Cramer - The "Value Investor"?

[jouni1]

so if i 20 years ago would have bought stock in 20 best of breed companies with sustainable business models earning high returns on investment i would have done badly? or just for the next 20 years?

You named mastercard, but even in armageddon 2008, it was trading at like 13-14x earnings, with not that much growth I think. Not saying it is a bad buy (probably slightly beat the market with it), but why buy this company, if you can buy decent non superstar companies with healthy balance sheets trading under net cash at insanely cheap valuations? Or trading at like 3-4x earnings? Doesn't seem optimal to put your money there at that point.

 

Same goes for bull markets, all those companies will trade at 20-30 times earnings. Better to look for special situations and in the corners of the market for dirt cheap stuff where you dont have to  be very right to make a nice gain.

umm this is just not true. mastercard has been growing earnings at 20% or something a year. also you say it's valued at 14x in a bear market and 20-30x in a bull market. can you think of a better investment to buy in a bear market if what you say is true(about valuation, because what you said about growth obviously isn't)? i would lever up on that in an instant.

 

edit: i'd rather buy future earnings of a quality franchise, than past earnings of a dying one. nobody is going to miss george risk industries if it stops operating, but mastercard is pretty much a need in today's world.

[yadayada]

I wasnt investing back then, but I see some nice company's in niche areas that will be missed by customers that were trading at like 3x earnings back then. If you say they are worth 12x earnings and are growing a little bit, why buy Mastercard at 14x earnings? You have an idea with 300% immediate upside on one hand right away, or you need to wait for that same upside for another 5 years. And that assumes some kind of bull market and overvaluation.

 

If you want to maximize returns you need to be in the most mispriced ideas right now. If you want to do a bit better then index funds without putting in a lot of effort, I guess just buying and forgetting company's like mastercard at that point is better. You get more upside, but it will take a lot longer, so your annual returns are lower.

 

I guess it all depends on what your willing to put into this.

 

Another mistake your making is saying, id rather own an super amazing company like mastercard, then own some crap company that is dying. That is not true, there is something in between too. Company's that are neither amazing or dying but somewhere in between. They likely will be around 10 years from now, because they provide value.

 

Perfect example was that hard drive company, western digital or something. Not really an amazing company, just a good company providing good value in a now consolidated industry. Same story with Micron technologies. Industry is consolidating and changing into a rational oligopoly, and market is slow to catch up. It was trading at like 3-4x (possibly even less) what they could make in a better market with much larger barriers of entry with probably average growth. No mastercard, but still worth way more then 3-4x earnings.

[writser]

So how long have you been investing? What is todays Western Digital? It's all very easy in hindsight.

[jouni1]

i never have ideas with 300+% immediate upside. these techs at 2-3 p/e's could've gone either way. it's easy to look at quotes now when the losers aren't quoted anymore.

 

that's why 100% through multiple expansion + 20% growth seems like the best idea ever.

 

edit: i have invested in semiconductor businesses a few times. i realized i just have no grasp on the sector, despite being with computers/electronics etc all my life. for example, intel at 7 times cash flow seems like a great idea to me, but i'm pretty sure it's not.

 

+mastercard would be much better off with no bull market overvaluation. they have a hard time deploying the cash flows, and stock price getting cut in half would magnify the returns of buybacks even more.

[yadayada]

So how long have you been investing? What is todays Western Digital? It's all very easy in hindsight.

Texhong sorta is. No consolidation, but dirt cheap. Low cost. People hate them because asia. They paid out 30% of their earnings historically and grew earnings about 10x in last 8 years or so. if you want an idea with 300% immediate upside...  Made this my largest right now. Theyr trading at 3-6x 2015 earnings (base and bull case). Comparable Hong kong traded company's trade at 11-12x earnings. Reason its cheap is because of the cotton bubble of 2011, and the market doesnt realize that capacity is increased by close to 50% in the last year and to a low cost and higher margin enviroment in Vietnam. And they had almost twice the net profit margins in China as average Chinese Textile industry.

