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Interview w/ Mark Cuban

December 14, 2017 Leave a comment

This is a great interview w/ Mark Cuban. He might be brash and out-spoken but he is really sharp as a business man. Great stuff on his discuss about AI, Federal Banks, and raising kids.

Watching this video, I can’ imagine how the US would be doing if he had run for president and beaten Trump.

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Categories: Uncategorized

Schmitt Industries (SMIT)

November 20, 2017 2 comments

I have been looking at SMIT since the company announced its rights offering in early November. I recently bought a position in the company and think it is extremely cheap. I think the downside is protected by the real estate and upside is quiet large with the equity stake of new management and funds.

SMIT is a company that has 3 core business segments: SBS dynamic balancing (grinding controls), Acuity Laser Measurement, and Xact Tank Monitoring. Until recently, the company used to be run by founder who didn’t really care about the marketing or running the company from a business perspective. In 2016, we had a management change. The new CEO has a business background and has brought a much better approach to running the company.

The company owns 40,000 sq ft building in Oregon. The new CEO tried to sell the part of the building (about 10K sq ft) for around $2.3M in 2016. The sale didn’t happen (we don’t know why) but the company is now looking to rent 7.7k sq ft. Once leased it could bring in around $1M in cash flow. For a company w/ around $6M market cap that is great annual cash flow, plus that would put the entire value of the real estate to be more than market cap.

Out of the 3 business segments the 2 interesting ones are Xact and SBS.

Xact creates satellite based monitors that measures the tank fill level and communicates that information via a 1-way device. The monitors are mostly used for Propane tanks but do work w/ diesel and other tanks. The monitors are easily attached to the tank and can be done by anyone in 15 min. The monitors work in extreme locations/weather. These monitors provide recurring revenue and save the customer money in transportation costs (no need to go fill tank when it is not close to empty). The Xact business does around $2M in annual revenues, very high gross margins, recurring revenue, and growing at 40% rate.

The company is working on a new version of the monitor. This will be a lot smaller and a two-way communication device. Also, most of the competition works on cellular networks and some of the large carriers are phasing out 2G and 3G networks which forces companies to switch devices. So the satellite based product is an easier sell and this creates an opportunity for Xact to get customers from competition.

The other business segment is SBS. SBS is a grinding balancing system that is used mostly in semiconductors. The demand for manufacturing is requiring smaller and smaller chips. This leads to better surface finishes. SMIT offers a product that automates the manufacturing process, where as competition requires human operator. This is a huge advantage and the prior mgmt team didn’t capitalize on.

The SBS segment does around $10-12M in rev and is a nice 50% gross margin business.

So you have Xact business that does around $2M in rev, very high margins, growing at 40%. The SBS business does around $10-12M in rev and around 50% in gross margins. And then you have real estate that is likely worth $6M+. For a company that is trading at around $6M market cap (w/ no debt).

Also you look at insider buys and you see a huge interest from funds (Gabelli, Monongahela, and Teton recent buyers) and the CEO also buying in public market.

Overall this is an extremely cheap company trading at less than liquidation value with some valuable business segments and a management team that is focused on growing and investing (rights offering) in the business.

More reading:
Hidden Asset play

Who monitors the monitors

Categories: Uncategorized

Performance

October 24, 2017 1 comment

Since I’ve been quite for a while, I haven’t updated the performance. I will do a quick update and will provide a detailed updated once 2017 is done.

Year Performance S&P 500
2009 128.75% 26.46%
2010 8.85% 15.05%
2011 (20.57%) 2.1%
2012 11.7% 16.0%
2013 19.46% 31.90%
2014 46.61% 11.39%
2015 (52.91%) (0.73%)
2016 33.18% 9.53%
Cumulative 142.65% 175.27%
Annualized 11.71% 13.49%

 

Categories: Uncategorized

Update – back from hiatus

October 24, 2017 1 comment

I haven’t updated the blog in a very long time. I have still been investing and finding treasures in the market, just didn’t know if I wanted to keep the blog running. But I’m back to writing and will be updating the blog going forward.

I’ve updated my performance page and portfolio. Since the last post (in Sept ’15), lot of changes have happened with my holdings. Here is a quick note on the current holdings:

Bewhere Holdings (BEW): This is a venture start-up but in the public markets. Owen Moore had done a start-up in a similar space and sold the company for a nice profit. He created a start-up in the vehicle tracking space and sold it. Bewhere is his second go in starting a company in a similar space.

Bewhere creates tracking devices that included sensors. The beacons can be used on multiple different scenarios (Brinks is in process of installing it for the trucks, beacons are used on emergency devices to track where the equipment is, beacons were used in an agriculture setting). The initial beacons are bluetooth based as the technology allowed the devices to be cheaper then RFID. The next version is made for LTE (cellular). This is a much bigger market as the telco companies really want cellular beacons that will increase cellular usage and revenue. The cellular devices are currently in process to be approved by the 2 big US telco, approved by Bell Canada, approved in Mexico, and going through testing in Europe. Once the testing is done and the devices are approved, the cellular companies can sell these beacons. The cellular devices will created recurring monthly revenue for the telco and Bewhere.

The company is just starting to show the revenue and mgmt has stated they expect to double revenue sequential quarter-to-quarter for the next 3-5 quarters. This is going to be a fun one to watch as revenue starts showing and investors start noticing the potential.

