Time for a brief update...
Madison Square Garden Co. (MSG) announced they would explore splitting the company to unlock some value. Shares jumped at the news breaking $70. We exited our position at roughly $75 for almost 50% gain. It is possible that the company does split up and extra value is created, but with the Dolans holding the majority - it is by no means guaranteed. I felt the risk/reward profile had been significantly altered at these levels and without any meaningful payout, felt it best to close out the position.
Vectrus (VEC) has continued to perform well post spinoff, now eclipsing $30 p/sh - up roughly 48% from where we purchased it at the end of September. We continue to hold the stock here and look for further upside over the next year.
Target (TGT) has a solid quarter and spiked on the news. It now sits at roughly $73 at the time of this writing - a 25% gain from our purchase price at the end of June. We continue to hold for now.
Our oil stocks (BP) and (PTAXF) have continued to struggle as oil prices continued their slide. We added slightly to each position and will continue to hold as we feel both are significantly undervalued. Eventually, OPEC and other countries will slow production and prices will rise. It may take a while, but we believe this slide is just a temporary downturn.
Tuesday, December 9, 2014
Wednesday, October 15, 2014
October Madness
Markets have certainly been volatile over the last couple of weeks. As I write this - midday Oct. 15 - the market is down around 2.5%. The slide in oil prices has definitely contributed to this recent slide, putting pressure on various country's economies. Combine that with poor economic data coming out of the Eurozone, the war on ISIS, slowing growth in China, and Fed manipulation its hard to tell which way is up.
I'm not too concerned at this point, as I've been waiting for some time of pullback to at least make things interesting. As backwards as it sounds, I hope things continue to fall for awhile so that we can uncover some real bargains which have been few and far between recently.
Vectrus (VEC), our recent purchase has been fairly volatile. It has jumped down below where we bought it but has also rallied upwards as much as 10%. I like seeing the resistance at our purchase price but as this is a potentially longer term holding, these short term spikes mean little.
The aforementioned slide in oil prices has caused oil stocks to get crushed along with it. We have just initiated positions in BP (BP) and Petroamerica (PTAXF). BP is now hopping around near the bottom of its 52 week range and may have now even broken through to new lows. However, it is selling below BV, and is yielding over 5.5%. While it probably isn't a two or threebagger over the next couple years given its size, when oil prices normalize over the next year or even two, I believe BP could result in a total gain of over 40% for us.
Petroamerica is a small E&P in Columbia but based in Canada. They have a solid balance sheet and have recently completed a potentially transformative acquisition of Suroco Energy. They have become CF positive over the last two or so years and they look poised to continue growing over the next several years. I urge you to read the articles written on SeekingAlpha by the authors 'Value Digger' and 'TheValueMan' as they expertly delve into the company.
Happy Investing,
Ben
Disclaimer: This post should not be construed as investment advice. I am not a registered investment advisor and you should conduct your own due diligence before investing in any company mentioned here.
I'm not too concerned at this point, as I've been waiting for some time of pullback to at least make things interesting. As backwards as it sounds, I hope things continue to fall for awhile so that we can uncover some real bargains which have been few and far between recently.
Vectrus (VEC), our recent purchase has been fairly volatile. It has jumped down below where we bought it but has also rallied upwards as much as 10%. I like seeing the resistance at our purchase price but as this is a potentially longer term holding, these short term spikes mean little.
The aforementioned slide in oil prices has caused oil stocks to get crushed along with it. We have just initiated positions in BP (BP) and Petroamerica (PTAXF). BP is now hopping around near the bottom of its 52 week range and may have now even broken through to new lows. However, it is selling below BV, and is yielding over 5.5%. While it probably isn't a two or threebagger over the next couple years given its size, when oil prices normalize over the next year or even two, I believe BP could result in a total gain of over 40% for us.
Petroamerica is a small E&P in Columbia but based in Canada. They have a solid balance sheet and have recently completed a potentially transformative acquisition of Suroco Energy. They have become CF positive over the last two or so years and they look poised to continue growing over the next several years. I urge you to read the articles written on SeekingAlpha by the authors 'Value Digger' and 'TheValueMan' as they expertly delve into the company.