 

Lombard risk. 28 million market cap, could do 10 million FCF in a few years quite, and if they dont get much new contracts trades at like a 15% yield right now or so. Have 30 of 50 biggest banks as customers and will go in cash harvest mode in 1.5 years. Are growing and business is very sticky, and barely costs anything for banks (so not price sensitive). And you have a clear catalyst of 1.5 years here (because then banks need to be 100% compliant with all the new rules).

 

Outerwall, selling at 4.5x FCF when I bought it. DVD and bluray wont be killed anytime soon by streaming (and they even have upside from here on):

http://www.nytimes.com/2014/03/27/technology/personaltech/why-movie-streaming-services-are-unsatisfying-and-will-stay-so.html

V comparable to when Bestbuy was trading at an even lower multiple last year. People are just looking at it without really looking under the hood and understanding how this industry works. Catalyst is the huge buybacks they will be doing with FCF they will generate.

 

GNCMA  Trading at 25% future yield when I bought it. Could possible be even cheaper when they go in harvest mode. They have a rock solid moat. Market is simply not looking ahead with this one. They only look at what is happening right now. But it is pretty likely that in 3 years they do 100-150 million$ in FCF. Bought at 400m$.

 

Korean preferreds. Hyuandai, not the best company in the world, trading at dirt cheap valuations of like 2-3x earnings after minority stakes and cash. I bought them through weiss korea fund. Same with samsung.

 

Oh and you gotta look at micron this way. When an industry is consolidating it is because the stronger players are pushing the weaker players out.  Untill there are only a few left, and it doesnt make any economic sense to start price wars. Price wars are usually started by stronger players to push the weaker ones out. That is the difference between a rational oligopoly and a shitty industry.

 

Micron Samsung and Hynix were very clearly the strongest players when it traded at 9$. It was overwhelmingly obvious that they would survive, and the industry would consolidate. It wasn't some risky thing coinflip type of situation. The best ones with the biggest market share will survive, and the weaker smaller ones with worse balance sheets would be pushed out. And samsung clearly had no intentions to drive price down (because of apple, they werent vertically integrated). In fact when MU was trading at 9$ (27$ now) they were about to buy up a smaller player, and another one was about to exit. It was extremly likely this deal would go through. It simply wasn't noticed by the market. There was a VIC write up about it right about that time. This is basic game theory imo. Only reason it wasnt priced in was because market usually doesnt looks ahead and only waits untill there is some positive 10Q giving the numbers.

 

But yeah finding these situations can cost a lot of time. Once you see them, they hit you in the face how undervalued they are. You just gotta find them, but then investing in a few big moat company's at a decent price is easier and less time consuming. But this is more fun and rewarding I think.

[PatientCheetah]

In one of Einhorn's speeches, he said something similar along this line - a low ROE stock can do wonders if its ROE begins to edge up for sustainable fundamental reasons. Micron is my best idea in the past three years. It reminded me of Seagate/Western Digital and how their industry consolidation played out

[Guest 50centdollars]

http://www.zerohedge.com/news/2014-06-24/cnbc-viewership-drops-lowest-1997-cramer-has-worst-month-ever

[gary17]

Maybe people are watching BNN now :)

[tede02]

Regardless of the Bloomberg article, I remain highly skeptical of Cramer generating 24% returns net of fees for any length of time.  I think I'd have to see the annual reports to be convinced otherwise. 

[jouni1]

because he surely must invest like his show leads you to believe? isn't it possible the man just has a taste for money and is giving the people what they want?

[Phaceliacapital]

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/10/20141006_GTAT2_0.jpg

[kfh227]

Regardless of the Bloomberg article, I remain highly skeptical of Cramer generating 24% returns net of fees for any length of time.  I think I'd have to see the annual reports to be convinced otherwise.

 

He started after a crash and cashed out just before the dot com boom.  Timing as much as anything else.