September 25, 2023

Income Strategy Update for Week Ended 09/22/23

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Stellantis Gains Despite Ongoing Strike Negotiations, While B Riley Faces Technical Reversal

Last week, the Income Strategy‘s representative account fell -2.43% (net of fees), outperforming the S&P 500’s -2.91% loss and underperforming the ICE BofA Merrill Lynch High Yield Master II Index’s -0.63% loss. (Exhibit 1). The strategy ended the week up 0.22% YTD, or 625 basis points behind the high yield index and 1,366 basis points behind the S&P 500.

Exhibit 1: Performance of Income Strategy Representative Account Net of Fees Versus High Yield, Equity Indices, Through 9/22/23¹

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

Four equities and a bond comprised last week’s top 5 contributors. Stellantis NV (STLA) rose despite the United Auto Workers (UAW) union expanding their strike against GM and STLA by targeting 38 auto-parts distribution centers operated by the two manufacturers. Stellantis commented on Friday that the UAW’s leaders “seem more concerned about pursuing their own political agendas than negotiating in the best interests of our employees and the sustainability of our U.S. operations given the market’s fierce competition.” There was no price-changing news for Vonovia SE (VNA GY), Alliance Resource Partners (ARLP), or Cannabist Co Holdings 9.5% 2/3/2026 last week.³

Exhibit 2: Significant Contributors to Income Strategy Representative Account Performance, 9/15/23 – 9/22/23

Source: Miller Value Partners. 

Five equities comprised last week’s top 5 detractors. Shares of B Riley Financial (RILY) slipped below the stock’s 100-day and 200-day moving averages last week. Barclays initiated coverage on Organon & Co (OGN) with an Overweight rating and a price target of $28, compared to Friday’s closing price of $18.26. The analyst cited the core tenets of the upgrade as: 1) long-term value from OGN’s expanding Biosimilars (estimated future 5-year revenue compound annual growth rate (CAGR) of 22%) and Women’s Health portfolios (estimated future 5-year revenue CAGR of 6%), 2) a moderate leverage profile (net leverage ratio of ~4.2x as of 6/30/23) that compares favorably to peers, 3) balanced global exposure with ~25% of revenues from the US and EU, each, 4) steady cash flow generation with all three segments contributing (Barclays expects >$1B in annual free cash flow over the next 5 years), and 5) an “undemanding” valuation with the stock trading at a 6.5x EV/EBITDA multiple and a dividend yield of 6.1%. There was no price-changing news for Medical Properties Trust (MPW), Western Alliance Bancorp (WAL), or CTO Realty Growth (CTO) last week.

Exhibit 3: Significant Detractors from Income Strategy Representative Account Performance, 9/15/23 – 9/22/23

Source: Miller Value Partners.

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.  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.

³Cannabist Co Holdings formerly known as Columbia Care Inc

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. 

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