Back in February of 2008,we launched a rather unique experiment, an index of companies trading below their net current asset value. We laid out our selection criteria and premise in our February 15, 2008 post. Truthfully, this was a rather naive approach to creating an index, a fact we were well aware of.
We did make some adjustments along the way; we did not rebalance annually, nor did we use cash that was the result of acquisitions to replace index constituents. It became a set it and forget it portfolio of companies that were net/nets at the inception date of the index.
Our original intent was to wind down the index at the end of two years, and judge performance against the Russel Microcap Index. As of Friday, the CS21 has outperformed the Russel Microcap Index by 1356 bps. While we'd hoped for better absolute returns than the 6.6% since inception that CS 21 has realized, we consider this first attempt to be mildly successful.
We are busy creating a new index of net/nets, which will be tentatively released in early February. Stay tuned; the new index will have an interesting twist.
Tuesday, January 19, 2010
Tuesday, January 12, 2010
Former Net/Net Tuesday Morning Soars
Closeout retailer and former net/net Tuesday Morning, that has graced the ranks of companies trading below their net current asset value for much of the past two years, was up 33% yesterday. The company reported better than expected guidance for Q2, suggesting eps of between $.40 and $.43 for the quarter. Same store sales rose, 5.1% versus the same period last year, and sales were up 6.2% to $289.6 million.
Given yesterday's jump, Tuesday morning is no longer a net/net, but still trades at just 1.12 times NCAV. However, that is based on first quarter balance sheet data, and Q2 won't be announced until January 26th.
If you've never been to a Tuesday Morning store, it is an interesting experience. I've referred to it in the past as a "rich man's dollar store", given the interesting mix of closeout inventory, at reduced prices. You never know what you will find at a store.
Founded in 1975, Tuesday Morning currently has about 850 stores in 45 states. With a current market cap of just $172 million, and almost identical enterprise value, these seem rather small for an 850 store chain. On an EV to store basis, that's just $200,000. The company does not, however own it's real estate.
I've owned shares a few times over the past couple of years, and the only reason that I've closed positions is due to trailing stops I've set. With the extreme volatility retail shares have experienced, stops seemed a prudent way to limit damage, but also lock in gains as shares rose.
I've been back in Tuesday Morning shares since mid December, and plan on seeing how events progress with the company (with a trailing stop to protect gains).
Tuesday Morning
Ticker: TUES
Price: $4.02
Market Cap: $172 million
Enterprise Value: $172 million
Net Current Asset Value (as of 9/30/2009):$153.6 million
Market Cap/NCAV: 1.12
*The author has a position in Tuesday Morning(TUES). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Given yesterday's jump, Tuesday morning is no longer a net/net, but still trades at just 1.12 times NCAV. However, that is based on first quarter balance sheet data, and Q2 won't be announced until January 26th.
If you've never been to a Tuesday Morning store, it is an interesting experience. I've referred to it in the past as a "rich man's dollar store", given the interesting mix of closeout inventory, at reduced prices. You never know what you will find at a store.
Founded in 1975, Tuesday Morning currently has about 850 stores in 45 states. With a current market cap of just $172 million, and almost identical enterprise value, these seem rather small for an 850 store chain. On an EV to store basis, that's just $200,000. The company does not, however own it's real estate.
I've owned shares a few times over the past couple of years, and the only reason that I've closed positions is due to trailing stops I've set. With the extreme volatility retail shares have experienced, stops seemed a prudent way to limit damage, but also lock in gains as shares rose.
I've been back in Tuesday Morning shares since mid December, and plan on seeing how events progress with the company (with a trailing stop to protect gains).
Tuesday Morning
Ticker: TUES
Price: $4.02
Market Cap: $172 million
Enterprise Value: $172 million
Net Current Asset Value (as of 9/30/2009):$153.6 million
Market Cap/NCAV: 1.12
*The author has a position in Tuesday Morning(TUES). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Monday, January 04, 2010
Mark Boyar: Net/Net Pioneer
Long before I started this site, or even knew what a net/net was, deep value legend Mark Boyar, who currently runs Boyar Asset Management, the Boyar Value Fund and an excellent independent Research Product Focus Asset Analysis, offered a newsletter devoted to the subject. I was still in elementary school at the time, while Boyar was devoting a considerable amount of time identifying net/nets, and building a business during an extremely difficult period. It certainly was not as easy in those days as it is now to identify net/nets. There was no software, no Bloomberg or Factset, or even electronically filed SEC documents to make the task easier. It was all done by hand.
