Spekulatius

Volume seems plenty (200k/ day per yahoo finance) and bid ask I soften down to a penny or two. The cash tsunami from service seems like it’s pushed out further and further in the future. They lose money on the problematic Trent engines X1000 Nd a recent credit downgrade is a problem too. They can’t really afford to go non- investment grade and probably would have to raise equity via a rights offering in this case. That’s my biggest concern.

I bought some shares recently around 700p. My biggest concern is accounting. I am watching the cash flows closely and hope they make their 2019 forecast.

Greece is booming right now, FWIW. Italy has structural problems that existed before the Euro was implemented. Lousy demographics, inefficient institutions and low productivity are the main one that come to my mind. The grip of the Mafia on half the country didn’t help either, although they have improved in this regard. All these will, when they would exit the Euro zone. Italy is actually the main benefactor of the low interest rate policy. If they exit the Euro, the interest rates for new debt as well as for the business within would go way up.

For a low maintenance portfolio, I would probably put my money into index funds, some US, some world Index fund like VTWSX (or equivalent). If you want a value component, one could think about and equal weight cap fund for mid or small cap exposure and maybe some BRK. I also second GOOG if exposure to tech is considered, but I would keep it smaller than BRK, which is diversified by itself. Canada is a strange stock market since there is so much exposure to commodities and banks. If OP wants exposure to this, he could just buy a few individual Canadian banks stocks with an equal weight. if I wanted exposure to energy, I would just buy an oil major like RDS or CVX or a bit SU. Then rebalance this once a year.

The problem with your 2009 analogy is that you never know if it’s the bottom or not. It is possible that we go into a long term bear market where prices just bounce around and pretty much stay where they are just like in the mid 80’s or the 90’s for example, which was with short term interruptions a 15 year long bear market culminating in a 1998 crude price of $10/ brl if I remember correctly. The oil majors handled this quite well, but smaller players absolutely will be zero’d in this scenery. So, yes an equal weighted index would beat the majors in a recovery, but in a continued bear market , the majors will win by a huge margin. The other thing to consider is, if nothing changes are the valuation appropriate? No change would be the default (zero hypothesis) for a value investor. The way I see it, many energy business will look quite overvalued in this case, but the ones I noted would be OK. I personally decided to stick with pipeline cos. low prices don’t bother them really, except second order effects when they get affected by producer bankruptcies. Even in this case, properties just get new owners and business goes on. WMB for example is foremost an utility. They own the best pipeline business in N.A. (Transco) and keep growing it (network effects). realistically, they can continue to pay a 7% dividend and growing this in the mid single digits. Something like RDS is becoming more of an utility as well, via LNG, plus they have refining and a petrochemical business. So I think she buying this, the risk of a permanent impairment is fairly low. I believe thinking of risk first and return second is a good strategy here.

I used to be relatively heavily invested in O&G, but completely bailed in 2014 when prices really started to fall. I re- entered the sector in late 2015, but concentrated entirely on midstream and pipeline companies (and their bonds back then), because I figured that bottlenecks would be transportation rather than production. In addition, the midstream have pretty nice dividends which over time really make a bit difference. I am also now invested mostly in midstream, I own some KMI (acquired lower prices) and WMB ( a bit in the red). In really like WMB because it is 2/3 utility and only q/3 gathering and it yields 7% with a good chance of dividend increases. I have sell and buy these opportunistically. For. New entry, I like WMB, best in class EPD (if it falls below $25) and perhaps PAGP. I think international majors like RDS and BP, as well as the better operators like SU and CNQ are investible on an opportunistic basis too. Another interesting group to look at are Met coal producers. These are not energy stocks per say, as met coal is an input for steel reduction rather than electricity for thermal coal. The sector is pretty washed out and a stock like ARCH (which has some thermal coal exposure too) looks very cheap, despite low cost production and a strong balance sheet. I don’t own it yet, but I think I might buy into this at some point.

A lot of multiple expansion has been with high quality stocks. MA, V, FISV, MSFT various SAAS/cloud plays like WDAY, NOW, rollups like SHW, ROP, POOL, CSU-TO etc. Oddly enough, some fangs like GOOG and FB aren’t all that expensive compared to above. They haven’t really seen multiple expansion lately either, as their share price has roughly followed their growth rate.

