Archive for June, 2012

Weekend reading

June 29, 2012 Leave a comment

Michael Mauboussin on Buybacks: There is so much more to buybacks than what meets the eye

Mutual Fund Boards are Failing: Corporate boards are known to not do much but Mutual Fund boards might be even worse

A glimmer of hope: Euro crisis is painful to watch but each crisis creates a small glimmer of hope

Buffett works the Newspaper: How Buffett’s recent newspaper acquisitions might work out

Categories: Reading

Weekend reading

June 22, 2012 Leave a comment

How to kill a currency: A look at the Austro-Hungarian currency union in 1918

–  Europe on Brink: From Mr. Death, Nouriel Roubini

Genworth and Canadian Housing market: A look at what is keeping Genworth’s stock so cheap

Categories: Reading

YNG: Steady state production and cash flow positive

June 18, 2012 4 comments

It has been a very long time since the company said it has reached steady state production. I initially bought my stake in YNG in late 2010. A few weeks after I bought my shares, YNG reported it had reached a steady state of production. Since then the company has run into many problems related to production and capital.

Today the company reported that it has been running at steady state production for over a month. This is a huge step in the company’s turnaround. Reaching steady state and cash flow positive is a vindication to the management team and their belief on the assets at YNG. The market is still extremely undervaluing YNG, with a market cap of a mere 350M. If the company can keep production running at current levels, the market will believe in the company and the correct this valuation gap.

Great job by management at working through all the problems.

Categories: Updates

Weekend reading

June 15, 2012 Leave a comment

True Lessons of the recession: Great paper on learning from this great recession, instead of just hoping it goes away

Turning Slumdogs into Millionaires: An article on Pabrai’s Dakshana Foundation

Pershing Square letter to investors: Latest from Bill Ackman. He discusses JCP and Citi, which I’ve started to look into.

Categories: Reading

New buy: JC Penney

June 10, 2012 Leave a comment

I’ve recently bought a position in JC Penney. The JCP transformation is well known. The story became public when Bill Ackmann reported his initial stake in JCP, then his fight to make changes to management, and finally with the appointment of Ron Johnson.

The vision that Ron Johnson has put out for JCP is very compelling. The vision that comes to mind is a mix between Nordstorm’s, Apple Store, and a value conscious buyer. The store-within-store idea is very interesting and it is something that Nordstorm has done very well with showcasing brands within its stores. If JCP is successful in its implementation, the future for JCP is extremely bright and compelling.

When Ron Johnson put out his vision for JCP, the stock took off. Getting to a high of $36/share. Since then the stock has come back down to less than $25. At these prices you are paying a small premium to what Ackmann paid to build his position.

The company has recently hit poor revenue numbers. With any transformation you will see initial hit taken to revenue and the bottom line. What is interesting is the success the company has in cutting off expenses and the ability to sign up brands to JCP’s new vision. I think if you are patient you can see fruits of this transformation in 12-18 months. Some investors have been saying that the fruits will be visible in a few quarters, but transformations always take longer than expected. The company is still building its management team, so give the company some time to start showing results.

The company also owns large amounts of land and has very cheap long-term lease rates. The value of these assets are understated on the financials, due to wonders in accounting. So at current prices you are getting assets that can create some margin of safety.

There are plenty of write-ups online that discuss the valuation for JCP. So no need to restate what is already public. Just look at Bill Ackmann’s detailed presentations and put a decent discount to his numbers, just to be safe.

Doing valuation on JCP is tricky. You get into numbers where you start projecting success on the transformation. With these numbers, the valuation can dramatically change based on how well you think the transformation will go. I basically look at it as what is the worst case situation, the management fails in its transformation and is forced return to previous model of a crappy retailer. In that situation, given the assets on the book, the downside from today’s prices is limited.

Categories: Investment Idea

Weekend reading

June 8, 2012 Leave a comment

Distress Mortgage Conditions: Great visual of the 30+ day delinquent mortgage in US. Still a huge pile of mortgages that need to be foreclosed/restructured.

How to be a better and happier investor: Constantly watching the market is draining and leads to stupid actions

Population growth and impact on GDP: It is amazing how people doesn’t take population growth so seriously. Most college economics courses do not even bring up population when discussing GDP

The Flaws of Finance: I have become a fan of James Montier

Categories: Reading

Update: Taro Pharma

June 6, 2012 4 comments

A quick update on my Taro Pharma holding, as I’ve received a few requests about it.

I recently sold all my Taro holding. It was a very tough position to sell. The stock is up over 90% since I initially bought in Aug ’11. In the same time period, S&P 500 has given a negative 1% return. So the return on Taro has worked out very well.

The company is cheap on valuation basis, so selling at these prices was tough. Although the risks associated at these prices were something I couldn’t quite understand.

With a buyout offer at $24.50 and the stock trading at anywhere from 50-100% premium to the offer. I can’t understand why anyone would buy the shares at more than $24.50. Unless you are very certain that the offer price will be increased or the company will stay public, it seems too risks to buy the stock for more than the buyout price.

Second, there is a good chance that the buyout offer could drag out more. It has already been 7 months since the offer was made. The BoD has hired i-bankers to look at the offer price but still no results. Plus, Sun Pharma is known to be patient. So I see a decent risk of the offer just staying open and dragging on. I still feel that Sun Pharma will likely increase the buyout price, but I just don’t know when and by how much. So it is harder to hold onto something when you can’t get your arms around the key variables.

In this market, I’m able to find companies that are selling at cheap valuations with plenty of upside. Also these companies do not have the same risks that I see with Taro. So I decided to sell as the risks between holding Taro Pharma and what I can find in the market was compelling.

Categories: Updates