Today, Boyar and his analysts provide an excellent, in depth research product. Their recent report on International Speedway Corporation provides a fascinating look at a company that few other research providers cover.
For more on Mark Boyar Integrity Research just published an interesting piece on his career.
*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Today, Boyar and his analysts provide an excellent, in depth research product. Their recent report on International Speedway Corporation provides a fascinating look at a company that few other research providers cover.
For more on Mark Boyar Integrity Research just published an interesting piece on his career.
*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Wednesday, December 23, 2009
Steak n Shake Update
Last September, we posted a Guest Blogger's take on Steak n Shake. The story has gotten even more interesting since then, and you can read my recent column that appeared on RealMoney and Yahoo Finance.
Since my piece ran earlier this week, the company announced its intention to acquire a small insurance company Fremont Michigan InsuraCorp Inc (FFMH.OB), which was rejected this morning by Fremont.
Stay tuned..
*The author has a positions in Steak n Shake. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Since my piece ran earlier this week, the company announced its intention to acquire a small insurance company Fremont Michigan InsuraCorp Inc (FFMH.OB), which was rejected this morning by Fremont.
Stay tuned..
*The author has a positions in Steak n Shake. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Saturday, December 19, 2009
Top Five Net/Nets to End 2009
It's hard to believe 2009 is almost behind us, and what a year it has been. Our own Cheap Stocks 21 Net/Net Index is currently flat since it's February 2008 inception. We'd hoped hoped for better performance, but this little index of misfits has performed better than the Russell Microcap Index, which is down about 20% during the same timeframe.
We plan to wind down CS21 once it hits the two year mark, and will replace it with a new net/net index.
We thought that there was no better way to say goodbye to 2009 then with a list of the current top five net/nets in order of market cap. Some of these names may look familiar to you, in fact one of them, Audiovox(VOXX) seems to have had a permanent place on the list.
Top Ten Net/Nets by Market Cap
Imation Corp(IMN)
Price: $8.78
Market Cap: $334
NCAV: $399.3
Cash: $111
P/E: NA
Mkt Cap/NCAV: .84
Movado(MOV)
Price: $9.22
Market Cap: $226
NCAV:$304
Cash: $49.5
P/E: N/A
Mkt Cap/NCAV: .74
Audiovoxx(VOXX)
Price: $7.39
Market Cap: $169
NCAV: $210
Cash: $70.5
P/E: NA
Mkt Cap/NCAV: .80
Opnext(OPXT)
Price: $1.86
Market Cap: $165
NCAV: $196
Cash: $155
P/E: .84
Mkt Cap/NCAV: .84
Axcelis Technologies(ACLS)
Price: $1.26
Market Cap: $131
NCAV: $173
Cash: $41
P/E: N/A
Mkt Cap/NCAV: .76
Merry Christmas, and happy holidays!
*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
We plan to wind down CS21 once it hits the two year mark, and will replace it with a new net/net index.
We thought that there was no better way to say goodbye to 2009 then with a list of the current top five net/nets in order of market cap. Some of these names may look familiar to you, in fact one of them, Audiovox(VOXX) seems to have had a permanent place on the list.
Top Ten Net/Nets by Market Cap
Imation Corp(IMN)
Price: $8.78
Market Cap: $334
NCAV: $399.3
Cash: $111
P/E: NA
Mkt Cap/NCAV: .84
Movado(MOV)
Price: $9.22
Market Cap: $226
NCAV:$304
Cash: $49.5
P/E: N/A
Mkt Cap/NCAV: .74
Audiovoxx(VOXX)
Price: $7.39
Market Cap: $169
NCAV: $210
Cash: $70.5
P/E: NA
Mkt Cap/NCAV: .80
Opnext(OPXT)
Price: $1.86
Market Cap: $165
NCAV: $196
Cash: $155
P/E: .84
Mkt Cap/NCAV: .84
Axcelis Technologies(ACLS)
Price: $1.26
Market Cap: $131
NCAV: $173
Cash: $41
P/E: N/A
Mkt Cap/NCAV: .76
Merry Christmas, and happy holidays!
