Income Strategy Weekly Updates

December 5, 2022

Income Strategy Update for Week Ended 12/2/22

Vale Rises on Technical Breakthrough, While CTO Realty Falls on Equity Offering

Last week, the Income Strategy‘s representative account rose 0.86% (net of fees), underperforming the ICE BofA Merrill Lynch High Yield Master II Index’s 0.88% gain and underperforming the S&P 500’s 1.19% gain. (Exhibit 1). The strategy ended the week down -19.76% YTD, or 996 basis points behind the high yield index and 650 basis points behind the S&P 500.

Exhibit 1: Performance of Income Strategy Representative Account Net of Fees Versus High Yield, Equity Indices, Through 12/2/221

Time Period Income Strategy Representative Account ML HY II S&P 500
Last Week (11/25 – 12/2) 0.86% 0.88% 1.19%
MTD 0.00% 0.79% -0.18%
QTD 16.28% 5.62% 13.93%
YTD -19.76% -9.80% -13.26%
1 Year -18.00% -8.34% -9.60%
5 Year 3.48% 2.50% 10.98%
Inception (annualized since 2/28/14) 3.17% 3.53% 11.47%

Source: Bloomberg, Miller Value Partners. Visit the Strategy page for Income Strategy performance through the most current month end period.

Four equities and one bond comprised last week’s top 5 contributors. Vale SA (VALE) rose after shares climbed above the stock’s 200-day moving average. GEO Group (GEO) gained after Wedbush upgraded the stock from neutral to outperform, with a price target of $14, implying +22.5% upside from Friday’s closing price. Wedbush analyst Jay McCanless indicated that the company should benefit from its recent successful debt restructuring transaction along with several tailwinds that should drive growth in the company’s high-margin electronic monitoring business. Among these tailwinds is Wedbush’s anticipation of a removal of pandemic-related border restriction Title 42, which could serve as a catalyst for higher demand from ICE for detention capacity. Pitney Bowes Inc 7.25% 3/2029 rose after the company presented updated guidance for its Global Ecommerce segment at the Bank of America Leveraged Finance Conference. Management highlighted strong Black Friday and Cyber Monday volumes that exceeded internal forecasts and as a result, management is now guiding for 4Q volume to come in at the higher end of guidance for 200MM parcels, or a +30% sequential improvement. Additionally, management now expects 400bps of gross margin expansion for the segment next year and for segment EBITDA to not only be positive but also come in ahead of segment capex. There was no price-changing news for Organon & Co (OGN), or OneMain Holdings (OMF) last week.

Exhibit 2: Significant2 Contributors to Income Strategy Representative Account Performance, 11/25/22 – 12/2/22

Name Type Return
Vale S.A. Equity 10.6%
Organon & Co. Equity 6.4%
GEO Group Inc Equity 8.7%
 Pitney Bowes Inc. 7.25% 3/2029 Bond 5.0%
OneMain Holdings Inc Equity 2.4%

Source: Miller Value Partners. See below for additional information

Four equities and one bond comprised last week’s top 5 detractors. Shares of CTO Realty Growth (CTO) declined after the company executed a stock offering for 3MM shares priced at $19/share, implying gross proceeds of ~$57MM or ~$66MM if the underwriters exercise their option to purchase additional shares in full. The company expects to use the proceeds to fund a portion of the $96MM purchase price of its recently announced lifestyle, mixed-use acquisition opportunity that it currently has under contract. If the pending acquisition is not completed, the company intends to use the net proceeds to fund other potential acquisition opportunities and for general corporate purposes and working capital purposes, including the repayment of debt. Chemours (CC) fell after the company announced that it is currently tracking below the low end of its revised FY22 guidance for $1,425MM in Adjusted EBITDA and FCF in excess of $575MM. Specifically, management attributed the weak performance to weakening market demand for TiO2 in the quarter, most notably in Europe and Asia as the global outlook grows increasingly uncertain. Carvana Co 10.25% 5/1/2030 dropped after Bank of America downgraded the auto retailer to neutral on liquidity concerns, with the bank asserting that Carvana will run out of cash by the end of 2023 without new capital or substantial cost cutting. Despite these headwinds, the analysts noted that a “turnaround could be aggressive should outside financing become available.” There was no price-changing news for Chico’s (CHS) or Jackson Financial (JXN) last week.

Exhibit 3: Significant2 Detractors from Income Strategy Representative Account Performance, 11/25/22 – 12/2/22

Name Type Return
CTO Realty Growth, Inc. Equity -5.7%
The Chemours Co Equity -4.3%
Chico’s FAS, Inc. Equity -7.1%
Jackson Financial Inc Equity -1.5%
Carvana Co 10.25% 5/1/2030 Bond -2.8%

Source: Miller Value Partners. See below for additional information.


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As of prior week’s market close unless otherwise stated.

1The performance figures for the representative Income Strategy account reflect the deduction of investment management fees and certain other expenses. Returns greater than 1 year are annualized.

For additional information about Income Strategy performance, please click on the Income Strategy Composite Performance Disclosure. Past performance is no guarantee of future results.

2Significant Contributors and Significant Detractors are based on holdings that had the greatest effect on representative account performance for the week. Holdings that have been in the portfolio since the end of the most recent calendar quarter are identified by name. Returns listed above represent the market performance of the individual security during the week, or for the partial period held in the portfolio during the week. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. There is no guarantee that market trends discussed herein will continue. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners. Portfolio composition is shown as of a point in time and is subject to change without notice. 

©2022 Miller Value Partners, LLC

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