Congressional Democrat Alan Lowenthal, one of Capitol Hill’s top investors
Sarah Silbiger
We’ve already discussed how the Long Beach Democrat has had his fair share of trouble for his dubious and timely business activity over the years. After investing in Sunrun (RUN), a producer of residential solar energy systems, he launched a renowned campaign in favor of support measures for renewable energy companies. Similar actions, such as the sale of Boeing (BA) before a House committee hearing on the 737 Max jet crashes, got a lot of attention. After all, there is a good reason why we have a trading strategy that actively monitors its every move in the market.
You can access our original article and our thesis via this link. Yet this quarter, Rep. Lowenthal could have outdone himself with a particular decision to sell shares of Blackstone (BX) ahead of a crash. The company operates one of the best-known and best-loved private REITs, but was forced to impose restrictions on withdrawals after struggling to manage cash outflows, consequently getting hammered in the markets. Representative Lowenthal has had an incredibly busy quarter, having disclosed 30 deals/trades so far. His decision to play Activision Blizzard (ATVI) merger arbitration is also an interesting positive sign for the deal. Here’s our updated Q4 analysis of its most interesting deals.
Alan Lowenthal’s strategy update for the fourth quarter
We have created several trading strategies based on the idea of tracking and mimicking the trading activity of active public officials with close access to sensitive information that could be used to maximize returns. This particular strategy is one of the most popular and attempts to mirror the trading activity of Representative Alan Lowenthal (as well as his family members) and is actively rebalanced as new trades are disclosed. In the event of the purchase or sale of stock options, the options are replaced by ordinary shares instead. The portfolio is weighted according to the reported size of the transactions disclosed.
The Lowenthal representative has been involved in 109 transactions so far this year, of which 61 were sell orders and 48 were buy orders. Again, the majority of reported transactions were made in trusts whose name was not directly linked to him or using his wife’s accounts. Verisk Analytics (VRSK) is now the largest position, contributing just over 7% of the portfolio’s net asset value, closely followed by iShares Russell 2000 Value ETF (IWN) and Amazon (AMZN), each accounting for around 6 % of net asset value.
Alan Lowenthal Strategy (Quantitative Quiver)
A $100 million investment would have soared to $197.83 million to date had the Long Beach Democrat’s stock-picking talents been trusted in 2018. The portfolio peaked in November of last year, when the figure jumped to $256.63. million. Lowenthal’s strategy has produced a negative year-to-date return of 19.67%, outperforming the S&P 500 (SPY) by a slight margin. To date, the Lowenthal strategy has produced an all-time CAGR of 15.86%.
Lowenthal Strategy Holdings Q4 2022 (Quantitative Quiver)
At the time of writing, the top ten stocks in the Lowenthal portfolio were: Verisk Analytics, iShares Russell 2000 ETF, Amazon, Waste Connections (WCN), NextEra Energy (NEE), ProShares Short QQQ (PSQ), S&P Global Inc (SPGI), Brookfield Infrastructure (BIPC), Service Corporation (SCI), as well as Eli Lilly and Co (LLY).
Last commercial activity of Lowenthal
With 30 transactions recorded this quarter, the Lowenthal representative has had two busy and extremely exciting months. It is important to mention that these may not be the last transactions for the fourth quarter of 2022, since the filings may not yet be made public until mid-February. Here are the latest Lowenthal stock picks worth considering:
ActivisionBlizzard
On January 18, Microsoft (MSFT) shocked the video game industry by announcing its intention to buy Activision Blizzard in a record $68.7 billion all-cash deal. Following the merger, Microsoft would become the publisher of popular titles like Call of Duty and World of Warcraft and the third largest video game company in the world by revenue. Activision Blizzard wasn’t the tech giant’s only significant acquisition in the past. In 2020, Microsoft paid $7.5 billion for ZeniMax Media, and in 2014 it paid $2.5 billion for Mojang Studios, in a bid to consolidate its strength and try to compete with Sony (SONY) and Tencent (OTCPK:TCEHY). The acquisition itself is the subject of ongoing discussions as many people doubt that it can gain regulatory approval. Representative Lowenthal opened his ATVI position in mid-December. It currently represents 2.81% of the portfolio, which is a huge vote of confidence in the current deal. While many of its peers are significantly underperforming in the market, ATVI has returned 13.13% year-to-date. After the latest pullback, Activision is currently selling for an EV/EBITDA of 13.58x, a P/E of 19.79x and a P/FCF of 22.60x. The general consensus is that the stock will likely take a double digit decline if the deal fails. The authors of Seeking Alpha, as well as Wall Street analysts, remain largely optimistic that the deal is likely to materialize, having both rated the stock as a “buy” with an average score of 4.00/5, 00 and 4.29/5.00, respectively. Senator Tommy Tuberville, as well as Congressmen Rick Allen and Ro Khanna, also participated in this merger arbitration alongside him. The company was also featured in our Tom Carper and No-PAC Large Cap Core strategies. The stake was acquired in the range of $74.56 to $76.97. Activision Blizzard can currently be purchased for $76.70 per share. If there is no significant regulatory pushback, the acquisition should be finalized at the end of next year.
