Spekulatius

I believe that Ireland will benefit from Brexit, perhaps tremendously. At least some business that were located in the UK may find it easier to business with the EU from within the EU, so Ireland will be a natural spot. Then on the other hand, I like the prospects for the banking business in the UK better. The reason is that the UK keeps their GBP and their own central bank and most likely never will have the negative interest rates that are destroying the banking system in Europe.

Stock is down today after a presentation for UBS. They apparently guided next year down a bit, because they will have a bit more than $1B in additional expenses in Y2020 due to startup of Peacock (streaming service) and a broadband business in Italy (under Sky). My rough numbers are 8x EBITDA valuation and ~$3 in FCF/ share or a 7% yield. No stock repurchases next year as they will continue to delever the balance sheet (debt in the low 2.x EBITDA is their target). Stock looks quite cheap to me, but perhaps we get even better prices ina correction. I added a few more shares today (having sold off some in September). One of the cheapest GARP megacaps I am aware of. https://www.cmcsa.com/static-files/6b32619a-749f-4ca7-aabb-39346192827b

Added some CMCSA.

Facebook has already a corporate Facebook version. Work looks more like Discord to me. I actually heard that some upstarts use Discord.

I am not sure what advantage CLF has venturing downstream. AKS was slowly going out of business. Now when CLF goes downstream, they will have to compete with the likes of Nucor and Steel Dynamics - good luck with that. Perhaps they felt they needed to do that or their ore /pellets would have no where to go, since Nucor and Steel Dynamics etc. use scrap rather than Ore or pellets.

The we study billionaires podcast had a nice episode on Altius: https://podcasts.apple.com/us/podcast/we-study-billionaires-the-investors-podcast-network/id928933489?i=1000458309550

Valueact leaving the board - shares down 3%+. https://finance.yahoo.com/news/1-rolls-royce-says-valueact-084809104.html Probably got tired waiting for the turnaround after 4 years and do some housecleaning for next year. They own a substantial position, so if they sell, it could put further pressure on the stock.

My understanding of ROIC that one looks either at the left hand side (asset side) or the right hand side (equity & liability side)of the balance, sheet,, it should not muddle them together. I picked the right hand side, so one has to stick with that. I do agree agree that the $4B in FCF is probably too high. My former notes derived at ~$3.4B, which yields a ~23% as a Return on tangible equity. Yes DuPont has traditionally growth via acquisitions and they have done a poor job at that. The current DD thesis really evolves around this company doing better than in the past, otherwise there is no point in owning it. Most of the value will be created with organic growth (at least that’s my thesis). Currently, organic growth isn’t there, hence the stock isn’t moving, however, if we get a couple of percent volume growth and pricing with inflation, then the relatively high ROIC start to matter. Add in some value add from Breen doing some magic via dispositions, mergers and buybacks and we are looking at double digit returns for the stock. From my POV, DD isn’t a great business, but it is a good business that should be around for a long time. In that sense, it would a great business for BRK to own, imo.

I estimate DD tangible invested capital (using the passive side of the balance sheet) at around $15B: $10B in PPE, ~$4B in Investors and $1B in net working capital (accounts receivable minus accounts payable). So with $4B in FCF, I get a ~27% ROTC. It’s probably a bit lower than that, because I think there are some unconsolidated assets plus a bit of cash needed to run the business.

BG, I realize this Q was is for Spek but I'll give you my (unasked for :D) opinion as I have a very similar (nearly identical background - metallurgy side of MatSci) background from past life. When it comes to DD products, and specialty chemicals (in my case resins, adhesives, etc.) in general, once we had our processes in order and working, we would keep getting the same chemicals. It would take take 1) discontinuation of a product (happened few times for environmental/hazard concerns) 2) draconian price increases. The few times when we switched products, it took about a year of testing the alternatives (best case) and sometimes would stretch into several years to confirm that the materials would perform the same way and, more importantly, fail exactly the same as the one before it. This involved destructive (e.g.,thermal/mechanical testing), non-destructive tests (e.g., conductance), countless hours (think in the 1,000s) of microscopy (SEM/TEM/X-ray). Basically, a production that nobody wanted because it was terribly expensive, taxing on labor (all those tests frequently require specialization), and not very exciting. I recall a few times when we were alerted of either coming price increases or discontinuation of a product and we would just stock up. In the similar vein, engineers/scientists swear by the materials they "grew up" with. Getting a new boss with his own set of experience was a particularly exciting time (/sarcasm). In a nutshell, the economy would dictate the quantity of a chemical needed but not the chemical. The price was generally assumed to go up. I second what infoeisone started, once a material for a process is locked in (like a photolithography agent, cleaning agent or OLDD material ) it is unlikely to be changed. The reason is simple - many process are just too complex and the unknown unknowns of a change require extensive requalification of the entire process. This is almost never going to happen, unless a process is clearly broken . The cost benefit ratio to initiate a change is very unfavorable, the consumable are typically cheap and may be let say $10/ wafer, but the value of the wafer at that point as work in process may well be thousands of $. So initiating any change is generally a bad risk reward and will receive a lot of pushback from other stakeholders. For other products, I think Duponts brand name is important. For example, I imagine there would be some pushback when safety equipment like bulletproof vests were to be bought by an adventurous buyer made from a generic product rather than Kevlar. Same is even true for something like cut resistant gloves. Clear room or Hazmats suits are often called Tyvek suits. Yes, other materials do exists, but Tyvek is what is in everyone’s mind and people keep using and reordering them. All the above translates into pricing power. Now given, the volumes will change with the level of activity for each of these products they are going to be produced and that can and will fluctuate, but generally I have not seen a situation where a plant manager will risk losing hundred thousand of dollars and lost sales to save a few hundred dollars for a consumable even in a severe downturn.

