– Hedge funds bet China is a bubble: A look at what some of the big hedge funds see as a reason to go short on China.
– Forensic Finance, Benford’s Law: Apply Benford’s Law to spot financial fraudsters.
– Chanticleer Investors Q4 2010 letter: Good read.
– Peter Cundill’s last interview: One of the legends retires.
– Barron’s Investor Roundtable: Notes from Barron’s round 2 of the investor roundtable.
For the fourth quarter, the portfolio returned 10.22%. The S&P 500 index returned 10.76% for the same period. for the quarter my return was handicapped by the poor performance by my biggest holding (CPD, which was down over 15% for the quarter).
For the FY2010, the portfolio returned 8.85%. The S&P 500 index returned 15.05% for the same period. Again, the biggest drag on the results was the poor performance of my largest holding (CPD, which was down over 23% for the year).
Since 2009, the portfolio has returned over 149% compared to the S&P 500’s return of 39.2%. I’m still working on putting together the historical performance. I plan on posting that fairly soon.
Thoughts on our holdings:
Caraco: This was our biggest holding and 2010 was not a good year for CPD. For the year, the company was down over 23% in 2010. The turnaround for the company took longer than I expected. In December, Sun Pharma made a low ball offer to take the company private. Then the news came that the distribution deal between Sun and CPD would expire in 2012. It was this news that led me to sell out of CPD. I believe CPD was doing around $300M of revenue prior to the FDA issues, with only $50M from drugs manufactured by CPD. The rest was coming from the distribution deal. Once the distribution deal expires in 2012 and the limited manufacturing from its Detroit facility, I believe CPD will be burning cash without the distribution revenues. In the meanwhile, the verdict on the Sun Pharma offer should be coming shortly. At $4.75 per share, I think it is a steal. Although I don’t have confidence in the independent board members and the valuation from a third-party. In early January I sold off most of my holding. As of today, I have completely sold out of my holding.
Harvest Natural Resources: The company did a major financing deal in late 2010. The company has started drilling in Indonesia. I expect the results in the next month. In the meanwhile, the company keeps developing its Utah assets. In January the shares have taken a hit, I have been adding more with the pullback.
WellCare: In December we finally got news that the company will be providing service to two additional counties in Florida. It has been years since the company has be able to expand again in Florida. I believe the company is a likely acquisition candidate.
General Growth Properties: 2010 was a big year for the company. The company emerged from Chp 11 with the backing of BAM/Ackmann/Berkowitz/Blackrock. 2011 should be a big year for the company, as well. The company should complete refinancing at much better terms, expand outside of US, and shed low performing assets.
ATS Corp: We bought ATS in late December. It was selling at a huge discount to cash flow and had strong growth prospects. Only few weeks later, the company announced plans to pursue strategic alternative, likely selling itself. I expect the company to announce something in next couple of months.
Yukon Nevada Gold: The company has a huge 2010. We ended with over 150% return in less than 6 months. I believe the turnaround of this company is still in process and there is plenty of upside still remaining. In the most recent corporate presentation, the company expects to hit 1M oz of annual production in 5 yrs, compared to the current 120k of annual production.
Howard Hughes Corp: The company ended the year with a new management team and some initial steps at starting development at some of its properties. This investment will take a while to materialize, although I expect the wait will be well worth it.
KVH Industries: The company had a strong 2010. The huge contract with the US Coast Guard. I expect 2011 to be a breakout year for the company. We should see the strong cash flow generation from its VStat business.
Palladon Ventures: 2010 was a big turnaround year for the company. The company successfully shipped its first shipment. The company also lined up the agreements to transfer its iron ore from Utah to the ports in Richmond, CA. Also, the company has successfully raised capital for its production of concentrate ore and expand production. In 2011, the company will increase its shipment of iron ore to its Chinese customer.
Avino Silver: This investment has been a play on the silver prices. I expect the company to substantially benefit from any rise in silver prices.
Heckmann Corp: The company had a very good 2010. The acquisition of the CVR will have a huge impact on the company’s 2011 performance. I expect the future for this company is exceptionally strong and with the $200M of cash on hand, the company should be able to put the capital to grow and become a monster it the water business.
I ended the year with 10% of the portfolio in cash. In January, we sold out of our holding in CPD. The cash position as of today is roughly 25%. The cash holding is likely to stay high, for some opportunistic investment opportunity (like the pull back I’m seeing in HNR).