^ Thanks for above comments regarding EM banks. I guess I was just biased based on the performance since the GFC in 2008. I have owned EM banks before, made some dough in BAP ( Chile) and one a stub in AVAL (well run Bolivian bank) and I am tracking ITUB too, but not invested currently. I do agree, if they get the Brazilian economy going again, ITUB should be money good. It just seems to be that since 2008, they have used just about any opportunity to scoot themselves in the foot in addition to macro headwinds (waning commodity boom and meltdown of energy markets)

I wouldn’t call something where a significant part of the return comes from closing the gap to intrinsic value a compounder though. A compounder for me is a stock that grows intrinsic value at a high and fairly consistent rate. In order to do so, they will need to earn high returns on capital, Because over the long run, the returns from you stock investment should about equal the returns of invested capital of the business you are invested in. I doubt that a bank (ITAU) in a volatile economy like a Brazil can be a compounder in that sense. Actually most companies in EM won’t work either, because their ROIC isn’t high enough, despite being located in high growth countries.

Sold more $SDI today.

I keep it simple and just mention one compound that is surprisingly affordable - CMCSA. Stock trades at 8.3x Y2020 EBITDA and an ~8% FCF yield is the CS analyst is correct. According to the 2018 shareholder meeting presentation, they have compounded ~17% annually. It don’t see why they can’t do low double digit returns for quite some time going forward.

My own opinion is that MDXG product are probably not providing any benefit, but I am not an expert on this. Mark Cohodes is in this short not for the money ( as he stated in the Jolly Swagman podcast), but out of principle and this has become a very personal vendetta. So if you are in the market to make money, it’s probably best to stay out of this. anyways, even with frauds or worthless junk, the stock price can become very disconnected from reality. I jokingly said for example, that the best time to invest in SHLD was after it filed. The stock went from $0.25 to ~$2.5 briefly after they filed. Similar, GM stock during the financial crisis showed either immediately before of after bankruptcy (about Nov 2008) a strong run, even thought the stock was basically known to be worthless. I think it was solely due to technicals and got a lot of shorts wailing. So weird thing can happen and it is possible to do counterintuitive gambles where the payoff can be quite large in stocks that are absolutely worthless.

I agree that in 2019 we will see ~$0 of FCF. I think they can generate ~$40M of FCF in 2020 (after interest). The Market Cap is ~$205M For me, it looks undervalue and they have a plan to return capital to shareholders. The debt was effected from IFRS16 I think sometimes in this cases, it helps to step back and look at the thesis a bit. If the thesis is that this is a 20% FCF next year, my immediate inclination would be too look at other stocks that have a similar FCF yield and we now they compare. I actually did so a while ago and came up with 3 high FCF yield stocks back then - CX (cement), MPC (refinery, midstream) and BRY (packaging). I guess you could add ATTO tot his mix. Then I ranked the 3 companies , based on my confidence that they would make their numbers and my perception of risk. My ranking was BRY> MPC> CX. I admit it is entirely subjective of course, but I decided to buy BRY. If I would add ATTO to this mix, it would probably dead last. Again, this is my subjective rating and to be fair, ATTO projected FCF yield is higher than BRY (~15%). I also want to point out they I did this a couple of month ago, when all these were priced lower. Anyways , it may not worth going into details, but I think it is worthwhile to look at other stocks that may sort of fit under the same thesis or umbrella so it speak. I always try to make a comparison of any investment and play out why I should buy X and not Y and Z. Often when I do that, I end up buying Y or Z.

FWIW, I started to look into DLTH a bit when Askeladden posted about the stock in his Q2 letter as a contrarian play. He also mentioned on Twitter that he has done extensive research on this company and published an extensive research report on Sumzero I believe (it is behind a paywall for sure). Since Askeladden is a pretty good stock picker, I decided to look into this. I didn’t really like what I saw. The key page is Page 6 of the Y2018 annual report, which shows several graphs and breaks down their B&M retail versus online metrics. When I calculated that they generate ~$315/sqft ($217.5M Sales / 690k sqft ), I just dropped the hammer because I think that running a retail operation with C- mall metrics is probably not a winning strategy. It could well be that I have overlooked something and I really didn’t put much work in it, because at that point I am just not interested. The numbers since then from DLTH haven’t been encouraging either, stock has tanked further and rebounded a bit and we all know that retail is tough, so I moved on. If still interested, it might be worthwhile to contact the folks from Askeladden and/or get access to that report at Sumzero.