*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Monday, November 16, 2009
Biggest Net/Nets In Years: One Year Later
This time last year, our piece Biggest Net/Nets In Years featured an interesting list of names. Truth is, we'd rarely, if ever seen net/nets of this size, and it was the direct result of a free falling market. We thought it would be interesting to review the performance of these companies one year later:
Ingram Micro
Ticker: IM
Price Then: $13.58
Price Now: $18.69
Change: +37.6%
Tech Data
Ticker: TECD
Price Then: $21.47
Price Now: $41.88
Change: +95.1%
Benchmark Electonics
Ticker: BHE
Price Then: $11.77
Price Now: $18.00
Change: +52.9%
USEC
Ticker: USU
Price: $3.90
Price Now: $4.09
Change: +4.9%
Furniture Brands Intl
Ticker: FBN
Price: $4.61
Price Now: $3.61
Change: -21.7%
The average return for these companies was 33.76%. During the same period, the Russell 2000 was up 15.9%, the S&P 500 17.5%, and the Russell Microcap about 10.4%. Hindsight, of course, is indeed 20/20, but the land of the nets/nets continues to be an interesting pond in which to fish.
*The author does not positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Ingram Micro
Ticker: IM
Price Then: $13.58
Price Now: $18.69
Change: +37.6%
Tech Data
Ticker: TECD
Price Then: $21.47
Price Now: $41.88
Change: +95.1%
Benchmark Electonics
Ticker: BHE
Price Then: $11.77
Price Now: $18.00
Change: +52.9%
USEC
Ticker: USU
Price: $3.90
Price Now: $4.09
Change: +4.9%
Furniture Brands Intl
Ticker: FBN
Price: $4.61
Price Now: $3.61
Change: -21.7%
The average return for these companies was 33.76%. During the same period, the Russell 2000 was up 15.9%, the S&P 500 17.5%, and the Russell Microcap about 10.4%. Hindsight, of course, is indeed 20/20, but the land of the nets/nets continues to be an interesting pond in which to fish.
*The author does not positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Wednesday, November 11, 2009
JG Boswell Fundamentals
We've reviewed 7 years of data, crunched a lot of numbers for JG Boswell, and have been able to string together seven years worth of summarical fundamentals. Due to the complexity, and growing size of our spreadsheet, we've decided to share just some of the data that will put BWEL's current valuation in perspective.
JG Boswell (BWEL)
7 Year Averages Based on Annual Data:
P/E: 28.6
Price/Sales: 1.61
Price/Book Value: 1.44
Net Margin: 7.52%
EV/EBITDA: 9.88
Dividend Yield: 2.29%
Market Cap: $605 million
Enterprise Value: $722 million
Current Data (2009 Annual)
P/E: 21.5
Price/Sales: 1.4
Price/Book Value: 1.06
Net Margin: 6.56%
EV/EBITDA: 8.45
Dividend Yield: 2.89%
Current Market Cap: $473.5 million
Current Enterprise Value: $630 million
We are also contemplating putting the full seven years of financial statements into excel, and distributing these to anyone willing to submit $100 to our paypal account. We've never charged for anything before, but this will be fairly labor intensive, and we're just not sure it's worth the effort. Cheap Stock readers can be the judge on this one.
If you have any interest, please contact us at:cheapstocks@verizon.net
Many thanks to Tim Eriksen of Eriksen Capital Management, who was kind enough to provide us with some of the earlier Boswell data.
*The author has a position in JG Boswell. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
JG Boswell (BWEL)
7 Year Averages Based on Annual Data:
P/E: 28.6
Price/Sales: 1.61
Price/Book Value: 1.44
Net Margin: 7.52%
EV/EBITDA: 9.88
Dividend Yield: 2.29%
Market Cap: $605 million
Enterprise Value: $722 million
Current Data (2009 Annual)
P/E: 21.5
Price/Sales: 1.4
Price/Book Value: 1.06
Net Margin: 6.56%
EV/EBITDA: 8.45
Dividend Yield: 2.89%
Current Market Cap: $473.5 million
Current Enterprise Value: $630 million
We are also contemplating putting the full seven years of financial statements into excel, and distributing these to anyone willing to submit $100 to our paypal account. We've never charged for anything before, but this will be fairly labor intensive, and we're just not sure it's worth the effort. Cheap Stock readers can be the judge on this one.
If you have any interest, please contact us at:cheapstocks@verizon.net
Many thanks to Tim Eriksen of Eriksen Capital Management, who was kind enough to provide us with some of the earlier Boswell data.