Activision Blizzard and S&P 500 YTD Return (Seeking Alpha)
Service Corporation International (SCI)
The Lowenthal representative originally opened his SCI position at the end of December. He entered the position through several trades between the 22nd and 27th of this month, paying an average of $71.14 per share. The company itself is a fairly unconventional business, providing death care products and services to the United States and Canadian markets through its funeral and cemeteries segments. More than 1,471 funeral service locations are operated by the Houston-based company. SCI is also held in high regard by analysts. Seeking Alpha Authors gave it a “Buy” rating with an average rating of 4.00/5.00. Wall Street analysts are even more enthusiastic and rate the stock as a “Strong Buy” with an average rating of 4.60/5.00. Service Corporation is another company that has held up quite well in the markets this year. It has generated a return of 0.37% since the start of the year, accompanied by a negative return of 0.63% over one year, significantly outperforming the market. It is also another company with a relatively high valuation. SCI sells for an EV/EBITDA of 12.49x, a P/E of 21.05x and a P/FCF of 24.95x. The company is the second largest holding in our Natural Resources Committee strategy, having gained huge appeal among committee members. SCI shares can currently be purchased for $67.07.
Service Corporation International and S&P 500 YTD Return (Seeking Alpha)
black stone
The most intriguing transaction of the quarter is Representative Lowenthal’s unusual decision to sell his stake in BX days before the crash. The company operates one of the best-known and best-loved private REITs, worth an estimated $69 billion. Due to soaring interest rates and other macro concerns, public REITs have been hammered in the markets this year, with the Vanguard Real Estate ETF (VNQ) losing 29.06% of its value since the start of the year. the year. Other listed investor darlings such as Prologis (PLD), Realty Income (O) and American Tower (AMT) are all suffering well over double digit losses for the year as well. B-REIT, on the other end, did not experience as much of the same volatility, prompting many investors to withdraw their investments. Blackstone was, in a way, a victim of its own success. Faced with tough cash outflows, the company was forced to announce it would limit withdrawals, after which its shares fell off a cliff. However, representative Lowenthal sold his stake just days before the announcement. Lowenthal reported the same trade on behalf of his wife Malumed Lowenthal. Our Lowenthal strategy was rebalanced to reflect these changes and removed Blackstone from its portfolio on November 25. We can only speculate on whether or not Rep. Lowenthal was aware of the decision, but that only contributes to a myriad of particularly timely business decisions over the years. What was a tough year for the company before the crash got even worse after, with BX generating a negative 42.99% year-to-date return. Recent developments have caused concern among Seeking Alpha writers, who downgraded the title to a “hold” rating. Wall Street analysts are undeterred, still rating the company as a “Strong Buy” with an average score of 3.78/5.00. Blackstone is currently selling at $75.42 per share.
Blackstone vs. S&P 500 YTD Return (seeking alpha)
Other notable deals in the quarter included Rep. Alan Lowenthal closing his TJX (TJX) companies, as well as his positions in Ecolab (ECL), Crown Holdings (CCK) and Boston Scientific Corp (BSX).
Closing Arguments
One of the fundamental tenets of modern finance is that the most knowledgeable investor will likely be able to generate alpha in the market. Where else can you find people who have insight into more reliable information than Capitol Hill? We believe the recent actions surrounding the representative from California’s 47th congressional district are a prime example of the inherent value that can be extracted by breaking down and analyzing the business activity of our nation’s political leaders. The particular decision to sell its stake in Blackstone before the unfortunate announcement testifies to this thesis. As we mentioned earlier, Congressman Lowenthal has indicated that he will not be seeking re-election to his sixth term, depriving us of a crucial insider source. Keeping a close eye on the few dozen of his latest disclosed transactions is all the more important. Suffice to say, Alan Lowenthal cemented his position as one of Capitol Hill’s top investors throughout his 30-year career as a public servant.
Editor’s Note: This article discusses one or more securities that do not trade on a major US exchange. Please be aware of the risks associated with these actions.