| Jayme Wiggins |
Jacksonville Beach, Fla.-based Intrepid Capital Management recently has looked at the debt of a number of companies with low leverage and short maturities--including Blount and Cott Beverage. Jayme Wiggins, portfolio manager, singled out the credits for their recurring cash flow and leverage of less than three times debt to earnings before interest, taxes, depreciation and amortization. Wiggins said the firm, which has about $450 million in assets under management, has generally been heavy in cash, light on credit risk and short on duration. "We look for stable businesses with an emphasis on manageable leverage and recurring cash flow," he said.
Intrepid does not have a fixed-limit on durations, but Wiggins said that with a flat yield curve and thin spreads, he doesn't see the benefit in expanding durations.
"It's better to buy shorter maturities; there is less time for something major like...a bankruptcy to occur. If we're getting the same yield for a 4-year and a 10-year, we'll prefer the 4-year. There is less time for the bottoming of the cycle."
This strategy, however, is not set in stone. "If rates were to rise and we were getting paid generously for putting durations longer, we would be just the opposite," he said. He stressed that many of the firm's current investing patterns are based on the current market conditions. He explained that as spreads widen, he anticipates Intrepid will begin to venture into riskier credits. Spreads are thin because there is so much money chasing credits, Wiggins said, which also means "defaults are low because banks are willing to do anything to keep companies alive. Defaults are low because lending standards are lower," he said.
This firm's portfolio also contains bonds from General Mills, Speedway Motorsports and Payless ShoeSource, according to a report on Intrepid's Web site. Wiggens cited Blount because of its recurring revenue from its chainsaw chain business that helped minimize the cyclicality of its timber harvesting business. He liked Cott, a private label soda maker, because he thought this too was a stable business even though it faces pressures from the call to ban soda in many areas because of the nation's obesity problem. He said the company has also faced pressure from new energy drinks, which he thinks are a fad that could go away. He said they are looking for the companies that you might not see everyday, because the more popular names have too much money chasing them. His benchmark is the Merrill Lynch High Yield Master Two.