Your 2016 best ideas

[Guest Schwab711]

SYNT

[shalab]

BRK-B => never had two consecutive down years in stock price since the seventies

AIQ => interesting at these levels

STZ => beverage growth

 

 

[boilermaker75]

Selling monthly at the money puts in AAPL and MET.

 

I am doing this also with AAPL, plus BAC at 17 and below, FAST at 40 and below, and BRKB at 131 and below.

[racemize]

Fiat Chrysler...this is almost 40% of my portfolio and it's probably the only time I’ve given serious consideration to going all in on a stock, the pitch is that juicy (but decided against it, small possibility of a big recall or something happening to the CEO could maybe mess things up + there are other interesting ideas). I'd be disappointed with only a double in the next year. Big thread on it in investment ideas, so I'm assuming you guys are familiar with the thesis.

 

I'm also in this, but there's a lot of leverage and a lot of pain if things go bad in the auto market, so please use caution on all in!

 

I'm surely going to burn for this one, but I think EZPW is ridiculously cheap.  I've thought that for a while though...

[BG2008]

FRPH - Company owns a collection of Flex Industrial assets in Baltimore with additional 1.3 million sqft buildable land on its existing sites, a four phase multi-family/mixed use development on the waterfront in Washington DC, Royalty to aggregate mines leased to Vulcan Materials and Martin Marietta with 20,000 acres of future development land, and additional parcels of land. 

 

In short, a sum-of-the parts story with 5-10 years of organic growth.  At today's price, buying at 66 cents on the dollar.  Worth $53 per share today, but likely worth close to $60 by year end 2016 as they build out phase I of DC and lease up their new flex industrial building.  There is a presentation in the FRPH thread that explains the thesis in detail. 

 

There is only about $50mm of debt on the company.  The construction loan for the DC waterfront development is non-recourse.  Company generates about $27mm of NOI for 2015.  But corporate G&A, interest, and development efforts brings operating cashflow to about $15mm (excluding Stock based comp add backs and effects of working capital adjustments).  It is important to note that the G&A pays for land entitles, planning, and cost of holding land parcels that do not generate cashflow.  Standalone cash generating ability is much better than the current structure.   

 

Management team has the right strategy.  Simply convert non-cash producing assets into cash producing.  This means build out the excess 1.3mm land parcels on the flex industrial sites, develop the DC waterfront, and sell excess parcels and convert into income producing assets via 1031 exchanges.  Long term, will likely convert into a REIT.   

 

 

 

[LowIQinvestor]

Longs:

BEN: Trades at 7x EPS when excluding the $10 bil of cash on balance sheet. Key funds Templeton Global, Franklin Income, and Mutual Global Discovery have great long term track records despite a tough 2015. Value coming back into favor over growth will help their investment performance

 

Short NFLX: Trades at 450x EPS and is FCF negative. Developing their own content is very expensive and they will have to raise capital

 

I very much like both of these ideas! I'm betting heavily that you are correct on BEN.

 

Happy Holidays!

[enoch01]

Here's my crazy idea for 2016.

 

SHLD.

 

...

 

Now I'm just waiting for everyone to say I'm out of my mind so I feel better about buying it when/if it trades down to $15 or lower.

 

You and I are out of our minds.

[Liberty]

SYNT

 

Can you share your thesis on this one? Thanks.

[SharperDingaan]

"Why would you say PDH is your best 2016 idea? its a large position in my portfolio but overvalued at the current price and we need to wait for fundamentals to catch-up to the stock price - it could take years."

 

We're long time PD shareholders & are accumulating, not selling. If the dividend continues we get a very good cash yield; should it get cut we will see a buying opportunity. We are also not measuring over a 1 year timeframe, & are quite OK with a one-year 25% loss - if it results in a doubling of our share count.

 

SD

 

[ourkid8]

I think we are talking about two different companies. I was asking about PDH (sanjeev's baby)

 

"Why would you say PDH is your best 2016 idea? its a large position in my portfolio but overvalued at the current price and we need to wait for fundamentals to catch-up to the stock price - it could take years."