Happy Investing,
Ben
Disclaimer: This post should not be construed as investment advice. I am not a registered investment advisor and you should conduct your own due diligence before investing in any company mentioned here.
Wednesday, October 1, 2014
Vectrus - Spin Off Opportunity?
Vectrus (VEC) was just spun off from Exelis (XLS) recently and subsequently sold off - now selling below $20.
Vectrus contains the slower growth, lower margin portion of Exelis' business - primarily service type operations. I've invested in XLS in the past so the spinoff intrigued me.
Long story short, I think Vectrus will provide a decent return over the next 1-3 years. The compensation seems to help align interest, with the CEO receiving a bulk of his salary based on meeting goals over the next several years, and I believe he also received some stock options as an initial founder's grant. Vectrus has a mostly variable cost structure, and should be able to produce FCF consistently. With the spinoff, they should now be able to pursue further growth opportunities as new markets become available in addition to their decent backlog.
We have opened a small position and may add to it should the price continue to drop.
Happy Investing,
Ben
Disclaimer: This post should not be construed as investment advice. These are MY thoughts on the company, and you should conduct your own due diligence before investing.
Vectrus contains the slower growth, lower margin portion of Exelis' business - primarily service type operations. I've invested in XLS in the past so the spinoff intrigued me.
Long story short, I think Vectrus will provide a decent return over the next 1-3 years. The compensation seems to help align interest, with the CEO receiving a bulk of his salary based on meeting goals over the next several years, and I believe he also received some stock options as an initial founder's grant. Vectrus has a mostly variable cost structure, and should be able to produce FCF consistently. With the spinoff, they should now be able to pursue further growth opportunities as new markets become available in addition to their decent backlog.
We have opened a small position and may add to it should the price continue to drop.
Happy Investing,
Ben
Disclaimer: This post should not be construed as investment advice. These are MY thoughts on the company, and you should conduct your own due diligence before investing.
Thursday, September 18, 2014
Quick Notes on Alliant Techsystems (ATK)
I've been researching Alliant Techsystems (ATK) some over the last couple weeks. I have more thorough notes elsewhere, but I want to get started so I'll just go off of what I remember for now and update accordingly.
ATK (as it is currently structured) operates with 3 business segments - aerospace, defense, and sporting. Each of these divisions is then broken down into multiple sub-divisions. ATK is involved in a vast array of products ranging from rocket motor systems involved in space flight, satellites and satellite parts, small, medium, and large caliber ammunition, various missiles, etc. The sporting group targets a different consumer by producing commercial weapons, ammunition, and various accessories used in hunting, law enforcement, and sporting activities.
The company will soon be undergoing significant changes, as it has agreed to merge with Orbital Sciences while spinning off the Sporting Group. The new company will be known as Orbital ATK and trade under the ticker OA. The sporting group will be called Vista Outdoors and will be headed by ATK's current CEO.
ATK has been consistently profitable over the past 10 years, with margins expanding to (if i recall correctly) 10 year highs this past year - gross, operating, as well as net. They have been consistently FCF positive, and the EV/EBITDA ratio has expanded from below 6 in 2008 to now over 9.
It is obvious that ATK is a good business - but is it worth an investment at these levels?
ATK is heavily reliant on winning contracts from both US and foreign governments. The very nature of the bidding process means that margins are under constant pressure. Coupled with the US budget situation, contracts could become harder to come by. Defense spending has been cut, and it could very well continue to see cuts in the future.
The opposite side of the spectrum here is the potentiality for defense spending increases. There is always some turmoil in the world, but it seems to have increased lately. With the rise of ISIS, arming Syrian rebels, Ukraine/Russia and so on - the US and its allies may be forced to increase spending. Obama has repeatedly said 'no boots on the ground' which would mean more $ going to missile strikes.
