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Category: Revisits

Contrarian Calls, Revisited: Michael Kahan’s Investment in Hilton Grand Vacations

What Was Said

Michael Kahan of hedge fund North Peak Capital Management was bullish on time share companies, identifying Hilton Grand Vacations (HGV) as one of his fund’s key positions.

“Look, the stock’s been beaten up considerably,” Kahan said at the time. “When you have a stock that’s trading at 6 or 7 Ebitda multiple and a sub-10 P/E, you know it’s not beloved by the world.” This was a buying opportunity, and the company also had several defensive characteristics that were overlooked by the market.

Shares of HGV were trading around $29 when Kaman provided his comments.

What Happened

HGV traded mostly sideways for the next two months. Then, on Aug. 19 the New York Post reported that Leon Black’s Apollo Global Management was in talks to buy the company “for as much as $36 per share.”

Predictably, the stock popped on the news:

Hilton Grand Vacations stock price chart
Price chart of Hilton Grand Vacations (HGV) stock, 2019 to 2020

Other news reports soon followed, adding to the Post’s story. HGV was exploring a sale, Reuters reported Aug. 29. The company was attracting bids of $40 per share, Bloomberg reported in October. HGV reached a 52-week high of $36.56 per share in November.

By that point, North Peak had sold its stake. “We’re no longer involved in Hilton Grand Vacations,” managing partner Jeremy Kahan (Michael’s brother) said in an interview on Feb. 20. The firm exited around $36 per share after it became clear the company would be sold, he said.

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Contrarian Calls, Revisited: Barry Knapp on Yield Curve Inversion

What Was Said

In this podcast’s pilot episode last April, economist Barry Knapp of Ironsides Macroeconomics discussed the economic news of the day: the 3-month/10-year yield curve inversion.

The conventional wisdom at the time was that the yield curve inversion would lead to recession in the U.S.

But there had been numerous “false positives” from the yield-curve indicator in the past, Knapp said: 1966, 1998, and 2005. “There was no evidence that the inversion of the yield curve was really having any demand side effects on the actual availability of credit,” he said at the time. “It’s not debilitating for growth.”

The U.S. consumer remained healthy as households continued to delever from the excesses of the 2008 financial crisis. “The savings rate is high, income growth is picking up,” Knapp said. While global exports were slowing, this was “not enough of a shock to drive the U.S. into a recession.”

Additionally, there were reasons to believe the inversion wouldn’t last long. The Federal Reserve was indicating that its next Treasury-buying initiatives were more likely to lead to a steepening of the curve.

Knapp was bullish on bank stocks, having upgraded his view in 2017. He also liked U.S. small caps, expecting a rally on domestic demand.

What Happened

Ten months later, there are no signs of recession for the U.S. economy. Financial stocks have done well, judging by the SPDR S&P Bank ETF (KBE), which is up more than 14% in the intervening months:

Small caps have also done well, with the iShares Core S&P Small-Cap ETF (IJR) gaining more than 11%:

The 3 month/10 year yield curve stayed inverted for a few months before steepening. It has since inverted again, though this time few economists are calling for a recession.

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