*The author has a position in JG Boswell. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Tuesday, November 03, 2009
JG Boswell Update: 2009 Annual Report
Shares of cotton and farming giant JG Boswell, owner of an estimated 142,000 California acres, and another 30,000 in Australia, are in positive territory year to date in 2009, up 14% excluding dividends. That's still down substantially from $1000 range the Company briefly touched in May of 2008.
The appeal of Boswell (BWEL) is not in its farming operations, which although impressive in their own right, merely represent the current use of assets which might ultimately be much more valuable used for other purposes.
As we've stated several times before, the real gem may lie beneath some of Boswell's land: massive amounts of water that may be worth several billion. ("May" being the operative word. Ultimately, in order for value to be realized, assets must be converted, or have a good probability of being converted into cash. Water is a touchy and political subject, especially in California, and given dire predictions about California agriculture by officials in the new administration.)
The Company held it's annual meeting last month in Pasadena, and we recently obtained a copy of the company’s 2009 annual report. Here are the highlights for the year ended June 2009:
Current Price: $477
Avg 3 month volume: 430
Current Dvd Yield: 2.9%
Quarterly Dvd: $3.50/shr
2009 Revenue: $339.034 million (down 7.6%)
Net Income: $22.15 million (+45%)
Diluted EPS/shr: $22.51 (+46%)
Current Assets: $303.407 million
Cash: $2.066 million
Total Assets: $800.701 million
Current Liab: $282.139 million
Short Term Debt: $158.630 million
Long Term Debt: $0
Stockholders Equity: $444.817 million
Shares Out: 976,301
Book Value Per share: $455.6
Market Cap: $455.61 million
Enterprise Value: $612.18 million
Enterprise Value/California Acre: $4311 (estimated)
2009 revenue fell 7.6% to $339 million, while net income jumped 45% to $22.70 (fully diluted). Boswell ended the year with $158.6 million in short-term debt and no long-term debt. Shares currently trade at book value, and yield 2.9%.
Based on just the California land, we estimate Enterprise Value/Acre to be about $4311, and that ignores any value in the Australian land. We continue to be intrigued by the Boswell story, especially at these prices. Buyer beware, though: Shares are difficult to obtain, information is scarce, and there is little liquidity.
Many thanks to Jack Norberg, chairman of Standard Investment Chartered Inc., of Costa Mesa California, who we consider to be one of the foremost experts on high quality pink sheet stocks. Jack attends the Boswell annual meetings, and has been a great help with data, and as a sounding board on ideas.
We've also been compiling Boswell data for several years now, and will be posting 5 years of fundamental data for Boswell in the near future.
*The author has a position in JG Boswell. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
The appeal of Boswell (BWEL) is not in its farming operations, which although impressive in their own right, merely represent the current use of assets which might ultimately be much more valuable used for other purposes.
As we've stated several times before, the real gem may lie beneath some of Boswell's land: massive amounts of water that may be worth several billion. ("May" being the operative word. Ultimately, in order for value to be realized, assets must be converted, or have a good probability of being converted into cash. Water is a touchy and political subject, especially in California, and given dire predictions about California agriculture by officials in the new administration.)
The Company held it's annual meeting last month in Pasadena, and we recently obtained a copy of the company’s 2009 annual report. Here are the highlights for the year ended June 2009:
Current Price: $477
Avg 3 month volume: 430
Current Dvd Yield: 2.9%
Quarterly Dvd: $3.50/shr
2009 Revenue: $339.034 million (down 7.6%)
Net Income: $22.15 million (+45%)
Diluted EPS/shr: $22.51 (+46%)
Current Assets: $303.407 million
Cash: $2.066 million
Total Assets: $800.701 million
Current Liab: $282.139 million
Short Term Debt: $158.630 million
Long Term Debt: $0
Stockholders Equity: $444.817 million
Shares Out: 976,301
Book Value Per share: $455.6
Market Cap: $455.61 million
Enterprise Value: $612.18 million
Enterprise Value/California Acre: $4311 (estimated)
2009 revenue fell 7.6% to $339 million, while net income jumped 45% to $22.70 (fully diluted). Boswell ended the year with $158.6 million in short-term debt and no long-term debt. Shares currently trade at book value, and yield 2.9%.
Based on just the California land, we estimate Enterprise Value/Acre to be about $4311, and that ignores any value in the Australian land. We continue to be intrigued by the Boswell story, especially at these prices. Buyer beware, though: Shares are difficult to obtain, information is scarce, and there is little liquidity.