Another item to consider is the resurgence of US space flight. Due to the situation with Russia, the US can no longer rely on Russian transport to space. New rockets and astronaut transport vehicles are needed - Boeing and SpaceX having just been awarded contracts to design the capsule yesterday. A continued increase in the interest of US space flight could provide a significant boost to ATK - especially post-Orbital merger, who has a better foothold in that particular area having already been awarded a contract to deliver supplies to the ISS.
A&D companies have always been of interest to me, and ATK is as well. But in terms of investment potential, I think there is not a large enough margin of safety for me. Military conflict and space exploration have been thrust into the public eye recently, but this could very well fade in the coming years. ATK/Orbital ATK should do just fine in any event given their track record, but I think eventually margins will begin to normalize which could hurt the price. I will continue to monitor and would start to take a more serious look if the EV/EBITDA dropped below 8.
My goal is to keep running tabs on companies that I 1. have interest in 2. can understand and 3. are investment candidates. ATK will be one of those companies.
Again, this has been written primarily from memory so some information may be incorrect. If I have any further thoughts to contribute, I will do so.
As always, happy investing,
Ben
ATK (as it is currently structured) operates with 3 business segments - aerospace, defense, and sporting. Each of these divisions is then broken down into multiple sub-divisions. ATK is involved in a vast array of products ranging from rocket motor systems involved in space flight, satellites and satellite parts, small, medium, and large caliber ammunition, various missiles, etc. The sporting group targets a different consumer by producing commercial weapons, ammunition, and various accessories used in hunting, law enforcement, and sporting activities.
The company will soon be undergoing significant changes, as it has agreed to merge with Orbital Sciences while spinning off the Sporting Group. The new company will be known as Orbital ATK and trade under the ticker OA. The sporting group will be called Vista Outdoors and will be headed by ATK's current CEO.
ATK has been consistently profitable over the past 10 years, with margins expanding to (if i recall correctly) 10 year highs this past year - gross, operating, as well as net. They have been consistently FCF positive, and the EV/EBITDA ratio has expanded from below 6 in 2008 to now over 9.
It is obvious that ATK is a good business - but is it worth an investment at these levels?
ATK is heavily reliant on winning contracts from both US and foreign governments. The very nature of the bidding process means that margins are under constant pressure. Coupled with the US budget situation, contracts could become harder to come by. Defense spending has been cut, and it could very well continue to see cuts in the future.
The opposite side of the spectrum here is the potentiality for defense spending increases. There is always some turmoil in the world, but it seems to have increased lately. With the rise of ISIS, arming Syrian rebels, Ukraine/Russia and so on - the US and its allies may be forced to increase spending. Obama has repeatedly said 'no boots on the ground' which would mean more $ going to missile strikes.
Another item to consider is the resurgence of US space flight. Due to the situation with Russia, the US can no longer rely on Russian transport to space. New rockets and astronaut transport vehicles are needed - Boeing and SpaceX having just been awarded contracts to design the capsule yesterday. A continued increase in the interest of US space flight could provide a significant boost to ATK - especially post-Orbital merger, who has a better foothold in that particular area having already been awarded a contract to deliver supplies to the ISS.
A&D companies have always been of interest to me, and ATK is as well. But in terms of investment potential, I think there is not a large enough margin of safety for me. Military conflict and space exploration have been thrust into the public eye recently, but this could very well fade in the coming years. ATK/Orbital ATK should do just fine in any event given their track record, but I think eventually margins will begin to normalize which could hurt the price. I will continue to monitor and would start to take a more serious look if the EV/EBITDA dropped below 8.
My goal is to keep running tabs on companies that I 1. have interest in 2. can understand and 3. are investment candidates. ATK will be one of those companies.
Again, this has been written primarily from memory so some information may be incorrect. If I have any further thoughts to contribute, I will do so.
As always, happy investing,
Ben
Sunday, August 10, 2014
August Update
Just wanted to provide a quick update..
