INVESTMENT SCORECARD
In a year with much discussion about media consolidation, Paramount Global (PARA, Financial) (4.9% of net assets as of December 31, 2023, +25%) rose sharply in the fourth quarter as speculation focused on a potential sale of the company to Warner Bros. Discovery (WBD, Financial) (1.3%), among others. Media peers Sony (SONY, Financial) (8.2%, +15%), Sinclair (SBGI, Financial) (1.1%, +18%), and AMC Networks (AMCX, Financial) (0.2%, +60%) also contributed positively in Q4. Greater confidence in an economic soft landing supported outlets for consumer spending like American Express (AXP, Financial) (6.6%, +26%) and Ryman Hospitality (RHP, Financial) (3.3%, +33%). Meanwhile, sagging oil and gas prices weighed on energy names including Dril-Quip (DRQ, Financial) (1.0%, -17%), Callon Petroleum (CPE, Financial) (0.9%, +17%) and Halliburton (HAL, Financial) (0.7%, -10%). Notably, early in 2024 Callon agreed to be acquired by Apache Corp. (APA, Financial) for stock.
For the full year 2023, Sony (9.2%, +25%) was the largest contributor as it transforms its business along multiple growth vectors against a backdrop of an improving Japanese stock market. Aerospace supplier CIRCOR International (0.7%, +133%) was the largest gainer in the fund, having been acquired by KKR (KKR). Its peer Crane Company (CR) (2.2%, +67%) was another top contributor as it focused its business mix with the spin-off of Crane NXT (CXT) (1.5%, +72%). Long-time holdings USCellular (USM) (1.1%, +98%) and controlling shareholder Telephone & Data Systems (1.1%, +91%) rose after USM disclosed it was exploring a sale of all or part of the company. Higher interest rates and lower natural gas prices combined to make hybrid utility/E&P National Fuel Gas (3.5%, -17%) the largest detractor from 2023 returns. Genuine Parts (GPC, Financial) (4.0%, -18%) had a rare air pocket in earnings growth as it navigated the aftereffects of inflation. Distilled spirits leader Diageo (DEO) (3.1%, -16%) dealt with the hangover from post-COVID consumer trade down. Finally, DISH Network (DISH) (0.5%, -59%) remained asset rich but cash poor forcing a combination with former spin-off EchoStar (SATS) (0.3%, -1%) at the end of the year.
LET'S TALK STOCKS
American Express Co. (AXP, Financial) (6.6%) (AXP β $187.34 β NYSE) is the largest closed loop credit card company in the world. The company operates its eponymous premiere branded payment network and lends to its largely affluent customer base. As of Dec 31, American Express has 141 million cards in force and nearly $126 billion in loans. The company's strong consumer brand has allowed American Express to enter the deposit gathering market as an alternate source of funding, while the company's affluent customers have picked up spending. Longer term, American Express should capitalize on its higher spending customer base, especially with Millennials, and continue to expand into other payment related businesses, such as corporate purchasing, while also growing in emerging markets. Similarly, the company is looking at the growing success of social media as an opportunity to expand its product base and payment options.
Madison Square Garden Entertainment Corp. (4.6%) (MSGS β $181.83 β NYSE), owner of the New York Knicks basketball team and the New York Rangers hockey team, is one the few ways for the public to access the positive dynamics of sports franchises. The company's predecessor was spun-off from Cablevision in 2010 and subsequently separated its venue and entertainment businesses. Team values have appreciated significantly as they represent excellent stores of value in an inflationary environment; basketball in particular has significant global growth potential. The Knicks on-court has also improved with a core of young players and significant draft capital, which should engender additional fan engagement and create incremental pricing power in future years.
Republic Services Inc. (5.1%) (RSG β $164.91 β NYSE), based in Phoenix, Arizona, is the second largest solid waste company in North America. Republic provides nonhazardous solid waste collection services for commercial, industrial, municipal, and residential customers in forty-one states and Puerto Rico. Republic serves more than 2,800 municipalities and operates 208 landfills, 245 transfer stations, 360 collection operations, and 75 recycling facilities. Republic has benefited from synergies driven by route density, beneficial use of acquired assets, and reduction in redundant corporate overhead. We expect continued solid waste and environmental solutions growth acquisitions, earnings improvement, and incremental route density and internalization growth in already established markets to generate real value in the near to medium term, highlighting the company's potential.