Many thanks to Jack Norberg, chairman of Standard Investment Chartered Inc., of Costa Mesa California, who we consider to be one of the foremost experts on high quality pink sheet stocks. Jack attends the Boswell annual meetings, and has been a great help with data, and as a sounding board on ideas.
We've also been compiling Boswell data for several years now, and will be posting 5 years of fundamental data for Boswell in the near future.
*The author has a position in JG Boswell. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Thursday, October 29, 2009
A Shoutout to Cheap Stocks 21 Net Net Index Member Richardson Electronics (RELL) from the Value Investing Congress
At first, I could not believe my ears when Candace King Weir, of Paradigm Capital Management mentioned Richardson Electronics (RELL), a member of our very own Cheap Stocks 21 Net Net Index, at the 5th Annual New York Value Investing Congress last week.
Weir, a self-professed bottom up stock picker, held out tiny Richardson as one of her favorite ideas citing the following:
*High barriers to entry in their market
*Trading at a discount to tangible book value
*Trading at just 7.5 times expected 2011 eps ($.80)
*Believes shares are worth $9-$11
Although Richardson, which is up 21 percent since the inception of the CS21 Net Net Index in February, 2008, no longer trades below its net current asset value, its very close at just 1.06 times NCAV.
Richardson Electronics
Ticker: RELL
Price: $5.94
Market Cap: $106 million
NCAV:$100 million
Mkt Cap/NCAV: 1.06
Cash: $43.9
Cash/Share:$2.45
Debt: $52.3
*The author does not have a position in Richardson Electronics (RELL). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Weir, a self-professed bottom up stock picker, held out tiny Richardson as one of her favorite ideas citing the following:
*High barriers to entry in their market
*Trading at a discount to tangible book value
*Trading at just 7.5 times expected 2011 eps ($.80)
*Believes shares are worth $9-$11
Although Richardson, which is up 21 percent since the inception of the CS21 Net Net Index in February, 2008, no longer trades below its net current asset value, its very close at just 1.06 times NCAV.
Richardson Electronics
Ticker: RELL
Price: $5.94
Market Cap: $106 million
NCAV:$100 million
Mkt Cap/NCAV: 1.06
Cash: $43.9
Cash/Share:$2.45
Debt: $52.3
*The author does not have a position in Richardson Electronics (RELL). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Thursday, October 22, 2009
Notes From The Fifth Annual Value Investing Congress Day 2
Fifth Annual Value Investing Congress Day 2: Part 1
Jason Stock and William Waller, M3 Funds
Banks & Thrifts: Opportunities in a Troubled Sector
M3 was founded in 2007, and invests (long and short) in small and mid cap names in the US bank and thrift sector. There are 1300 publicly traded banks, and 93% have market caps less than $500 million. Stock presented his view of the current state of the banking sector:
• Banks still undercapitalized
• Credit quality still deteriorating
• More bank failures
• Unemployment rate will continue to rise
• Commercial real estate is in trouble
The team is bearish overall on the sector, believing that banks are currently priced for perfection. Still, he and Waller are finding opportunity on the long side, and look for the following:
• Low Price/Tangible Book
• Excess capital
• Low loan/deposits
• Attractive markets
• Bearish management team
• Share repurchase plan
• Attractive deposit base
One of their favorite long ideas:
Beneficial Mutual Bancorp (BNCL)
• $4.2 billion in assets
• Oldest/largest bank in Philly
• Excess capital
• Owns 42 of 68 branches
• Mutual holding company structure has benefits
• Trading at 79% “fully converted book value”
Kian Ghazi, Hawkshaw Capital Management
Kicking the Tires
Ghazi, who runs a concentrated long/short US equity portfolio, emphasizes proprietary, investigative research in his investment process:
• Focuses on value
• Identifies high-quality one-of- a-kind franchises
• Ensures financial strength, have excess cash, strong balance sheet, and monetizable assets
• “Kick the Tires Hard”- know what you own
• Asks: “What could cause stock to drop 30% or more, that would cause you to not want to buy substantially more?”
Ghazi presented the case for Coremark (CORE)
• Second largest distributor to convenience stores
• $300 million market cap
• $30 million net debt
• Trading at 12 times est 2009 earnings, 8 times TTM earnings
• Admits that this is a low margin business with low ROC, but is well capitalized, difficult to replace, underfollowed
• Highly fragmented industry
• Cigarette sales account for 70% of revenue, but just 29% of gross profit
• Company moving toward providing more fresh foods, which have much higher margins. This should more than supplant potentially declining cigarette sales.