HemaCare: This is one of my favorite holdings. The company is not followed by any analysts, the mgmt doesn’t put out quarterly financials (semi-annual only), mgmt doesn’t talk with anyone, and company has no need for capital markets. All the while the market for their product is growing rapidly, they are well positioned in the bourgeoning cell therapy market, revenues have been increasing at a high double-digit pace, new facility has 2.5x the current sq footage, and very few shares available.

The company sells human blood products to the pharma industry. They have a long history in this space but in the last 5 years the new management team has sold underperforming assets and grown the services focused on blood products. The company is growing rapidly (40-50% rev growth), has huge advantages on its competition (FDA approval for their collection site and procedures), strong relationships with the growing cell therapy industry (board member who ran the cell therapy division at big Pharma). The company is a hidden gem in a growing industry.

Enservco: This is a special situation in the oil services industry. The company was fortunate to survive the recent oil industry and now get stronger with a new management team. The company was hit hard by the oil down turn in 2014 and a poor decision by old management to increase capacity by acquiring new assets right before the down turn. But with a large fund holder (Cross River) and new management team, the company is poised to come out much stronger. The new management team has already dealt with the debt issue (extending the $30M debt and getting more capacity). The company has also been increasing the offerings and making it less seasonal. Overall we think is a classic deleveraging play but with better upside given the asset acquisition done in 2014. The market is currently sleeping on this one but it won’t be too long before people wake up to the turnaround.

Valeura Energy (VLE): This is a high risk/reward oil drilling play. Although we think the risk is capped by the proven shallow drilling and infrastructure assets the company owns. The upside is from the deep drilling that the company is doing with Statoil. The play is for natural gas in Turkey. The gas prices in Turkey are much better ($6.50+) than in the US. This is a huge find if it is a success, a big enough find that a company the size of Statoil would be interested in. VLE sold 50% of its deep drilling rights to Statoil in return for Statoil taking on the drilling and 3D mapping costs. So far the results look very promising. We should get the results of the first deep drilling test in 60 days.

Undisclosed: This one will remain undisclosed for now. All we can say is it is a resource play. The company has a tiny market cap ($6M) but there is a lot that is happening based on the recent PR activity. Plus we have seen the CEO acquire millions of shares in the public market in the last 4 months, clear indication something big is coming.

 

Categories: Uncategorized

Lee Kuan Yew

March 23, 2015 1 comment

Lee Kuan Yew, the great leader of Singapore, recently passed away. He not only lead Singapore from the time it became independent from Malaysia, but he also was one of the sharpest minds about world politics. His views and advice was thought after not only in Asia but in the Western hemisphere. His practical approach to some of the most complicated issues helped put Singapore on the map and make it one of the top economies in the world.

I highly recommend people read any and all books about Lee Kuan Yew. I highly recommend From Third World to First, in which he discusses his many policy decisions.

Categories: Uncategorized

Portfolio Update

April 10, 2012 2 comments

I sold out of GSL and HNR recently. My thoughts …

GSL has been a great ride. It was a 80% return in less than 3 months of holding. The position to begin with was a small position, so even with it up 80% it wasn’t a huge size. More importantly, GSL is a distressed situation opportunity. The price we bought it was very cheap compared to the long-term contracts and potential of restarting dividends in 12-24 months. Anyways, the main reason for selling was in this market there are many opportunities to buy great businesses that can provide very good long-term results. GSL is a distressed situation with a business model that is not that great. I would rather be owning a good business.

A few weeks ago, HNR announced they were filing for potential dilution of upto $75M. More importantly this is a clear sign that their sale of Venezuela assets is unlikely to get approval from government. After this announcement, I decided to sell out of the investment.

The investment thesis was dependent on monetization of assets or production from prospects outside Venezuela. The lack of dividend and what looks to me like a potential difficulty getting the VZ gov’t to approve the sale of assets has put the company in a cash hungry position. As for production from prospects, it is likely to happen but the cash required will mean much dilution.

In the end, the HNR investment was a 32% loss. Although this doesn’t represent the whole picture. HNR was a much bigger mistake and a huge loss. I held the shares for about 4 years. In the past 4 years, I have nothing to show but a loss. Also, in these 4 years I had plenty of amazing investment opportunities. I invested in many and the portfolio benefited from it. Although having capital invested in HNR meant I had less capital to invest in these ideas. So the opportunity lost by being invested in HNR will show how much bigger the loss was.

Hugh Henry said one of the biggest mistakes investors make is procrastination. HNR was a definite mistake from this laziness. There were many signs in the past few years that HNR was a bad investment. Although I gave management too much credit to stick with this investment. In 2011 when HNR sold its US assets, my gut feeling was to get out of the investment. Although I gave the management credit of doubt and stuck with the investment. In hindsight it was a sign that the company was stuck in a situation where it had to sell valuable assets to turn prospective assets into something worthwhile.

Berkowitz mentioned one of his checklist items is whether the company depends on the kindness of others. HNR is clearly dependent on the kindness of a government that most individuals wouldn’t want to be associated with. When a company can’t have access to its own cash flow, it is best to not count on the cash. It is like a guy who is behind bar for life but is married to the most beautiful woman in the world. You might have the best assets in the world but in a situation where you can’t enjoy it.

 

Categories: Uncategorized

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