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SUPERVALU (NYSE: SVU ) has been a super performer over the past six months or so, with the stock running up as the business shed billions in debt and took on a capable new management team as part of Cerberus Capital's turnaround plan. With a lot of the good news priced into the stock, my Special Situations portfolio will sell SUPERVALU with a modest gain over the past two years.
I continued to average down on my position over the past two years. I took an initial stake of $500 when the stock was at $9.07 in June 2011. I added $1,000 at $7 in January 2012. And I went back for $1,000 more at $5.04 in July 2012. At a price of $7.18 or so right now, the total position is up 14%. It's been quite the roller coaster.
While I like the moves that Cerberus has made, particularly in installing a battle-tested management team, the industry is tremendously competitive, with rivals really cutting into the discount space. Wal-Mart (NYSE: WMT ) has been a very fierce competitor, and the dollar stores have made inroads into traditional grocery retail as well. Both are capable and have much less leverage to contend with than SUPERVALU. And all that would be fine, if SUPERVALU just didn't look like it was already pricing in significant success.
So I'm selling the stock.
Next up ...
It was only a few months ago that my Special Situations portfolio bought $1,000 of CST Brands (NYSE: CST ) , but I'm now selling this stock as well. As of now, the portfolio is up a modest 7% on its position in four months. I'm concerned that the company won't be able to quickly enough bring about the needed changes -- specifically, increasing the profitability of its retail operations. And with so many other stocks at value prices out there, why settle?
We've seen a nice run on shares of Bridgepoint Education (NYSE: BPI ) since March. My position is up 77% as of right now. But the latest conference call gave me pause. I'm not especially concerned with the core business now that its Ashford unit has met regulators' standards, but rather with remarks made by CEO Andrew Clark on using Bridgepoint's substantial cash hoard to purchase a distressed university. If the company goes through with that plan, I'll probably sell my shares.
Why? The company has the opportunity to significantly increase shareholder value now, either through a special dividend or stock buyback. Shareholders deserve a return after having watched this stock do little but go down over the past few years. At best, the stock is flat over the past half-decade. So if Bridgepoint buys another colleg'e without returning some of that cash to shareholders, then I'm gone.
That it may wade into another regulatory morass and use perhaps hundreds of millions of shareholder capital to do so looks like the height of folly when there are clear avenues to create shareholder value right now. I'm afraid shareholders may get stuck with yet another turnaround story.
Foolish bottom line
So shortly my Special Situations portfolio will sell shares of CST Brands and SUPERVALU. We've made a little bit on each, and I see more interesting deals on the horizon.
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