• Believes company may ultimately be worth $45-$50
Eric Sprott, CEO Sprott Asset Management
The Financial Crisis Isn’t Over
Sprott began by pointing out that Dow 10,000 is meaningless; we were there 10 years ago, and since then, have “accomplished nothing”. He is highly skeptical of the US banking industry, and predicts many more bank failures in the days ahead.
Sprott also took shots at the “Quantitative Easing” process being used at the Fed these days, likening it to the very dangerous practice of simply printing more money. He questioned who is buying all of the US govt debt, with issuance up 200% this year, and concluded that it’s the central banks doing all of the buying. Sprott then asked the most relevant question: “What happens when quantitative easing is done?”
Sprott believes that gold is a relevant place to invest these days, pointing out a sticky supply/demand situation, fact that more demand is consumed than produced each year, central banks have been selling as the price has risen substantially over the past ten years. He doubts that some who claim to have gold in their vaults actually do.
Some Favorite Ideas:
• Norseman Gold PLC (ASX:NGX)
• Corridor Resources (TSX:CDH)
• Sensio Technologies (TSX-V:SIO)
Alexander Roepers, Portfolio Manager, Atlantic Investment Management
Atlantic’s Approach to Value Investing
Roepers who runs a concentrated portfolio, laid out the rules of the road for concentrated investors:
• Define your universe
• Transparent companies that can be analyzed and understood
• No leverage in the portfolio
• Only companies with solid balance sheets
Roepers Universe:
• Market caps between $1 billion and $20 billion
• Total of 450 US companies, 700 international
• Takes positions between 2% and 7% of outstanding shares
Ropers Avoids Companies exposed to:
• Technological obsolescence (software)
• Product Liability (tobacco, pharma, asbestos)
• Government Intervention (cable, utilities)
• Lack of transparency (banks, brokerages, insurance)
Roepers is an engaged shareholder:
• Build rapport with managers
• Craft/discuss proposals with management
• Does not seek board seats/proxy fights
• Will apply pressure in the press, when necessary
Roepers likes Smucker’s (SJM)
• Consumer staples, benefits from slow economy
• Bought Folger’s last year
• Strong Cash flow
• Trading at 12 times earnings
• 12 times EV/EBIT
• 12 month target: $74
Whitney Tilson and Glenn Tongue, T2 Partners
More Mortgage Meltdown & a Stock Idea
You can always count on Whitney Tilson to spoil the party with yet another sobering discussion of the mortgage mess. Yet, the story must be told, and Tilson, as always, does a fine job of it.
• Home prices are currently affordable, but that’s due to low interest rates and massive price declines
• Home prices rose slightly this past Summer
• However, there will be another leg down
The Stabilization we’ve recently see, is due to the following factors none of which are sustainable:
• Low interest rates
• The $8000 government tax credit to buyers (set to expire in Novemeber)
• Decline in resets
• FHA support
• Seasonality
Tilson pegs the current housing overhang at 7 million homes, which he believes is effectively 24 months of inventory. He believes that home prices will fall another 10% before we hit bottom.
Glenn Tongue presented one of the duos favorite ideas, Iridium (IRDM)
• Satellite systems
• Has 66 satellites in low orbit, 7 spares
• Enterprise value: $492 million
• Trades at just 3.8 X Ev/EBITDA
• Estimates 2009 EBITDA at $130 million
• Will launch new, more advanced satellites in 2014
• Much can be financed through internally generated cash flow, and payloads carried on the satellites for others
• Sees this as a multi-bagger
Zeke Ashton, Managing Partner, Centaur Capital Partners
Stocks the Rally Left Behind
The always-interesting Ashton has been putting up some great numbers; his fund is currently #1 in the one, two, and three year periods in its category. Ashton highlighted three names at this Congress; Alleghany (Y), Lab Corp (LH) and MVC Capital (MVC), none of which has materially participated in the recent market rally. (For more on Alleghany, please see notes from the last Value Investing Congress, held in Pasadena, this past May).
