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Archive for February, 2012

Portfolio Update

February 29, 2012 Leave a comment

In early Feb, I sold out of Heckmann, Reed Resources and Harris Interactive. Heckmann has a great potential future but I can find companies that are selling at even cheaper valuations. Reed Resources, I had mentioned was a mistake. Although I didn’t want to sell until I got a decent price, given what else I can find in the market I decided to get out.

Harris Interactive was a great return for us. It saw an 85% increase since I bought it, in less than 4 months. Although the turnaround has just started the question is whether it is still worth holding. The more I think about this company, the company it is not a great business. When I bought the stake it was being priced as if the doors would be closed. So the risk of loss was based on your belief whether the company would be able to generate positive cash flow. The company had 13M of cash and a CEO that knows the industry and the company very well. So the risk was low for the company to go belly-up. Although this is a small company, probably will do 150-200M in revenue, and doesn’t have a growth potential. While, in the current market you can find good companies that can grow value over a long run. Although Harris is a good business, it is unlikely to grow much bigger than the 150-200M revenue size. Given what else is out there, it makes sense to buy companies that will grow value in the long run.

I bought Yukon-Nevada Gold, Global Ship Lease. I’m also looking at two other companies to buy.

I was buying more Yukon-Nevada before the recent spike. The recent jump in price is just the beginning. I believe in the next 2-8 months you will see a long list of good news coming out form the company (results from the Mining Safety agency visit in February, new 43-101 report, move to AMEX, restarting underground mines, and getting to the steady
state of 150K oz.). Also if management is able to get approval for increasing production then the company could end the year at run-rate of over 200K oz.

Global Ship Lease, I’ve written about this over a year ago. The write-up is available on SeekingAlpha. Basically this is a shipping company that used to give 92 cent dividend before 2009. After the 2008 recession, the ship resale values have taken a huge hit. GSL can’t give out dividends unless the loan-to-value is atleast 75%. So GSL is not paying any dividend, instead it is using cash to pay down debt. If you look at the operations for the last 4 yrs you will see steady cash flow. It is just that until the company can start paying dividend the stock will be cheap. In 2011 the company was getting close to restart dividends. The stock jumped to over $7/share. Then in late 2011 with the Europe crisis put a damp valuation of ships and the dividend restart didn’t occur. The stock got hammered. At less than $2/share this is a steal (even in low-$2s it is a great buy). The company will start dividends, it is just a matter of when. In the meanwhile you have a company that is getting a steady cash flow and paying down debt. Any signs of a restart of dividends and this will be a multi-bagger. The company does a loan-to-value test in Nov ’12, which could be catalyst for a dividend restart. Too bad for me, the stock moved up much quickly and I wasn’t able to get a full position built.

Categories: Updates

Weekend reading

February 24, 2012 2 comments

Walter Schloss passes away: One of the ‘superinvestor’ passed away

Adventures in Behavioral Neurology: Thoughts on the brain and human behavior by Vilayanur Ramachandran. Great stuff (I highly recommend his books).

Berkshire Annual Letter: Why would you read anything else this weekend but Buffett’s latest letter

Categories: Reading

Renters

February 17, 2012 Leave a comment

A great quote from Bob Benmosche, CEO of AIG, on his view on ‘renters’ and ‘owners’ of companies. The quote comes from a recent analyst presentation.

One thing that I did learn from Wall Street, it is a simple rule, all of you in this room [referring to the analysts] are not looking for great companies. You may find one and that would be wonderful, but it has nothing to do with your decisions. You are looking for a great stock. You want to buy that stock, you want it to go up, and when you have gotten enough you want to get out of it. You are renters. You are not owners. Some of you are, but mostly you are an owner because you are trapped. So I’m looking as owners and thinking about the fact that I want to have a great company and I have got to have a good stock that you are all interested in.

I for one agree that even though I call myself a value investor there is more of a bias towards renting. Infact most value investors are ‘renters’ even though they might claim to be owners of companies. The approach that you believe a company is worth X and once the stock, or valuation, gets to 90% of X then you get out is an approach of a ‘renter’ not ‘owner’. Any investment with a bias towards getting out of the stock at a certain valuation is a ‘renter’ approach. Very few individuals have access to capital in a similar way as Berkshire Hathaway, or have investors that will give you the freedom to be true owners of the company.

Categories: Uncategorized

Weekend reading

February 17, 2012 2 comments

Credit Suisse Global Investment Returns: Data on 100+ years of investment return for 19 countries

McElvaine’s We are here: I always enjoy reading Tim’s thoughts on the market and screening his investments for ideas

Longleaf’s Annual Letter: Annual letter and another good place to look for investment ideas

Recent letter by Jeetay Investments: For Munger fans, I highly recommend reading letters by Chetan Parikh

Categories: Reading

Taro Pharma: IsZo Capital writes again to the BoD

February 15, 2012 Leave a comment

This letter from IsZo Capital does a great job of showing why the current buyout offer for Taro Pharma is extremely undervaluing the company. Also it does an amazing job in showing why the value of Taro Pharma is much higher than the current market price.

Categories: Updates

Weekend reading

February 10, 2012 Leave a comment

The Prince Henry Group presentations: A bunch of value investors presentations. I haven’t seen links to these videos from other sites before

65 Years on Wall Street: Great talk and Q&A w/ Walter Schloss

The Last Battle of the Cold War: An article on the Syrian crisis

Seven Habits of Unsuccessful CEOs: As investors, what to avoid in management

Categories: Reading

Taro Pharma: Monster Q4

February 10, 2012 Leave a comment

Taro Pharma recently reported Q4 2011 numbers. With each quarter the operations get better and the true earnings potential is getting clear. The company reported EPS of $1.4. Based on an annualized rate, that is $5.6. Sun Pharma made an offer to acquire the company at $24.50 per share, a 4.4x P/E. Companies in this industry typically trade in the high teens range. The current market share is $34.85 per share. That is still cheap, a 6.2 P/E. With a public offer of $24.50 while the stock trading at almost $35, it is a clear indication from the market that the buyout is unlikely to happen at $24.50 offer. Infact, if you put a meaningful valuation of 15-18x P/E, you get a valuation in the $84-$100 range.

Even if you take the EPS of $4 for the 2011 year, putting a 15-18x P/E multiple gets you a $60-72 price target.

The company now has net cash of $214M, or $4.8 per share.

Categories: Updates