Sold out of CTCM around July 17 after the downing of MH17. Despite the initial drop that followed the news, we still had a pretty decent gain. And it looks like I made the correct call. Things have continued to escalate and the stock has continued to drop - now falling below $10. With everything that is going on, I dont feel comfortable buying back into it now. When it was first purchased, I felt fairly comfortable that sanctions wouldnt be levied on CTC, but as Putin continues to agitate, I can't write it off. I'm going to continue monitoring the company as I feel it is at bargain prices, but until things start to settle I will refrain from purchase.
No new buys lately - my main project has been to compile a list of companies/industries worth studying and just going down from A-Z learning as much as possible about the dynamics of the industry, business models, etc. I feel that will aid my knowledge and investing more than any textbook, and I will (hopefully) find companies worth investing in along the way.
I'll post updates as they come, happy investing!
Ben
Sold out of CTCM around July 17 after the downing of MH17. Despite the initial drop that followed the news, we still had a pretty decent gain. And it looks like I made the correct call. Things have continued to escalate and the stock has continued to drop - now falling below $10. With everything that is going on, I dont feel comfortable buying back into it now. When it was first purchased, I felt fairly comfortable that sanctions wouldnt be levied on CTC, but as Putin continues to agitate, I can't write it off. I'm going to continue monitoring the company as I feel it is at bargain prices, but until things start to settle I will refrain from purchase.
No new buys lately - my main project has been to compile a list of companies/industries worth studying and just going down from A-Z learning as much as possible about the dynamics of the industry, business models, etc. I feel that will aid my knowledge and investing more than any textbook, and I will (hopefully) find companies worth investing in along the way.
I'll post updates as they come, happy investing!
Ben
Thursday, June 5, 2014
June Update - G Willi Food
Hey All -
I have initiated another small position in G Willi Food Products (WILC). They are an Israeli food distributor dealing with kosher products and a market cap nearing $87M. I think there are a lot of things going for it. The two founders recently sold some of their stake for over $10 p/share. Though founders selling out could be viewed with pessimism, it was to a Ukrainian billionaire with past experience in the industry. They have even mentioned the possibility of expansion into the US which could substantially increase revenues.
It has several dollars worth of cash sitting on the balance sheet with a stock price sitting just below $6.70 at the current price. The stock is bouncing around near its 52 week low due to an earnings miss, but I believe this to be a short term overreaction and a good entry point. WILC looks like it could either make an acquisition or similarly be acquired in the future due to profitability and the balance sheet.
Although the stock has historically been cheap, I think there a number of catalysts and all we need is one to play out to see a nice gain.
Happy Investing,
Ben
Disclosure: Long WILC.
Information in this post has not been independently verified and should not be taken as a recommendation. Please conduct your own due dilligence before investing.
I have initiated another small position in G Willi Food Products (WILC). They are an Israeli food distributor dealing with kosher products and a market cap nearing $87M. I think there are a lot of things going for it. The two founders recently sold some of their stake for over $10 p/share. Though founders selling out could be viewed with pessimism, it was to a Ukrainian billionaire with past experience in the industry. They have even mentioned the possibility of expansion into the US which could substantially increase revenues.
It has several dollars worth of cash sitting on the balance sheet with a stock price sitting just below $6.70 at the current price. The stock is bouncing around near its 52 week low due to an earnings miss, but I believe this to be a short term overreaction and a good entry point. WILC looks like it could either make an acquisition or similarly be acquired in the future due to profitability and the balance sheet.
Although the stock has historically been cheap, I think there a number of catalysts and all we need is one to play out to see a nice gain.
Happy Investing,
Ben
Disclosure: Long WILC.
Information in this post has not been independently verified and should not be taken as a recommendation. Please conduct your own due dilligence before investing.
Tuesday, May 27, 2014
Performance Update
My biggest goal at the moment is to clearly define an investment process that works for me. I have a large number of names on my watch list which I am beginning to dig into so hopefully I will have more stuff to post soon.
Our two positions are in CTCM and MSG. CTCM is currently up roughly 16% at the time of this writing since we initiated a position. Ukraine has moved off the front page somewhat. Hopefully things will continue to work themselves out over there and the stock will move up accordingly as 'perceived' risk dimishes.