I haven’t been able to update the blog regularly. In the last couple of weeks, I’ve bought some new positions.
This is a small mining company in Australia with a very compelling risk/reward opportunity. The company has 3 main assets: gold, lithium, and vanadium. Any one of these three assets could make this investment a multi-bagger. The lithium assets are the most interesting and should make the biggest short-term impact on the company’s valuation. The gold assets were minuscule until a few week ago. Although a recent acquisition of a gold mine makes the gold assets worth multiples to the company’s current valuation. Finally the vanadium assets could have huge upside, although it will require a much longer time to realize the value.
I think any of these 3 core assets will make the company worth multiples to today’s valuation. Management has skin in the game and have shown to make smart decisions (the recent gold mine acquisition is a great example).
Some research reports:
– Hallgarten & Company (focused on the lithium assets)
– Shaw research (on the vanadium assets)
– Recent company presentation (detailed discussion on the recent gold mine acquisition)
– A SumZero write-up on the company (requires login)
– Other research reports on the company
I recently acquired a small position in Radisys. About six weeks ago, the company announced that they won’t hit the Q4 revenue guidance. The stock took a hit and allowed me to buy an initial position.
The company has a market cap of $203M, cash of $133M and debt of $50M. The company has a legacy product that is declining in revenue and a new product that has strong growth ahead. The company should easily do $20-25M in FCF in 2011, creating a huge discount at current valuation.
A few months ago we posted David Nierenberg’s, of D3 Funds, letter to the board. Since the letter, the board has approved a share repurchase plan.
MAM Software (MAMS)
This is a micro-cap software company with a huge moat. The company provides an e-commerce solution and business management system for auto aftermarket. The company has been a turnaround story for years. The last few quarters, the company has started to show the strong cash flow generation with high ROIC. The company should be able to make around $6M of FCF annually, compared to the current EV of $22M.
– A SumZero write-up on this company (shouldn’t require login)
Also, in the last few days I’ve been adding to my HNR position. There has bee a big pullback in the HNR shares in January, down almost 12%. I don’t believe anything has fundamentally changed with the company in the last month. The results from the Indonesia drilling will still take a few weeks. I see the pullback has a great opportunity to buy a company with a low-risk of a loss and huge upside within the next 6 months.
A recent Huffington Post article on Heckmann Corp. The projections of $1B in revenue in 5 years might be a stretch but with the expectations of $100M in 2011 gives you a sense of the future growth prospects.
– Worthless Chinese stocks: A retiree who fought back the fraudulent Chinese stock.
– Visual History of US Taxes: Good read
– Bill Walters – The most successful sports better: A good 60 Minutes piece on this legend.
– The Future of American Power: The demise of US power is exaggerated
– A glimpse at Gujarat: A look at how this one state has been growing and dealing with the violence of the Hindu/Muslim fighting.
– China’s Feud with Multinationals: Some of the problems faced by MNCs doing business in China
– Value investing in China: A good presentation by Cheah Cheng Hye of Value Partners Limited
– Asian Megacities: How politics shaped some of the megacities of Asia
– The Road to Economic Crisis: Paul Krugman looks at the European crisis
– Q & A on the Financial Crisis: Good analysis of what happened
A surprise news announcement by ATSC on Friday makes for a quick return on our investment. On Friday the company announced that:
today announced that the Board of Directors has begun a process to evaluate strategic alternatives for the Company. Board Chairman Dr. Edward H. Bersoff explained that “The Board continues to believe that the current market value of the Company’s shares does not reflect its underlying value and prospects.”
This was a surprise announcement. The management and Board had mentioned multiple times their disappointment w/ the share price. Although the company was focused on growing the business and potentially acquiring other companies. My investment in ATS was based on the company growing organically and through acquisitions. Although given its strong backlog, relationship w/ customers, and discounted share price I saw the company as a good acquisition candidate.
The company also mentioned that the new CEO has decided to leave the company.
The Company also announced that President and Chief Executive Officer Sidney E. Fuchs, who joined the Company during 2010, has decided to depart from the Company. Dr. Bersoff commented, “In light of the Board’s decision to begin this process, Sid concluded that it was in his best interests to pursue other opportunities.”
This makes me think that the company had been looking at selling itself but had not decided on pursing that path. The CEO leaving means the company is confident it can sell itself for a fair price.
With no CEO at the helm, I think we see a closure on ATS very quickly, in a couple of months.