Moronic is probably too strong of a word , but Their FCF before interest is pretty misleading. It looks like after I retest, their FCF is close to zero. They are in a crummy business ( call center etc) with a high debt loss operating in countries that are economically struggling with a high customer concentration. If their main customer ( Telefónica ) leaves, they are most likely toast.

I think I would rather bet on next gen retail like SFIX. I do agree that LE is enduring, but I am not exactly sure they will ever prosper again. LLBean has the best brand identity in this space, imo.

Yes, I believe it is correct. Compounders that work over decades are rare and in most cases, they keep compounding because management pivots and makes smart decisions. Look at Disney for example - early on it was founder driven and the moat was drawn animations, then parks and then they fizzled on the 70 and 80’s until they got into regular films, CGI then cable (with Eisner), CGI animations (Pixar) then adding additional IP and now direct to consumer. They have to reinvent themselves every 15 years or so to stay relevant. Newspapers were a great business for a 100 years until the wheels came off. Buffet is pretty good at finding companies with enduring moats, in fact that’s his main goal when investing. Even he gets is occasionally wrong (IBM). None of the above is new and has been written about for at least 10 years in the value investing mainstream.

Doesn't look that great under the hood, last I checked. What are you seeing? Down another 26% in the past month... Soon enough you'll be able to buy the whole market cap by yourself, since you like it so much. Or bankruptcy, which is what it looks like to me. Then you will have to find another way to earn the funds for your beach house in St Johns. - an area I really like to visit. I see either an announcement of a merger, a sale of an asset, or a termination of the strategic alternatives search. All good. And that 26% thing? 24 cents canadian - or 8 cups of a Starbucks tall caffe latte, per 100 shares. Not quite the same thing. https://www.menuwithprice.com/menu/starbucks/ontario/toronto/132400/ SD

DLTH looks atrocious to me, why do they keep expanding their physical footprint, when the new store economics look dreadful? There are also issues with their retail locations, they seem to rent real estate from insiders at not so great locations. https://twitter.com/hotlantacapital/status/1174420160284958724?s=21 Most likely another retail business headed for a long grind towards zero.

Yes, Fleabag is also great. I just can’t watch this when my son is around. ;D. That’s the thing with Netflix, they have a lot of foreign TV. I am sucker for Brit TV and now Netflix also has a lot of German TV series, Chinese and Korean costume movies and who knows what else. Amazon Prime has one of this too, but no ones else comes close. To get these things one needed to buy a special subscription, which would cost quite a bit, now it is included in Netflix and Amazon “all inclusive” streaming buffet. Disney can’t beat that, but of course they have another angle. I haven't seen them yet, but I've heard good things about 'Dark' (German) and 'Money Heist' (Spain -- La Casa Del Papel). “Dark” is excellent, but it’s also really dark. Money Heist is on my “to view list”.

Yes, Fleabag is also great. I just can’t watch this when my son is around. ;D. That’s the thing with Netflix, they have a lot of foreign TV. I am sucker for Brit TV and now Netflix also has a lot of German TV series, Chinese and Korean costume movies and who knows what else. Amazon Prime has one of this too, but no ones else comes close. To get these things one needed to buy a special subscription, which would cost quite a bit, now it is included in Netflix and Amazon “all inclusive” streaming buffet. Disney can’t beat that, but of course they have another angle.

I would call it BS, plain and simple.

Bought back some recently trimmed CMCSA today. Down ~3.5% today, anyone knows the reason? Anyways, the stock is surprisingly cheap still, trades at <8.5x Y2020 EBITDA. once they reach their leverage target next year, they can resume stock buybacks again. Lots to like - management track record, low leverage, broadband, theme parks and humming along, Telemundo and CNBC gaining market share over the years.

Is it soapy with exaggerated overacting? I've recently watched, again, Ken Burns' The Civil War. Fantastic, as always. The Expansion season 4 and The Witcher are coming soon, looking forward to both. I don’t think “The Crown” has any overacting, I found the acting exquisite. It’s a bit like Downton Abbey in a way, except all the characters and events are real. The season 1 was slow at times and I almost thought I would skip and look for something else, but Season 2 and especially Season 3 got better and better.

I don't think FCF before interest is a "moronic" metric. It just gives you an idea of what FCF yield on the EV is which some people find interesting for valuation. It is easy to make very wrong capital allocation decisions using this metric, like acquisitions that would be adding debt. I would hope that they don’t get paid using this metric.