Madison Square Garden Co. is a small position that is up over 4% since initiation. A conservative sum-of-the-parts analysis puts the value of the company at over $70 p/share easy - currently sitting just above $52.
We will continue to hold these two positions until something changes or other opportunities require additional funds (unlikely at this point).
Happy investing,
Ben
Additional Comment: Ok, so it was premature to say Ukraine has gotten off the front page. Now seeing the 40 killed in the Donetsk airport clash. I'll clarify - Russian involvement has moved off the front page...for now
Our two positions are in CTCM and MSG. CTCM is currently up roughly 16% at the time of this writing since we initiated a position. Ukraine has moved off the front page somewhat. Hopefully things will continue to work themselves out over there and the stock will move up accordingly as 'perceived' risk dimishes.
Madison Square Garden Co. is a small position that is up over 4% since initiation. A conservative sum-of-the-parts analysis puts the value of the company at over $70 p/share easy - currently sitting just above $52.
We will continue to hold these two positions until something changes or other opportunities require additional funds (unlikely at this point).
Happy investing,
Ben
Additional Comment: Ok, so it was premature to say Ukraine has gotten off the front page. Now seeing the 40 killed in the Donetsk airport clash. I'll clarify - Russian involvement has moved off the front page...for now
Thursday, May 8, 2014
CTCM - A Textbook Contrarian Play
Here is my new article on a new portfolio holding - CTC Media
It was designated a 'Pro Article' so access to the general public will last 30 days.
http://seekingalpha.com/article/2198283-ctc-media-textbook-contrarian-play
It was designated a 'Pro Article' so access to the general public will last 30 days.
http://seekingalpha.com/article/2198283-ctc-media-textbook-contrarian-play
Tuesday, April 29, 2014
What Im Watching - CTC Media (CTCM)
Wanted to make a quick post on a stock Im currently researching...
CTC Media (Nasdaq: CTCM)
This is a Russian media company that trades on the Nasdaq. It originally came on my radar a few weeks ago and it piqued my interest with the whole crisis in Ukraine. The stock has, like most others that are connected with Russia, taken a beating over the last couple months. As I stated in my first post, I like to look where the general opinion is negative - stocks that have been killed for whatever reason as I believe it is inherent in human nature to be irrational..Mr. Market continues to be relevant..
CTCM owns and operates several TV channels in Russia as well as one channel is Kazakhstan. They have been profitable and pay a hefty dividend with a yield of over 7% at the time of this writing. It certainly looks cheap on the face of it.
I will (hopefully) provide a fuller analysis soon but as of now I just wanted to highlight a few issues that have jumped out at me from reading the latest 10K and earnings call transcripts.
1) As Russia transitions to digital from analog, it is proceeding in three waves. Two of CTC's channels were included in the second wave. The third wave of channels included in the changeover has yet to be announced. CTC's 3rd Russian channel Peretz, has yet to be named.
Peretz currently has a penetration rate of roughly 85%. If it is included in the 3rd wave transition, it will only have have the potential to reach a 65% rate. If it isnt included, CTC will have to find other, potentially costly ways to distribute Peretz. If this happens, the penetration rate could drop even further than the already reduced 65%.
Recalling from memory, I believe over $50 million of goodwill is attributable to Peretz, so a significant impairment may be in order when I conduct a reproduction value analysis.
2) CTC seemingly must deal with unfair competitors. The two major Russian media companies are primarily state owned. In the most recent 10K, CTC mentions that these competitors have access to the latest offerings far in advance which puts them at a disadvantage. It seems to me that it would be hard to gain any market share when state run media front runs and can solidify their position by offering the newest releases before anyone else.
3) Another concern that has jumped out at me and which I will research further is the conflicts that are possible in management. As mentioned in the 10-K, there are numerous board members and large stockholders who are in some way affiliated with other Russian media companies. This is something I will investigate further.
On the plus side, GMO owns a sizeable amount of CTCM stock so I am encouraged that if a heavy hitter like GMO is willing to invest there must be some good reasoning involved.
More to follow, happy investing!