That is correct, but does the WACC ( more precisely the debt component cost) adequately reflect the risk? I would argue no, because bond markets itself are in a bubble ( due to record low risk free rates and record low risk spreads ) Still , this is a highly useful way of thinking and proves again that ROIC is the one metric to rule them all.

I felt the signaling from Trump that deal may have to wait until after the election is a clear indication that nothing appears to be forthcoming short term. I believe that a new round of chaos is going to be forthcoming after the holidays.

Since you are in the IT business, it would be beneficial for me and possibly for others to understand what made you chose ESTC product compared to competitors like DDOG, the AWS solution or Splunk etc. Also, do I understand you correctly and you just use the “freeware?” ESTC open source solution that doesn’t really cost you anything? I am not too hung up on EV/revenue multiples or even GAAP profit metrics if I understand why their product is better than competitors and might continue to be so in the future.

What also helps ULTA is malls and department stores dying, imo. The department store entrance was a main area with high foot traffic where beauty products were demonstrated and sold. These areas now have way less foot traffic and the department stores itself are hurting, which even hurts the categories that have been healthy for them, opening the door to competitors with a sharp focus like ULTA. Maybe that’s obvious, but I think ULTA (and Sephora) have secular tailwinds as long as Department stores keep withering away.

Yes, I believe that low interest rates favor hard assets, especially those where cash flows keep increasing with inflation (real estate) or those that tend to their buying power (gold). For real estate, low interest rates atemlos, because you can lever them up cheaper and generate FCF. For gold, the opportunity cost to forgo interest payments on financial assets is lower. Assets similar to real estate with stable cash flow like utility stocks, airports, pipelines . These arenas business that borrow a lot, should benefit twice with lower borrowing cost and increased multiples.

Pretty good article about Boris Johnson: http://nymag.com/intelligencer/2019/12/boris-johnson-brexit.html

10% on $100M invested capital is only better than 1% on $1B in invested capital if you can reinvest the earnings and increase the invested capital at hopefully the same return. If you can’t grow your invested capital, I would argue that 1% on $1B in invested capital is equal or better than 10% on 100MBIT, because there is a chance that you can liquidate $1B for face value or even a bit less and come out way ahead.

Advisor fees, if you pick their advisory services. It’s hard not to recommend Fidelity and if you don’t want to dive into foreign stock markets, I would argue it’s better than Interactive Brokers.

Same here. I also got another lot of CVTA.

Just break your order in small little limit orders at slightly price points. That’s what I am doing, especially now with zero commission trades. FWIW, I don’t think Fidelity gets paid for order flows and In did an analysis for myself that the commission savings far outweighs the rebates I am getting (price improvement). That’s for small order of maybe 50-300 shares or so, which I how I like to go about this now. if you do orders > 1000 shares, then the rebates become more noticeable.

I have started to follow ESTC as well as other clout companies and I think it is true for the majority of people who “invest” in these companies. It certainly applies to myself. I have a material science and physics background and work in adjacent industries and can understand in broad terms how DD customers think about their products, pricing power, replacement hurdles for example. I have no such idea about ESTC products. From my experience a lot of people who own these stocks don’t have it either. The crucial test is always if they average down , in case the stock price drops. After all, if something truly becomes cheaper , why wouldn’t you want to own more.? Of course there is always the very real risk of thesis being broken, but if you can’t tell a real problem from a perceived or transient one, what do you really know? I have seen quite a few folks on twitter owning and then selling these when the stock breaks down. That in my opinion, is just momentum investing. As far as many SAAS stocks, including Elastic are concerned, one of my concerns is with classification of cost. Who can tell what is really operating expense and what is marketing or R&D? With a bit creativity, ai can do custom work for a customer for free and call it R&D and /or marketing expensive and one can probably do so repeatedly. That makes the gross margin appear higher than it really is and gives the promise of becoming very profitable in the future, even though it never will, be sure they can’t wean of customers from freebies. I am not in the software business, but I can confirm that the above exists, in real business. It’s easy to hide and hard to tell apart from the outside as long as the company is growing fast. This is just one issue they I have a hard time being comfortable with.

Thanks for reminding me that TAST has year end tax loss selling dynamics. I agree that TAST looks tasty. I have put it on my watch list a few days ago, but haven’t dug into the stock yet. It looks like a perfect candidate though and the business should be resilient.

It’s probably good for a bounce. It looked at the Q3 earnings and what really surprised me is that they can sell thermal coal for $60/ ton. Isn’t that more than 6x what the operators in Powder River get? I think Met coal may go down to $100/Ton - a lot of operators have a cost of $90/ ton so further drops will lead to idling of capacity. I do like ARCH here (don’t own it, but out it on my watch list) as they seem to execute well and seem to have low production cost assets.

I am not sure it’s Ok to post the Askeladden writeup this here, since it was posted behind a paywall (at least that’s my understanding). I mentioned some of my concerns on Twitter to him when he posted about DLTH and he kind of was pretty dismissive. He tends to use a lot of hyperbole in his writeups, which I find a bit cringeworthy. On another note, it’s interesting that he mentions COLM in his report, which I find to be somewhat interesting , as it is a quite well managed business, as far as I can tell, but it’s not an obvious value stock either. Anyhow, DLTH should post their quarterly earnings today, so we will see how they do.

Thanks for the update. I put it on my watchlist when you posted, because it looked interesting, but never got around to look into this closer before it ran away.