The Lato Letter: Volume 1, Issue 30.

The Lato Letter: Volume 1, Issue 30.

About the only 100% certain thing that can be said about equity markets is that they will fluctuate. Although their purpose is to provide an outlet to buy and sell shares of businesses that you either desire to be a shareholder of or no longer wish to be a shareholder of, the day to day market prices change more frequently and sometimes randomly compared to the underlying value of the business and its potential.

Therefore, in times when markets appear to be valuing things more randomly than rationally, investors are sometimes provided with opportunities to invest in good businesses at prices that could provide above-average rewards when prices once again align with values and become more rational. We are in one of these more random periods and I have used that period to add three new holdings to many clients’ portfolios. The companies that we have invested in are all US based and so I have raised funds by selling other US equities.

Strictly in alphabetical order the three companies are Hi-Crush Master LP, KKR & Co. LP, and NCR Corp. The fact that two of three are Limited Partnerships (LPs) is ironically somewhat “random” but the fact that they do provide an income stream adds to the justification for the investment.

Hi-Crush Master LP (HCLP – NASDAQ, $14.94) operates a mine in northern Wisconsin that provides high-grade sand used in “fraccing” by oil service companies. The mine is situated on a rail line which provides a significant cost advantage to Hi-Crush. The sand is sold under long term contracts but the stock sold off dramatically (30%) when the company announced that a customer representing approximately 20% of its volumes cancelled their contract. During the ensuing conference call, management was very confident that they would be able to replace the contract and/or sell the previously contracted sand at higher prices in the spot market. On the call, management provided as much assurance as they could that the annual distribution of $1.90 per year would be maintained at this time. Should the company be forced to reduce the distribution, the post sell-off entry price provides protection on the downside should that occur and significant upside should it not.


KKR & Co. LP (KKR – NYSE, $14.01) is a leading global investment firm founded by Henry Kravis and George Roberts, with deep roots in private equity. The company has had a long and storied existence in the investment world and currently manages numerous private equity and other partnerships around the world with assets totaling over $60.0Billion. All of its private equity funds are marked above cost and two of its major funds are well positioned with respect to investments made and realized returns. These factors bode well for continued growth in distributions which were 61 cents per unit in 2010, 75 cents in 2011 and according to a recent research report from Oppenheimer & Co. are expected to grow to $1.16 this year and $1.37 next year.


NCR Corp (NCR – NYSE, $23.85) is one of the oldest companies in the United States. It was started in 1879, became the National Cash Register Co. in 1884, went public in 1925, was purchased by AT&T in 1991 and then spun back out to the public as NCR Corp on January 1, 1997. The company is still involved in processing financial transactions and information through manufacturing, selling, installing and servicing ATM machines and point of sale terminals among its various products. As growth in ATM machines may be slowing, NCR is focused on its latest thrust into the growing business of self-service check out terminals. In that regard, NCR recently announced a contract with 1200 Walmart stores for the installation of 10,000 terminals. The stock is currently trading at a Price/Earnings (P/E) multiple of just under 10.0 X next year’s while the consensus long term earnings growth estimate is over 15%.


Although we cannot eradicate the impact of market fluctuations on a day to day basis, we also cannot lose sight of the fact that what you would like to buy are solid businesses at good prices and I believe that is what these three stocks currently represent.

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