– Patient Capital loading up on cash: Vito Maita has started to pile up cash as he see limited values at current valuations
– Blockbuster investment is worst trade ever: Carl Icahn discusses his worst trade ever
– Made in America: Are we getting to the point where the costs to manufacture in China are not advantageous compared to costs in US
– Credit Suisse Global Investment Returns 2011: Good historical data on international investment returns for the global investor
– T. Boone Pickens on Heavy Trucks running on NatGas: With the passage of the Nat Gas Act, should happen in the next 30-60 days, heavy duty trucks, which use roughly 50% of oil imported, can start converting to NatGas which should cut reliance on oil imports (This is going to be very interesting for Heckmann Corp)
– Don’t Invest where you wouldn’t visit: Good tips for investors looking to invest internationally.
– Conversation about Indonesia: One of the rising Asian powers that doesn’t get enough media coverage
– The deal that made Bill Gates $350M: The story of the Microsoft IPO
Some recent updates to the portfolio. Due to lack of time, the write-up are brief.
I sold out of WellCare and Radisys. Although I believe both these companies are cheap and should do well, I sold out to acquire other companies where I feel more comfortable with the management team and the business. I also want to keep plenty of cash on hand.
Also, early in the quarter I was increasing my holding in Harvest Natural Resources, KVH Industries, and Heckmann. Their shares pulled back early in the quarter for no apparent reason, creating a good opportunity to buy more. All of these purchases worked out well as all 3 have moved up substantially since the start of the quarter.
The Dolan Company: A high ROIC company with a strong moat, run by a very strong management team that acquires companies (mostly providing services to the legal profession) and then scales the business. The management team has a history of successfully applying the strategy in early 2000 when the company acquired a group of public records companies. The company sold these businesses and then used the cash to acquire businesses that provide services to the same industry. Most recently the company has acquired 2 companies, NDeX (providing outsourcing for the foreclosure business) and DiscoverReady (providing service for the discovery process in legal cases, the process where lawyers collect information/support for their case).
The company is the leader in providing back-office and IT services to law firms doing foreclosure filing for the banks. The company has a large presence in the big states w/ foreclosures and they are the leader in each of these big states. When a bank wants to foreclose a property, it assigns a law firm to work on its behalf. The law firm can do the paperwork, management of information, contacting/mailing letters to the homeowner, …. or it can outsource it to Dolan Company, their NDeX platform. Dolan gets paid a set fee for each file it takes over. The company has signed long term exclusive contracts w/ large foreclosure law firms for these services.
The foreclosure process has been a stop-n-go. With all the talk in the last 2 years about what to do w/ the large foreclosure pipeline, the only solution is to actually foreclose on these properties. I don’t think there is any other alternative that is going to work. The recent robo-paper problem has delayed the foreclosure process but the number of properties that need to be foreclose only increases. Interesting, the company reported its Q4 numbers today and the revenue/profits were not that strong. The reason was the slow-down in foreclosures. Although its FY 2011 projected numbers stayed the same. So the company believes any delay in foreclosures doesn’t mean revenue is lost, just delayed.
DiscoverReady is a new business acquired a year ago. This is a high growth business, growing double-to-triple digits. One of the major cost areas for lawsuits is the discovery process, where the law firms collect data to support their case or how to fight the case. Basically the DiscoverReady process has shown to substantially reduce costs and time. There have been a few law firms using this service until recently. The company is looking to increase the law firms using the product and so far the results have been very good.
The company also has many other smaller businesses, some of them are the leader in their area. Although the above 2 are the main drivers of growth.
The company has grown by taking on debt to do acquisitions. In the last couple of years, after the 2 recent acquisitions, the company has been working on paying down debt. They have reduced debt dramatically and I believe we will start seeing the company now using the cash flow to buyback shares. In the most recent CC, management said they think the current share prices are cheap and would see anything less than $30/share a cheap (compared to current price of $12. I the $30 target was a bit sarcastic but not too much of a stretch).
The company has about $138M of debt, market cap of $365M. They are doing EBIDTA of $92M w/ expectation of $100M in FY 2011. This is a high margin business w/ little CapEx requirement. Management has been buying shares in the $10 range. The management is accessable, has strong history in this industry, and smart allocators of capital based on their acquisition history.
Hallmark Financials: It is rare to find a very well run insurance company, with huge ownership by management, conservative investment portfolio, history of smart acquisitions, and company buying back shares. To find it at a discount to tangible book value makes is very tempting. The company is selling for 75% of book value, not a huge discount but the company has been growing book value at 16% annually for the past 5 yrs. The company is selling for less than half of the company’s investment portfolio, made up mostly of muni and corporate bonds. The company is controlled by hedge fund Newcastle Partners, run by Mark Schwarz. The company recently announced plan to acquire upto 3M shares, currently there are 20M shares outstanding. So we could get over 15% of the company bought back. In January, Hallmark filed a registration statement in which it mentioned that Newcastle is to sell 3.1M shares to Hallmark. Newcastle currently owns over 31% of the company. I see this as an opportunity to buy the company a discount to book value with plenty more upside from growth in the business and share buybacks. Schwarz has mentioned that he is prepared to hold the Hallmark investment for many more years and has plans to make Hallmark much bigger (The recent selling by Schwarz is due to liquidation request at Newcastle).
– Revolution in Cairo: Great PBS Frontline piece
– Triumph of the City: The impact Cities have had on generating wealth, making us happier and healthier
– Interview with Thomas Hoenig: One of the few members of the Fed Reserve who has been advocating for tighter monetary policy.
– Panic of 2007: A very well written paper on how the subprime crisis resulted in the credit crisis
– Spain looking at pre-Euro currency to revive economy: A town in Spain starts accepting pre-Euro currency to boost local economy
– Value investors changed process after the credit crisis: Some value investors have altered their investment process after the credit crisis
On a day when the market was down almost 2%, very few companies were able to stay green. Palladon not only was green, it was up 17% today. CML, Palladon owns 21% of CML, had very good news about its offtake agreements for its iron ore production, construction of concentrator, and hedging future production.
The company signed two major offtake agreements for its run-of-mine production from now until June ’12 (when the company expects the concentrator to be ready). The company should be shipping atleast 100K+ tons per month of run-of-mine production until June ’12. This is good news because of the increased production and locking in logistics and shipping resources.
The construction on concentrator looks to be on track for a June ’12 launch. Once in place, management is looking at 2M+ tons of concentrate production per month. Also, the management has purchased hedges to lock in high rates, $141 per ton. Also, the grade of the production could be much better than I had expected, management is expecting 67% Fe.
Next 12-24 months will be very interesting for PLL. With a regular 100K+ ton per month of production and future production target of 2M tons per month, I think it is still cheap.
– Buffett Interview: Good long interview w/ Warren on a diverse set of topics
– Seth Klarman Shareholder Letter: Great excerpts from the shareholder letter of a legend
– Sequoia Fund Annual Letter: Good read. Discusses their holding in Berkshire
– The Tata Group story: On the transformation of the company for a Indian empire to a global powerhouse