third quarter earnings, “We now find ourselves in the enviable position of having all of the essential assets needed to realize our full potential as a company. Looking forward, we are more optimistic than ever.”

I couldn’t agree more. Keep buying.

Equity Residential: Put a Fortress in Your Portfolio

Over the past several decades, commercial real estate has been one of the most rewarding investments in the country.

Unfortunately, the sector is not particularly accessible to the broad investing public.

Most investors don’t have the cash or the credit line necessary to buy apartment buildings, industrial parks, shopping centers and warehouses.

And of the trillions of dollars in commercial real estate in the U.S., very little of it is publicly traded.

That small percentage that does trade is generally in the form of real estate investment trusts (REITs).

A REIT is a security that invests directly in real estate but trades on an exchange like a stock.

According to the federal Bureau of Economic Analysis, real estate, rentals and leasing make up 13% of our gross domestic product. Yet REITs represent approximately just 3% of the S&P 500.

If you want a portfolio that reflects the U.S. economy, you need to own a piece of this sector.

REITs are highly liquid.

They allow you to own a diversified portfolio of income-producing properties in a single investment.

They have a low correlation with the stock market, making REITs a great portfolio diversifier. And because they are required to pay out at least 90% of their net income to shareholders each year, they are also reliable dividend payers.

Some analysts believe the higher yields make them vulnerable to an interest rate rise. But there is no evidence to support that.

During five of the six periods since 1978 in which the Fed lifted short-term rates, REITs generated positive returns and outperformed both U.S. stocks and bonds.

That brings me to Equity Residential Properties Trust (NYSE: EQR) in our Oxford All-Star Portfolio.

Equity Residential owns or has investments in 302 properties consisting of 77,498 apartment units located primarily in Boston, New York City, Seattle, San Francisco, Southern California and Washington, D.C.

It was founded by Sam Zell and Bob Lurie – two of the most successful property moguls in the nation – with the philosophy of investing in properties at the right price and hiring the best people to manage them.

The trust buys, builds, and rehabs apartments and condos – for every budget and lifestyle – in growth markets where people most want to live.

The meltdown in home prices during the recent financial crisis took the shine off the idea that everyone should be a homeowner. And in this sluggish economy, many consumers either can’t afford a home or can’t qualify for the mortgage.

So the rental market is strong.

The trust takes in more than $2.4 billion in annual revenue. It enjoys an operating margin of 34%. And you’ll collect a 2.9% dividend here, too.

The executives at Equity Residential are actually looking forward to the Fed raising rates. Why? Because higher rates indicate an improving economy, strong job growth and rising wages. That means increasing demand for industrial space, office space, retail and housing.

And for those who are nervous about this market, Chairman Sam Zell offers some encouraging words:

“We think of Equity Residential as a fortress for investors. We are a large, liquid company focused on strategic capital allocation, relentlessly driven to achieve superior operations and supported by a balance sheet that enhances returns while maintaining capacity to take advantage of the next opportunity.”

Equity Residential has returned more than 275% since we put it in our portfolio over a decade ago. Yet the shares remain attractive at current levels.

“What’s Up With the Ten-Baggers Portfolio?”

The market is having an exceptional year. As of this writing, the S&P 500 – including dividends – has returned 20.13%.

If you owned a mutual fund that returned twice as much over this period, would you be happy with that performance?

Most Members would answer with an unequivocal “yes,” especially since three-quarters of all actively managed stock funds fail to beat their benchmarks each year.

What if you owned a portfolio of individual stocks that had doubled the return of the market over this period – would you also be satisfied with that?

I asked a friend this, and he gave me a puzzled look. “If the return is identical,” he said, “what difference would it make?”

All the difference in the world to some, I’ve learned.

Investors are generally happy with a market-beating mutual fund, in part because they have no idea what is happening within the fund itself.

They don’t know how many stocks are up and how many are down. They don’t know how many gains have been realized or how many losses. They don’t even know which stocks the fund owns because by the time a fund publishes its holdings, they have already changed, perhaps substantially.

An actively managed fund is essentially a black box that shareholders cannot see inside of.

The same is not true for the stocks in your brokerage account.

Members know what stocks they own and can see – in real time – how much they have moved up or down. They know (and can emotionally feel) the losses they have taken and the profits they have locked in.

For many, that changes their perception of the returns entirely. For example, as of this writing, our Ten-Baggers of Tomorrow Portfolio is up 32.6% year to date.

If we were mutual fund managers, shareholders would send us bouquets of roses. Yet we’ve been collecting brickbats instead. Consider this note from Member M. Baker:

“Your investment advice has been very poor... You talk a good game, but the results do not back the talk. I invest to make money not lose money.”

How can we double the market’s return and still make some Members unhappy?

Here’s how. Two of the five current positions are down. One is at breakeven. And last year we had realized losses in Stratasys (Nasdaq: SSYS) and First Solar (Nasdaq: FSLR).

On the positive side, Proofpoint (Nasdaq: PFPT) is up nearly 17% and Accelerate Diagnostics (Nasdaq: AXDX) is up 34%. And Kite Pharma was bought out a few weeks ago by Gilead Sciences (Nasdaq: GILD), handing us a 227% gain.

(When you earn a 227% profit, it makes up for a lot of missteps elsewhere.)

I mentioned this at a recent Oxford Club event, and a Member said, “But I didn’t buy Kite.”

That brings me to an important point. The Oxford Club doesn’t exist to offer a smorgasbord of “stock tips.” We recommend various investment portfolios, each with a battle-tested strategy that includes a well-defined set of buy and sell criteria.

If Members want to deviate from our approach and buy only the stocks they like or sell them when they prefer, their returns are bound to vary.

If your performance is better than ours, congratulations. But – overwhelmingly – I hear just the opposite.

Most of the excuses – such as “I can’t buy them all” – are hard to justify.

Razor-thin stock spreads and deep-discount commissions make it easy to spread your bets.

Yes, it would be impractical to buy every recommendation in every investment letter out there. Nor should you want to. If you own hundreds of stocks, it becomes nearly impossible to outperform the market.

Superior performance is the result of taking smart, concentrated positions and then following an ironclad sell discipline.

We do that with every portfolio in The Oxford Communiqué – and with each of our VIP Trading Services.

If you’re not enjoying outsized returns, it would behoove you to stop improvising and follow our approach to the letter.

After all, it’s this approach that led the independent Hulbert Financial Digest to put the Communiqué on its Honor Roll of the top 10 investment letters in the nation for 16 consecutive years.

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