Spekulatius

I have this on my watchlist. One concern I have is that there are a lot of adjustments in the numbers, so many that I wasn’t able to reconcile the cash flow statement and it seemed to me that the FCF (which was dusted downwards late this year by more than $100M) is overstated. Why would maintenance capex be normalized?

Looks like Mr Market hates credit card companies now. SYF, DFS,COF, ADS are all down significantly and ADS is down the most, since it is the highest levered. I looked at DFS annual numbers a few years back and it seems that they also levered a bit up starting in 2016. They also bought back shares like crazy. Current leverage looks Ok, but some of the CC companies may have to stop buying back shares if delinquencies go up and reserves need to be buffed.

One of the things I got wrong when I contemplated on the Fed decree to limit the size of WFC’s balance sheet is what the Fed meant with the issues in WFC “risk control”. I took it that in addition to three obvious issues with managment oversite to be aware of the fake account creation, they possibly WFC’s managment Control regarding underwriting may have been compromised. This does not seem to be the case The indications from the Fed stress tests, which WFC passed with flying colors, and the recent talk from Powell indicate that the sole issue seems to be that management was not aware (or claim they were not aware :o) of the fake account creation. So WFC has one large issue to deal with, not multiple one. If in fact WFC underwriting culture had gone to hell, this stock would be uninvestible. As it stands, we have imo a good bank with warts. I think this is fixable and that’s why I bought some shares recently.

The government would be better of to ensure that the crude can be moved, instead if supporting the production side. As far as I no, there is little progress on the Transmountain pipe purchased from KMI. I also think that the government should encourage and support building a refinery in Alberta. Both moved would help to reduce the spreads to WTI, which is the real problem.

“Bailing out” an economy us very different than bailing out specific companies. Investors in overvalued tech companies were never bailed outend neither were employees who lost their job.

My prediction is that BRK get’s broken up before GOOG and FB.

Well, if the discounts too book value for BAM’s vehicles persist, then it is an indication that the GP/Lp model is Breaking down. BAM can patch this over buy purchasing LP units (and valuing them on their balance sheet to book, but they forgo the asset management fees (which they now pay to themselves for the units they own) and convert from an asset light than to an asset heavier model. It might be instructive to see what happen in the pipeline sector where the GP/LP relationship wasn’t working any more, because the cost of capital got to high for the LP units (due to persistent rerating at lower valuations). The issues with pipelines GP and BAM are somewhat different (IDR burdens were higher for the pipeline Lp’s, but their seem some similarities as well. In any case, I think the Go buying Lp units is a sign of weakness for the operating model and not strength. BAM goes from an asset manager to an asset owner essentially.

My rule is to never invest in banks, if I don’t likely the macro environment in the future. banks are foremost macro bets, due to high leverage and to some extend market perception. They will do poorly, if credit spreads start to rise or the macro environment takes a hit. that’s why I don’t invest in British banks (prior to Brexit) or the like. A lot of times, it has been said that it’s priced in, but in my experience, it never is.

re leverage - another way to look at the leverage is to look at corporate credit rating. I think ADS corporate credit rating is BA1, which is the highest level of junk grade. For comparison, DFS’s rating is BBB- (lowest investment grade rating), COF is BBB and BAC is BBB+. FWIW, I am a bit surprised that BAC rating isn’t higher. I think the rating agencies generally get the relative grading within the group (or business sector) correct, although I disagree sometimes on how they rate credit risk in disparate sectors.

I agree with Gregmal that putting hard numbers on the asset value of these stocks seems to cause them to fall, as the irrational element of the value seems to disappear. With a stock like KEWL, a 50% upside is not enough imo. The stock isn’t really paying you to hold it, corprete exparmse eatup the cash flow from its underlying propreties and often more. if it does get rerated in 5 years, you do Ok with the asset value increases with inflation that going to be ~60% upside in 5 years, you get a 10% return roughly, which is good. The downside risk is to hold something like this for 10 years with nothing to show for and is equally likely. The most likely scenario is that the value increases at the same rate than the underlying asset and the discount persists. I own quite a few asset plays but I insist on all of them to have some cash flow. This doesn’t mean they are doing well, but at least you are getting an dividend and it means that corporate expenses are covered and there is something leftover to pay a dividend etc.

At $185 currently, or about 10x forward earnings (assuming the forecasts materialize), the stock certainly looks cheap. It looks to me like Mr Market punishes the transports as sensitive to the economy and particular FDX due to the change in leadership that came without prior notice. the latter could mean issues that have not transpired yet. Overall, it seems to me like a company with a lot of tailwinds that can grow in the high single digits and probably is underearning a bit due to the TNT integration, which takes time. I haven’t heard much about the shift from 5 days/week to six days/delivery, but it could be a gamechange in terms of utilization. I have been buyer of the stock recently.

Their plan is to operate with a coverage ratio of 1.6, meaning that they will distribute ~62.5% of their distributable cash flow. That seems to be sustainable to me. This also ranks that the day of 10% growth are over, Growthin the future will be more like 5% annually. This actually a very similar to the metrics that WMB is working with (which I also own in size) and reflects the new reality in the pipeline business. FWIW, ENB’s EV/EBITDA for 2019 is estimated as 11.9x per Research from Wells Fargo, which dona good job covering the space.