 

We're long time PD shareholders & are accumulating, not selling. If the dividend continues we get a very good cash yield; should it get cut we will see a buying opportunity. We are also not measuring over a 1 year timeframe, & are quite OK with a one-year 25% loss - if it results in a doubling of our share count.

 

SD

[gjangal]

SYNT

 

Schwab,

 

If you are interested in IT services , may I suggest LXFT and EPAM. Both are growing revenues at 25% pa and might grow at that rate for some time. EPAM's adjusted margins are around 14-15% . Both are run by founders although luxoft has a drawback of being majority owned by a Russian oligarch. Risks are both have substantial operations in Ukraine and Russia

 

Syntel has so much cash but why did it stop dividends and why is it it not buying back stock with so much cash on the balance sheet? Just had a cursory glance and this stood out

[Guest Schwab711]

SYNT

 

Schwab,

 

If you are interested in IT services , may I suggest LXFT and EPAM. Both are growing revenues at 25% pa and might grow at that rate for some time. EPAM's adjusted margins are around 14-15% . Both are run by founders although luxoft has a drawback of being majority owned by a Russian oligarch. Risks are both have substantial operations in Ukraine and Russia

 

Syntel has so much cash but why did it stop dividends and why is it it not buying back stock with so much cash on the balance sheet? Just had a cursory glance and this stood out

 

Cool ideas. I hadn't heard of LXFT, which looks like it is pursuing the SYNT business model. I'm learning that the IT industry actually has many branches and sub-branches so I really can't go into much detail without the risk of lying.  It looks like EPAM is a specialty technology outsource firm that works with newer tech companies ("big data"). Seems different from SYNT in that their top 10 customers represent just 44% of revenue. I'm not sure I understand EPAM right now so I don't think I'd be interested. It would be great to hear more about it if you've looked into them. For LXFT the top 2 (DB and UBS) are 56%. Eastern European IT KPOs are supposed to be the future but I don't think India will give up their stranglehold on the industry without a fight. The margins are drastically different and it doesn't seem to be due to economies of scale.

 

SYNT

 

Can you share your thesis on this one? Thanks.

 

Many mention the potential market share steal from Eastern European competitors, but I like SYNT/India better. I didn't know about LXFT so it'll be nice to compare the two. I like that SYNT constantly repeats their mission statement of "customer for life". I eat these cheesy customer service ploys up. I believe KPO (which SYNT and LXFT[?] do) differs from BPO by providing higher-skilled work (not TWC call center staff). That means SYNT doesn't really compete with G, WIT, or the other BPO specialists. I think Indian-based companies have a stronger advantage with the lost-cost and highly-educated pool in India compared to Eastern Europe. I also think the European language advantage held by companies like LXFT is less important than market research portrays as more countries and international companies are doing business in English. I think the rupee has just as good of a chance of devaluing over time as any other race-to-the-bottom currency in Eastern Europe. I like SYNT's top customers better (AXP, STT, and FDX; 46% of revenue) and these three relationships are still slightly larger, on average, compared to LXFT's relationships with DB and UBS (56% of revenue). The FDX relationship has tripled in size for SYNT over the last 2 years. All the while, SYNT has higher margins than everyone while still expensing their automation R&D, such as SyntBots. SYNT appears to have a qualitative lead in quality of work and innovation and the margins seem to support this observation.

 

On to management. There's not much written about him but Bharat Desai is/was the real deal and Nitin Rakesh is quite impressive in his own right. They have been very consistent in their strategy and outlook throughout years of conference calls and their results match their tone. The company is mainly a US-based IT company that uses Indian talent where it will not affect the customer experience. Their locations seems like the best way to describe the company's strategy/advantage. Their main location is in Cary, NC (where SAS is headquartered; great for recruiting IT-talent) and they have satellite locations in Phoenix, Memphis, Nashville, and Sparks, MD.

