"I refer to them as an 800-pound gorilla," he says. "It's very large for what we normally look at. But this is a great business. It has a fabulous balance sheet. It has a net cash position of $34 billion."The Intrepid All-Cap Fund has $22 million in total assets and a five-star rating from Morningstar. Since inception, the fund has an annualized return of 2.1%, beating the S&P 500's annualized return of -6.37%. The fund has outpaced the index by a wide margin (15% versus 3%) over the past year. Estes says perception has been an issue for Microsoft, as investors tend to view the company through the lens of Apple or Google, which are considered to be the top leaders and innovators of the tech market. "People tend to look at a company like Microsoft at other variables besides the fundamentals," Estes says. "People judge Microsoft by how they judge Apple or Google. If they love either, they won't love Microsoft. But looking at fundamentals, I love Microsoft." Estes notes that Microsoft currently trades below seven times earnings before interest and taxes (EBIT) on an enterprise-value basis. Anything below eight on this enterprise value/EBIT basis, he says, is "pretty good." Like Talon's Benoit, Estes also views International Speedway as a value pick. Estes agrees that the stock is out of favor due to poor television ratings. And, like Benoit, Estes likes that the TV contract extends until 2014. "The revenue is locked in for an extended period of time. That makes its cash-flow profile more of a certainty for us," Estes says. The problem, he says, comes in reconciling the fact that people aren't going to Nascar events, yet the TV ratings on the races aren't going up. "That's counterintuitive, because you think if people aren't going to the race, they'll watch it on TV. But we're focusing on the idea that it looks like a classic value investment." Estes also shrugs off concerns that International Speedway could be a value trap, arguing that those situations come when an elite substitute for a product is available. "There isn't a perfect substitute for racing. It's unique enough," Estes says. "International Speedway is one of three main companies involved in racing. But they're the biggest one. And the family that runs the company runs NASCAR. They have a special relationship with racing because they decide which tracks the races are run at. International Speedway is in a good position from that respect." The Intrepid All Cap Fund will continue to add to its position in International Speedway if the discount, currently around 25%, grows. "We tend to take the long view. Ratings will come back, and attendance will improve," Estes says. "We're not as concerned with the quarter-to-quarter shifts like the market is."
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