Ben
CTC Media (Nasdaq: CTCM)
This is a Russian media company that trades on the Nasdaq. It originally came on my radar a few weeks ago and it piqued my interest with the whole crisis in Ukraine. The stock has, like most others that are connected with Russia, taken a beating over the last couple months. As I stated in my first post, I like to look where the general opinion is negative - stocks that have been killed for whatever reason as I believe it is inherent in human nature to be irrational..Mr. Market continues to be relevant..
CTCM owns and operates several TV channels in Russia as well as one channel is Kazakhstan. They have been profitable and pay a hefty dividend with a yield of over 7% at the time of this writing. It certainly looks cheap on the face of it.
I will (hopefully) provide a fuller analysis soon but as of now I just wanted to highlight a few issues that have jumped out at me from reading the latest 10K and earnings call transcripts.
1) As Russia transitions to digital from analog, it is proceeding in three waves. Two of CTC's channels were included in the second wave. The third wave of channels included in the changeover has yet to be announced. CTC's 3rd Russian channel Peretz, has yet to be named.
Peretz currently has a penetration rate of roughly 85%. If it is included in the 3rd wave transition, it will only have have the potential to reach a 65% rate. If it isnt included, CTC will have to find other, potentially costly ways to distribute Peretz. If this happens, the penetration rate could drop even further than the already reduced 65%.
Recalling from memory, I believe over $50 million of goodwill is attributable to Peretz, so a significant impairment may be in order when I conduct a reproduction value analysis.
2) CTC seemingly must deal with unfair competitors. The two major Russian media companies are primarily state owned. In the most recent 10K, CTC mentions that these competitors have access to the latest offerings far in advance which puts them at a disadvantage. It seems to me that it would be hard to gain any market share when state run media front runs and can solidify their position by offering the newest releases before anyone else.
3) Another concern that has jumped out at me and which I will research further is the conflicts that are possible in management. As mentioned in the 10-K, there are numerous board members and large stockholders who are in some way affiliated with other Russian media companies. This is something I will investigate further.
On the plus side, GMO owns a sizeable amount of CTCM stock so I am encouraged that if a heavy hitter like GMO is willing to invest there must be some good reasoning involved.
More to follow, happy investing!
Ben
Monday, April 28, 2014
Welcome
Welcome to Thoughts on Value.
Some background..
My name is Ben. I have a degree in finance and have passed the first examination of the CFA program. I plan on using this blog to share my thoughts, analysis, and other musings on the market and investing.
I definitely have a value bias. My beliefs have thus far been shaped by numerous well known investors including Glenn Greenberg, Seth Klarman, Michael Burry, and Bruce Greenwald as well as the usual names of Graham and Buffett.
Margin of safety is of course the primary objective when searching for investments. I prefer a more concentrated portfolio as I feel that leads to better knowledge of each security you hold and if done correctly, provides the possibility of reducing risk while also allowing for outperformance against benchmarks. I think that being a value investor and being a contrarian go hand in hand, so I like to look for investments that are out of favor, beaten down, and ignored. I primarily invest in equities but am delving more into fixed income in an effort to expand my investing universe.
I am sure I will share more as I come across other ideas, and am happy to discuss further any topics that are presented here.
Some background..
My name is Ben. I have a degree in finance and have passed the first examination of the CFA program. I plan on using this blog to share my thoughts, analysis, and other musings on the market and investing.
I definitely have a value bias. My beliefs have thus far been shaped by numerous well known investors including Glenn Greenberg, Seth Klarman, Michael Burry, and Bruce Greenwald as well as the usual names of Graham and Buffett.
Margin of safety is of course the primary objective when searching for investments. I prefer a more concentrated portfolio as I feel that leads to better knowledge of each security you hold and if done correctly, provides the possibility of reducing risk while also allowing for outperformance against benchmarks. I think that being a value investor and being a contrarian go hand in hand, so I like to look for investments that are out of favor, beaten down, and ignored. I primarily invest in equities but am delving more into fixed income in an effort to expand my investing universe.
I am sure I will share more as I come across other ideas, and am happy to discuss further any topics that are presented here.
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