• Phoenix: Largest corporate office of AXP outside of NYC
  
• Memphis: Headquarters of FDX
  
• Nashville: 300 healthcare companies located here with HCA being the largest (SYNT customer)
  
• Sparks, MD (Just outside Baltimore): Home of McCormick (presumably a SYNT customer) and other large companies in their areas of expertise while being centrally located
  
• Mumbai, Chennai, and Manilla: I believe the State Street work is done in these locations (Mumbai?) and the rest of the offshore IT and KPO services occur

 

They invest heavily in their customer relationships which I think feeds the margins and builds the reputation. They talk about turning away customers in the CCs fairly frequently and they don't budge on price very easily (and only temporarily). I think these are great signs. SYNT reminds me of a more hands-on IBM.

 

Bharat Desai owns ~67% of the company and is a billionaire. The dividend was suspended a few years ago with the change in dividend taxes for the rich. He talks about creating shareholder value as the top priority but I think they will do it in a tax-efficient manner as well (and not necessarily with the retail investor in mind). That said, I like Desai and I believe the money will eventually be spent intelligently. They recently mentioned that they have looked into acquisitions and buybacks, but would prefer to find internal investment opportunities like SyntBots (which increases margins on fixed-cost contracts and makes their fixed-cost bids more attractive). I think it is a good sign that management is acknowledging and frequently updating investors with regards to capital allocation. I think the market is severely mispricing the strong balance sheet and likelihood that the excess cash will be distributed responsibly in the near-future. Which leads us to valuation.

 

Valuation:

Simply put, ex-cash, SYNT is cheap. They expect to grow at ~10-12% for the next 5 years with a consistent 20%-25% net margins (probably ~22%-24%). Operating expenses were low this year due to FX but they also expensed R&D in COGs. 30% operating income seems feasible. Margins will remain low as long as the rupee devalues relative to the USD. I think the business fundamentals match the "growth story" and I find 10% top-line growth and constant margins to be reasonable assumptions. They are trading at roughly 13.5x EV/FCF and 12.7x P/FCF (ex-cash).

 

60% of the cash is already in USD and the remaining 40% has already been taxed at 20%-25%. Repatriated cash is 96% of balance sheet cash. Even with net margin compression down to 20% and zero growth going forward, I think SYNT still provides 8%-10% returns. If margins never compress (because the rupee continues to weaken, automation, robot-takeover) and/or SYNT continues to grow relationships then this will be a homerun.

[Wilson-TPC]

Here's my crazy idea for 2016.

 

SHLD.  People on this board are now sick of it.  Eddie is buying up a lot of stock along with Lands End.  SYW functions a lot better.  This isn't a sum of the parts valuation, it's about how much cash flow he can get to the 106 million shares left at the current price of $20.  With Seritage now up an running, I think we can see a yieldco relationship between the two companies with a couple asset swaps beneficial to both companies. 

 

When SHLD had a market cap near $20 billion, everyone was thinking how many billions Eddie could generate on that value.  Now at $2 billion everyone is thinking how many billions he's going to continue losing.  I want to say I'll go long around $15 and I'd feel pretty good about a margin of safety. 

 

Now I'm just waiting for everyone to say I'm out of my mind so I feel better about buying it when/if it trades down to $15 or lower.

 

Holy sh*t, what a rad idea. CRAZY, but brilliant.

[Wilson-TPC]

I may sound like a broken clock on this board to many, but here are my favorite ideas in order.

 

1. BXE, GXE.TO

2. AAV, PWE, ETE, AR, PXD

3. SBRCY, DNOW

4. JD

 

 

[meiroy]

 

 

Cash optionality

 

 

[wachtwoord]

Not really "my idea" but Altius Minerals. Not specifically for 2016 by they way as I don't see a catalyst (other than the under valuation). It seems like a good time to pick up some nice depressed assets for people that no the sector very well.

[Uccmal]

"Why would you say PDH is your best 2016 idea? its a large position in my portfolio but overvalued at the current price and we need to wait for fundamentals to catch-up to the stock price - it could take years."

 

We're long time PD shareholders & are accumulating, not selling. If the dividend continues we get a very good cash yield; should it get cut we will see a buying opportunity. We are also not measuring over a 1 year timeframe, & are quite OK with a one-year 25% loss - if it results in a doubling of our share count.