Lab Corp (LH)
• #2 player in the clinical lab testing business, behind Quest
• $4.5 billion in revenue
• Market Cap $7.05 billion, Enterprise value $8.4 billion
• Estimates $670 million free cash flow in 2009, trades at 10.5 X FCF
• Share buybacks
• Has suffered due to perceptions of what “Obamacare” may do to the industry
• May be worth 15-17X FCF, or $95-$105 per share
• Centaur’s largest holding
MVC Capital (MVC)
• “Dollar trading for $.55”
• Business development company that makes debt and equity investments in small companies
• Currently has 32 investments
• Value of underlying portfolio misunderstood
Bill Ackman, Managing Member, General Partner Pershing Square, LP
Prison’s Dilemna
Ackman closed out the Fifth Annual Value Investing Congress with the case for private prison owner/operator Corrections Corp of America (CXW):
• Not just a prison operator, but real estate; owns land and buildings at most locations
• Market Cap $2.9 billion, EV $4.1 billion
• 2009 Est Cap rate: 12.2%
• P/FCF 13.2
• Maintenance cap ex limited
• Rising crime rate, overcrowded state prisons.
• More efficient/cheaper than state run prisons
• Bought back 8.2 million share below book
• Board and management have skin in the game: own 6 million shares
• 61000 beds
• Solid management
• Worth $40-$54 per share
• Ackman’s position is passive; he owns more than 9% of the Company, but has no current intentions of activism
Ackman also suggested Realty Income (O) as a good short candidate. Believes company is overpriced, and that focus on monthly dividends as an attractive feature to investors will not last.
Jason Stock and William Waller, M3 Funds
Banks & Thrifts: Opportunities in a Troubled Sector
M3 was founded in 2007, and invests (long and short) in small and mid cap names in the US bank and thrift sector. There are 1300 publicly traded banks, and 93% have market caps less than $500 million. Stock presented his view of the current state of the banking sector:
• Banks still undercapitalized
• Credit quality still deteriorating
• More bank failures
• Unemployment rate will continue to rise
• Commercial real estate is in trouble
The team is bearish overall on the sector, believing that banks are currently priced for perfection. Still, he and Waller are finding opportunity on the long side, and look for the following:
• Low Price/Tangible Book
• Excess capital
• Low loan/deposits
• Attractive markets
• Bearish management team
• Share repurchase plan
• Attractive deposit base
One of their favorite long ideas:
Beneficial Mutual Bancorp (BNCL)
• $4.2 billion in assets
• Oldest/largest bank in Philly
• Excess capital
• Owns 42 of 68 branches
• Mutual holding company structure has benefits
• Trading at 79% “fully converted book value”
Kian Ghazi, Hawkshaw Capital Management
Kicking the Tires
Ghazi, who runs a concentrated long/short US equity portfolio, emphasizes proprietary, investigative research in his investment process:
• Focuses on value
• Identifies high-quality one-of- a-kind franchises
• Ensures financial strength, have excess cash, strong balance sheet, and monetizable assets
• “Kick the Tires Hard”- know what you own
• Asks: “What could cause stock to drop 30% or more, that would cause you to not want to buy substantially more?”
Ghazi presented the case for Coremark (CORE)
• Second largest distributor to convenience stores
• $300 million market cap
• $30 million net debt
• Trading at 12 times est 2009 earnings, 8 times TTM earnings
• Admits that this is a low margin business with low ROC, but is well capitalized, difficult to replace, underfollowed
• Highly fragmented industry
• Cigarette sales account for 70% of revenue, but just 29% of gross profit
• Company moving toward providing more fresh foods, which have much higher margins. This should more than supplant potentially declining cigarette sales.
• Believes company may ultimately be worth $45-$50
Eric Sprott, CEO Sprott Asset Management
The Financial Crisis Isn’t Over
Sprott began by pointing out that Dow 10,000 is meaningless; we were there 10 years ago, and since then, have “accomplished nothing”. He is highly skeptical of the US banking industry, and predicts many more bank failures in the days ahead.
Sprott also took shots at the “Quantitative Easing” process being used at the Fed these days, likening it to the very dangerous practice of simply printing more money. He questioned who is buying all of the US govt debt, with issuance up 200% this year, and concluded that it’s the central banks doing all of the buying. Sprott then asked the most relevant question: “What happens when quantitative easing is done?”
Sprott believes that gold is a relevant place to invest these days, pointing out a sticky supply/demand situation, fact that more demand is consumed than produced each year, central banks have been selling as the price has risen substantially over the past ten years. He doubts that some who claim to have gold in their vaults actually do.
