Broyhill Asset Management's thesis on Hospira, Inc.

As equity markets make seemingly daily new highs, it would be easy to accept the current prices of stocks as “truth” but the correct price is impossible to ascertain, given the massive distortion encouraged by relentless and continuous central banks buying of bonds (and other assets).  For value investors, this can be a difficult and frustrating environment. On the one hand, it is a terrific time to be a seller of assets, but on the other hand, it is much more challenging to find compelling ideas that meet our return requirements.

Given these challenges, it is important to remember that economic uncertainties have always existed, so in some ways, investing in an unbalanced world simply comes with the territory.  As a result, we aren’t doing anything radically different in light of the current macro backdrop.  Rather, we continue to focus on investments that are largely insensitive to market risk, investments that do not require government intervention to generate profit, and investments that have several paths to profitability and multiple layers of protection.  In short, our research seeks to identify outstanding companies, with sustainable competitive advantages, trading at a discount to intrinsic value. This collection of profitable businesses makes up The Broyhill High Quality Dividend Portfolio.

This week, we shared our investment thesis on a recent addition to the portfolio with Forbes.  While Hospira (HSP) does not currently pay a dividend, we were able to establish our position in this high quality, market leader at an average cost below $31 and sold options on the stock to generate an additional $3.35 of premium.  In this report, we outline our rationale for an investment in Hospira. We think the thesis is so simple that it could be sketched on the back of a napkin, so we did.  For those looking for greater detail, it can be found in the balance of our report, by clicking on the napkin below.