 

SD

 

SD, PDH : Premier Diversified Holdings.  ; PD: Precision Drilling

 

Me: Nothing new: Good oil related cos. and PWE

[AzCactus]

Dnow

[sculpin]

Maxim Power (MXG -TSX) $2.85 Canadian

 

Maxim Power (MXG – TSX) currently $2.85/share is one that we have been holding onto for several years waiting for the value in its various assets to be realized. Following discussions with management and other holders it appears that value realization should begin to take place in 2016.

 

Catalysts Upcoming

 

Sale of Comax – our 100% owned independent utility in France is expected by early Q1.

 

Settlement of FERC (Federal Energy Regulatory Commission) lawsuit should be close. This is what led to the cancellation of the previous sale of Maxim’s US assets (MUSA). Expected settlement is small compared to the value of this asset. Once this is resolved Maxim US can be sold.

 

Settlement of Alberta Line Loss lawsuit should bring in substantial cash (see below in NAV) by Q2 2016.

 

Once MUSA & Comax are sold Maxim will hold significant cash and its Alberta assets which can then be sold.

 

Valuation

 

To properly value Maxim, it is necessary to do a SOTP valuation. Currently the Company has 54MM shares out for a market cap of $150 million. Debt only resides in its French & US subsidiaries and will be extinguished upon their divestiture. Book value is currently $5.09 or close to double the current share price. Management has consistently stated that investors will see at least book value upon sale of the Company.

 

Comax assets – Potentially $45MM after debt repayment.

 

Line Loss Settlement – gross loss to be repaid to Maxim is $35MM - 40MM – with penalties, interest and legal fees going back 10 years the final amount Maxim may recoup is up to $70MM.

 

Maxim USA – the value of this asset has appreciated strongly with EBITDA expected to hit over $40MM in 2018 as electricity capacity payments triple and NE US coal & other power plants are retired. Management now believes the value of this asset is close to $200MM after debt ($3.70 per share alone). This is confirmed by a recent analysis by Industrial Alliance:

 

“Recent gas asset transactions indicate substantial potential value for MXG’s US fleet relative to the current stock price. In Q3 we witnessed a trio of transactions for merchant natural gas-fired capacity in the US Northeast, with implied multiples in the 7-10x EV/EBITDA range. Although no two assets (or two transactions) are directly identical, if we apply the multiples from the recent transactions to MXG’s US fleet, we arrive at a valuation range of US$140-200M (US$115-175M, net of ~US$25M in associated debt). After currency conversion, the valuation range implies $2.75-4.20/share (compared with MXG’s $2.58 share price). In other words, MXG is trading below the market value of its US assets alone (assuming nothing for France or Alberta). ”

 

Totaling the expected proceeds from above nets approximately $280 to $315MM in cash to the Canadian holding company which has substantial tax loss carry forwards in place. Per share this amounts to $5.15 to $5.80 per share prior to the value of the Canadian power and development assets.

 

The Canadian assets include:

 

Summit Metallurgical coal with 18.9 million tons of high quality met coal with a book value of $25MM

 

Emission credits recently sold for cash of $5MM with an additional $15MM at the same pricing

 

Milner coal/NG generating plant with approval for a new 520MW NG fired plant in the same location with all electrical connections, water license, fuel delivery infrastructure and ops team. Milner can currently run as a peaker plant on either coal or NG until 2019 generating up to $20MM Ebitda/annum

 

Construction ready 190 MW NG fired peaking station approved in Bruderheim Alberta

 

Approved 200 MW wind generation project in SW Alberta waiting on improved Alberta pricing and NDP driven wind power purchase agreements to allow for economic operation.

 

Maxim should hold in excess of $5 per share in cash along with the above listed Alberta assets at some point in the next year. The entire Company could then be sold (hopefully into an improving Alberta power market) by sometime in 2017 at the cash level plus the value resident in the Alberta assets. This value could be substantial given the Alberta NDP & federal governments’ desire to see faster retirement of coal gen capacity (50% of current Alberta generation) and replacement with cleaner NG and wind generation.

