An update on my portfolio: I have bought a new position in a GDR listed in London, as well as anticipating an exit in a couple of positions, share prices permitting. I’ve also been reflecting on some of my investment decisions and where I am getting into bad habits.
I haven’t look at CRV for a while, and it was recently covered by another blogger, Expecting Value, which takes the count now to two bloggers that have been skeptical of CRV. I thought I would write a post setting out my thesis again and particularly addressing the issue raised that CRV could be inflating the valuation of its balance sheet.
A student once asked Warren Buffett how best to prepare for an investing career. Buffett thought for a few seconds and then reached for the stack of papers he had brought with him.
“Read 500 pages like this every day,” said Buffett. “That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
So here are some of my picks from my reading over the last couple of weeks for you to browse this weekend and make up some of your daily 500 pages.
Another installment in the AIM IT Project. I cover three more investment companies, one of which is managed by a value investor and has a very interesting proposition of buying undervalued preferred stock. I intend to initiate a position in it.
Collectors Universe has an Enterprise Value of $110m, and the companies free cash flow has averaged $10m over the last 4 years. It also boasts a 10% dividend yield. But what is most interesting about this investment is its competitive advantage. In a niche industry it is already a dominant player, with significant barriers to entry. The industry is likely to last for decades and will not become obsolete. Going forward the company is expanding internationally and potentially more than doubled its market by opening an office in China.
Ithaca Energy is a stock I looked at quite a while ago. I wrote the following article and was about to buy shares, but in an extreme case of bad luck, just before I could initiate a position the shares rallied 30%. I haven’t since initiated a position but think the shares are still compelling so thought I would post the write up. They have just reported Q3 2013 results which showed record cash flow, putting them at a EV / Annualised Cash flow multiple of just 3.5.
I bought shares in IBM (NYSE:IBM) over a year ago, not long after Warren Buffett announced he had made a large investment in the shares himself. This is one of the few investments that I have been displeased with throughout, not because the share price hasn’t performed, but because the business itself has performed far below my expectations.
It wasn’t until recently, when I took a look at Oracle’s (NASDAQ:ORCL) performance, that I realised that my thesis on IBM was wrong and the investment wasn’t as undervalued as I thought originally. It is hard to admit you’re wrong, especially when IBM’s share price has been much higher recently than it is now, but it’s the right thing to do as an investor.
I’ve held JD Sports for quite a while, and a few days ago its latest interim results were released. The core business is doing extremely well. JD Sports stores are currently the leaders in sports fashion wear, with pretty much no competition.
But while the JD business is thriving I am not at all pleased with how the overall group is doing. The group is made up of not just JD Sports but Fashion stores like Bank, and now Blacks which is a higher end outdoor retailer. The fashion and outdoor segments have no unique selling point, are in fierce competition with all sorts of competitors and unlike JD Sports shops, they do not offer something unique to the customer.
Emeco leases heavy earth movement vehicles to the mining sector. It is currently selling for less than what I calculate as a conservative liquidation value. Although the industry is in a cyclical downturn, Emeco continues to generate free cash flow and is well within its debt covenants. I think it is worth around book value of A$0.72, compared to its current share price of A$0.22. Under a worst case scenario and the company liquidates I think there is a good chance of investors not losing money.
CF Industries is one of the largest manufacturers and distributors of nitrogen and phosphate fertilizer products in the world and I first mentioned it in my ‘Fertiliser Company Comparison’ article. It is currently selling at a P/E ratio of just 6.8 and generates all of its profits as free cash flow. Daniel Loeb’s Third Point has already announced it holds a position in the stock as it views it as undervalued.
Its core market and distribution facilities are concentrated in the midwestern United States (the so called corn belt) and other major agricultural areas of the U.S. and Canada. It also exports nitrogen fertilizer products from Louisiana manufacturing facilities and phosphate fertilizer products from Florida phosphate operations through its Tampa port facility. It mainly sells its products to industrial customers. It also owns a 75.3% interest in Terra Nitrogen Company (TNCLP).