Some Favorite Ideas:
• Norseman Gold PLC (ASX:NGX)
• Corridor Resources (TSX:CDH)
• Sensio Technologies (TSX-V:SIO)
Alexander Roepers, Portfolio Manager, Atlantic Investment Management
Atlantic’s Approach to Value Investing
Roepers who runs a concentrated portfolio, laid out the rules of the road for concentrated investors:
• Define your universe
• Transparent companies that can be analyzed and understood
• No leverage in the portfolio
• Only companies with solid balance sheets
Roepers Universe:
• Market caps between $1 billion and $20 billion
• Total of 450 US companies, 700 international
• Takes positions between 2% and 7% of outstanding shares
Ropers Avoids Companies exposed to:
• Technological obsolescence (software)
• Product Liability (tobacco, pharma, asbestos)
• Government Intervention (cable, utilities)
• Lack of transparency (banks, brokerages, insurance)
Roepers is an engaged shareholder:
• Build rapport with managers
• Craft/discuss proposals with management
• Does not seek board seats/proxy fights
• Will apply pressure in the press, when necessary
Roepers likes Smucker’s (SJM)
• Consumer staples, benefits from slow economy
• Bought Folger’s last year
• Strong Cash flow
• Trading at 12 times earnings
• 12 times EV/EBIT
• 12 month target: $74
Whitney Tilson and Glenn Tongue, T2 Partners
More Mortgage Meltdown & a Stock Idea
You can always count on Whitney Tilson to spoil the party with yet another sobering discussion of the mortgage mess. Yet, the story must be told, and Tilson, as always, does a fine job of it.
• Home prices are currently affordable, but that’s due to low interest rates and massive price declines
• Home prices rose slightly this past Summer
• However, there will be another leg down
The Stabilization we’ve recently see, is due to the following factors none of which are sustainable:
• Low interest rates
• The $8000 government tax credit to buyers (set to expire in Novemeber)
• Decline in resets
• FHA support
• Seasonality
Tilson pegs the current housing overhang at 7 million homes, which he believes is effectively 24 months of inventory. He believes that home prices will fall another 10% before we hit bottom.
Glenn Tongue presented one of the duos favorite ideas, Iridium (IRDM)
• Satellite systems
• Has 66 satellites in low orbit, 7 spares
• Enterprise value: $492 million
• Trades at just 3.8 X Ev/EBITDA
• Estimates 2009 EBITDA at $130 million
• Will launch new, more advanced satellites in 2014
• Much can be financed through internally generated cash flow, and payloads carried on the satellites for others
• Sees this as a multi-bagger
Zeke Ashton, Managing Partner, Centaur Capital Partners
Stocks the Rally Left Behind
The always-interesting Ashton has been putting up some great numbers; his fund is currently #1 in the one, two, and three year periods in its category. Ashton highlighted three names at this Congress; Alleghany (Y), Lab Corp (LH) and MVC Capital (MVC), none of which has materially participated in the recent market rally. (For more on Alleghany, please see notes from the last Value Investing Congress, held in Pasadena, this past May).
Lab Corp (LH)
• #2 player in the clinical lab testing business, behind Quest
• $4.5 billion in revenue
• Market Cap $7.05 billion, Enterprise value $8.4 billion
• Estimates $670 million free cash flow in 2009, trades at 10.5 X FCF
• Share buybacks
• Has suffered due to perceptions of what “Obamacare” may do to the industry
• May be worth 15-17X FCF, or $95-$105 per share
• Centaur’s largest holding
MVC Capital (MVC)
• “Dollar trading for $.55”
• Business development company that makes debt and equity investments in small companies
• Currently has 32 investments
• Value of underlying portfolio misunderstood
Bill Ackman, Managing Member, General Partner Pershing Square, LP
Prison’s Dilemna
Ackman closed out the Fifth Annual Value Investing Congress with the case for private prison owner/operator Corrections Corp of America (CXW):
• Not just a prison operator, but real estate; owns land and buildings at most locations
• Market Cap $2.9 billion, EV $4.1 billion
• 2009 Est Cap rate: 12.2%
• P/FCF 13.2
• Maintenance cap ex limited
• Rising crime rate, overcrowded state prisons.
• More efficient/cheaper than state run prisons
• Bought back 8.2 million share below book
• Board and management have skin in the game: own 6 million shares
• 61000 beds
• Solid management
• Worth $40-$54 per share
• Ackman’s position is passive; he owns more than 9% of the Company, but has no current intentions of activism
Ackman also suggested Realty Income (O) as a good short candidate. Believes company is overpriced, and that focus on monthly dividends as an attractive feature to investors will not last.
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