 

 

 

MXG put out estimate of compensation & ongoing cost savings from line loss at Milner

 

MAXIM estimates the compensation that it will be afforded to be approximately $38 million for the period January 1, 2006 to December 31, 2015 based on information currently available on the public record. This amount excludes compensation for Milner’s cost of capital and legal costs, which will also be determined in Module C.

 

On a go forward basis, the new Rule is expected to reduce Milner’s ongoing operating costs by approximately $3 to $5 million annually, based on current forward pool prices.

 

http://www.financialbuzz.com/maxim-power-corp-provides-guidance-on-alberta-utilities-commission-s-loss-factor-decision-378844

[kfh227]

"Why would you say PDH is your best 2016 idea? its a large position in my portfolio but overvalued at the current price and we need to wait for fundamentals to catch-up to the stock price - it could take years."

 

We're long time PD shareholders & are accumulating, not selling. If the dividend continues we get a very good cash yield; should it get cut we will see a buying opportunity. We are also not measuring over a 1 year timeframe, & are quite OK with a one-year 25% loss - if it results in a doubling of our share count.

 

SD

 

SD, PDH : Premier Diversified Holdings.  ; PD: Precision Drilling

 

Me: Nothing new: Good oil related cos. and PWE

 

So you are pro SD and PWE?  I own both but I have to tell you that in my opinion Saudi Arabia needs to raise prices or SD and PWE are in for a world of hurt.  Having said that I think I am going to buy some more this year in my Roth IRA.  Probably in the next month or two.

 

I guess I have to ask, why the confidence?  Should I just read the dedicated threads on the two from start to end?

 

[SmallCap]

Best idea and investment, Taking my wife and 3 kids camping.

 

In stocks I didn't do so well, my best decisions were ones of selling not buying.

[investor-man]

"Why would you say PDH is your best 2016 idea? its a large position in my portfolio but overvalued at the current price and we need to wait for fundamentals to catch-up to the stock price - it could take years."

 

We're long time PD shareholders & are accumulating, not selling. If the dividend continues we get a very good cash yield; should it get cut we will see a buying opportunity. We are also not measuring over a 1 year timeframe, & are quite OK with a one-year 25% loss - if it results in a doubling of our share count.

 

SD

 

SD, PDH : Premier Diversified Holdings.  ; PD: Precision Drilling

 

Me: Nothing new: Good oil related cos. and PWE

 

So you are pro SD and PWE?  I own both but I have to tell you that in my opinion Saudi Arabia needs to raise prices or SD and PWE are in for a world of hurt.  Having said that I think I am going to buy some more this year in my Roth IRA.  Probably in the next month or two.

 

I guess I have to ask, why the confidence?  Should I just read the dedicated threads on the two from start to end?

 

I think he meant "SharperDingaan" and not "Sandridge Energy"

[drzola]

North West Company  NWC.to

. Moat ( in only emerging markets left in North America ) Arctic, and Carribean islands.

. under the radar

. founded in 1668

 

Bought for the parents and inlaws accdoounts.  A fantastic perpetual annuity.

 

Cheers.

[Luke 532]

The preferred shares of Fannie and Freddie are a very interesting situation heading into 2016.  There are imminent catalysts within the next few months (court-related items).  The pricing on the preferred shares offer a favorable risk/reward when comparing current price vs. par value:

FNMAS 8:1

FMCCL 12:1

FNMAH 10:1

etc.

 

There's an element of speculation with the GSE's, but for those that don't mind that you can read up on the situation here: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/fnma-and-fmcc-preferreds-in-search-of-the-elusive-10-bagger/

[Guest notorious546]

North West Company  NWC.to

. Moat ( in only emerging markets left in North America ) Arctic, and Carribean islands.

. under the radar

. founded in 1668

Bought for the parents and inlaws accdoounts.  A fantastic perpetual annuity.

Cheers.

 

seems like it used to be a better business. with ROE's >30%, just fell below 20% this past year. can you elaborate on the moat at all?