Exor looks like an early version of Berkshire to me. It is no coincidence that they acquired an insurance company (Partner RE). The spinoffs and special dividends from FCAU are driven by Exor’s desire to recycle some cash into higher quality assets or purchase back stock at a discount to fair value.

I have been putting money to work in the recent slump, as I am seeing the best valuation since at least 2015. It’s true that the overall market doesn’t look cheap but for sure many many stocks are.

I think the Fed should hike as planned and probably acknowledge increased risk for the economy next year. The stock market should not be a major concern for the Fed and its not really that bothersome if its flat yoy anyways. The housing slowdown prevents trouble down the road and is a good thing.

^ Firing an engineer on the spot who just happens to be around at 10pm Saturday evening. LOL. The person who’s was probably responsible for the non functioning equipment wasn‘t around I guess. People will be lining up to get employed there.

My best guess is that the asset cap will stay in place at least another year. That’s based on the harsh tone in Powels 11/28 letter. It also seems to me that they are pushing for Sloan’s (WFC’s current CEO) to resign. I think WFC will look at 2 years of foregone growth, due to the asset cap. Note that JPM is cranking up and moving into Boston and Washington DC, cities where they didn’t have presence. WFC is not present in MA and barely present in CT and I guess that will remain this way. Also note that Elizabeth Warren is harsh on WFC, which I think is mostly due to WFC not having a presence in her state. (No constituents to worry about, no one loser his/her job). While I think that this is all somewhat reflected in WFC’s share price, I think it will put a cap on the stocks upside for the time being. FWIW, I one now a few shares.

I agree, the ventures into Grapes and Almonds seems like diworsification. I have a small position in it and consider shedding.

I also expect the 3% interest on checking to be a bait sad come with balance limits. Otherwise, people will use it as a money market account. I have a checking account with a credit union that offers interest on checkin, but only up to 20k balance.

I played with RB‘s formula a bit and can’t really put any fault with it, so I bought shares as well. Using my ownnheuritcs and assuming the bank can grow by 4% in size, buy back 3% of their shares annually and adding a 3.6% dividend yield, I get a 10.6% expected return. I do want to point out that some pipeline companies I own seem to look equally good or even better: ENB yields 6.5% and if they can grow by 5%, then the return is 11.5% ( buybacks are unlikely with ENB). WMB gets similar results. Both WMB and ENB have double digit dividend growth expected for 2019 and 2020, so this makes the current yields look pretty good. But I own these in size already ( and KMI) so WFC fits into the same theme, but with different business opportunities and risks very nicely,

Could there be tax motivations? I am thinking the optics are better if you get rid of high coupon debt. The loss on extinguishing the debt is a one off and tend to get ignored and then you have years of saving high coupon payments, which make subsequent earnings look better. There is also a tax advantage of taking a loss upfront.

I am sceptical about water rights as well. for me, the water rights are attached to the land, as the land would be worthless without water. Below is a link to a story about Reznick, another land baron in CA.Boswell is mentioned too, but more in passing. The article does give a good idea about the struggle with water, as well as some deals that did occur. Boswell also had a real estate project in the foothills that was cancelled, presumably also because they could not secure the water rights at price that made this economical. https://story.californiasunday.com/resnick-a-kingdom-from-dust On the topic of BWEL, I found it interesting that BWEL generates half their profits from a 46% owned cotton seed JV business (the remainder is owned by DWDP, which is going to spin of their AG business). This seed business (Phytogen) seems to be a leader in cotton seed and appears to be highly profitable. The earnings are up considerable YOY from 2016 to 2017 and I don’t know if 2017 was an outlier or 2016. However, it is clear that the business ought to be quite valuable. I am also sure that DWDP would look e to own this completely and maybe after the spinoff they make an offer that BWEL can’t resist. I bought quite a few shares of BWEL during the recent liquidation dump of a few thousand shares. With a book value of $600/ share, owning lands that was purchased decades ago, I figure I got more than I paid for. It might be dead money, but I don’t think I will lose money here.

I joined in as well a few days ago. I overpaid at 800 yen. The stock is certainly cheap, but doesn’t really trade on fundamentals as far as I can tell. I also own a bit of 9142.T purchased a while ago, based on a VIC writeup (railroad, real estate) which Is a nice monopolistic business.

With so many cheap looking stocks around, why bother with seedy management at all? The stock option bleed is terrible too, diluted shares up 6%YoY. Optically, the stock does not even look cheap currently. What does “normalized” even mean when you are riding a roller coaster stock like EXPE?

The better metric would be to look at distributable cash flow /share, which has been increasing. however, Generaly, I agree with you that the MLP business model is broken, it had been broken since the end of 2015, when the energy market collapsed due to low crude prices and a credit crunch developed in this sector. Since then however, the pipeline cos have been deleveraging and ENB is no exception. FWIW, the debt and sharedoint is up in large part due the merger with Spectra energy and the huge investment program, it will go up again, because the remaining MLP units I’ll be exchanged for shares, so there is no MLP model any more for ENB. ENB in the future will issue far less equity , be less leveraged and will retain a significant amount of cash flow to reinvest in new projects. It’s a great holding in an IRA, where the dividend is tax free.