favorite stock for 2021

[frommi]

WSTL, it has lots of hairs, trades at 50% of NCAV and i am pretty sure that nobody here will like or buy it after doing tons of research :)

[SafetyinNumbers]

ATTO is up 55% so far this year so far but I think the risk reward has improved and there is considerably more upside.

 

The stock is up because Goldman finally updated their stale estimates (although they are stale again), the company pre-announced better than expected Q4 EBITDA range ($50-55m, vs consensus $45m) and they were able to refinance the 2022 debt for 5 years.

 

The company also plans to hedge their debt against the BRL according to Fitch. I assume they are taking advantage of the newly steep yield curve in Brazil to do so. I don’t think the hedge is well known and I believe it will make the company more attractive to fundamental investors. The debt deal will close on Feb 10 so we might get more information then.

 

Next week, the analysts who are all restricted on the bond deal will likely come off restriction and we should see an upgrade to estimates and potentially target prices/ratings.

 

Given the free float is so tiny, an upgrade from Goldman or Morgan might result in an outsized move.

 

Despite the performance this year, the stock is still trading at only 4x EV/EBITDA (based on annualized Q4 EBITDA midpoint). We haven’t seen any multiple expansion yet. I think we can get to 8x within a few years which is $72 based on the same Q420 annualized EBITDA estimate of $210m.

 

 

 

I’m doubling down on Atento (ATTO) for 21.

 

I think Covid obscured the operational improvements in 2020. Net debt has declined materially in 2020 ($595m to $515m) to make the stock relatively cheaper and safer in my opinion. I held on (and added early unfortunately) through the volatility and feel better about the business than a year ago.

 

Management did a great job managing through Covid and the decline in the BRL but the hit to headline EBITDA was hard in Q1 and Q2 especially. EBITDA margins bounced back to 12.7% in Q3 and I’m expecting improvement in 2021 to 14%.

 

USDBRL has been stable for three quarters @5.4 and is currently below that average (which is good!). If oil rallies as many expect, ATTO could be an indirect beneficiary through its emerging market currency exposure.

 

At current exchange rates, ATTO could put up north of $200m in EBITDA in 2021, at 8x EBITDA which is a low end multiple, my intrinsic value estimate is $67 using $500m in net debt which accounts for dilution of options and RSUs. Lots of risk in that estimate of course but too much in the price of ATTO, in my opinion.

 

Street estimates for 2021, are very deceptive. The “street” is expecting $160m in EBITDA (11.4% EBITDA margin) but that’s made up of three estimates:

 

Barrington $174m

Goldman $114m

Morgan Stanley $192m

 

To the extent there are active managers left, I have been in the room when a PM asks an analyst what came up on the quant screen. In this case, Atento screens at 4.6x consensus EV/EBITDA. The PM will ask the analyst who covers it, he’ll ask what the multiple is on Goldman’s estimates and the analyst will correctly answer 7.8x. You see Goldman’s net debt ($686m vs $515m) is way higher because it’s EBITDA estimate is way lower.

 

The PM will then look the analyst directly in the eye and say “Can we short it or buy puts?” and the analyst will say “No, it has no listed options and it’s illiquid.” That’s the end of the discussion. What the PM doesn’t know is that Goldman has not updated their estimates since before ATTO reported $45m in EBITDA in Q3. In fact, their 2020 EBITDA estimate is $94.9m while ATTO has already reported $107.8m 9MTD.

 

Goldman will eventually drop coverage or change their estimate if ATTO decides to pursue refinancing the 2022 debt in January forcing them to update the street on Q4 preliminary estimates which will likely improve on Q3. If consensus moves to Morgan’s $192m in EBITDA, even at the current EV/EBITDA multiple of 4.6x that would result in an ATTO price of $25.

 

If the active funds don’t come, maybe the quant funds will. If there is a lot of variation in estimates, it makes sense for low volatility quant strategies (most of them!) to avoid those stocks. ATTO’s estimates will become significantly less variable if Goldman updates or removes it’s estimates although the former is better as more estimates are helpful.

 

Recently spun out peer Concentrix (CNXC) trades at around 9x EV/EBITDA.and has very strong free cash flow. Their business strategy (growth by acquisition) and market position (big in Asia and smaller in LATAM) makes them seem like the perfect dance partner for Atento in 2022 when ATTO has achieved 15% EBITDA margins and has grown sales for a couple of years (assuming stable exchange rates).

 

At 8x 2023E EBITDA of $270m (assumes 16% EBITDA margin expectations with 5% CC revenue growth) which CNXC would pay in the summer of 2022, ATTO would fetch ~$100/share give or take. ATTO would still be accretive to CNXC even if paying a fair multiple because of synergies and CNXC has a much lower cost of capital and would save on refinancing the bonds. 

 

It’s possible, CNXC wants to buy ATTO now but the three controlling shareholders of ATTO, GIC, HPS and Farallon (~70% ownership) will want a fair price and I think they recognize it’s a lot higher than here.

 

I don’t know what’s going to happen but with the stock less than $14 and a recently incentivized management team and BOD (1.7m options with an 8 handle in August), I like the odds.

 

Next week should see some stock for sale as RSUs vest today and there is some forced selling to pay taxes next week by the RSU trustee. I'm estimating about 150k shares for sale.

[StevieV]

ATTO is up 55% so far this year so far but I think the risk reward has improved and there is considerably more upside.

 

The stock is up because Goldman finally updated their stale estimates (although they are stale again), the company pre-announced better than expected Q4 EBITDA range ($50-55m, vs consensus $45m) and they were able to refinance the 2022 debt for 5 years.

 

The company also plans to hedge their debt against the BRL according to Fitch. I assume they are taking advantage of the newly steep yield curve in Brazil to do so. I don’t think the hedge is well known and I believe it will make the company more attractive to fundamental investors. The debt deal will close on Feb 10 so we might get more information then.

 

Next week, the analysts who are all restricted on the bond deal will likely come off restriction and we should see an upgrade to estimates and potentially target prices/ratings.

 

Given the free float is so tiny, an upgrade from Goldman or Morgan might result in an outsized move.

 

Despite the performance this year, the stock is still trading at only 4x EV/EBITDA (based on annualized Q4 EBITDA midpoint). We haven’t seen any multiple expansion yet. I think we can get to 8x within a few years which is $72 based on the same Q420 annualized EBITDA estimate of $210m.

 

 

 

I’m doubling down on Atento (ATTO) for 21.

 

I think Covid obscured the operational improvements in 2020. Net debt has declined materially in 2020 ($595m to $515m) to make the stock relatively cheaper and safer in my opinion. I held on (and added early unfortunately) through the volatility and feel better about the business than a year ago.

 

Management did a great job managing through Covid and the decline in the BRL but the hit to headline EBITDA was hard in Q1 and Q2 especially. EBITDA margins bounced back to 12.7% in Q3 and I’m expecting improvement in 2021 to 14%.

 

USDBRL has been stable for three quarters @5.4 and is currently below that average (which is good!). If oil rallies as many expect, ATTO could be an indirect beneficiary through its emerging market currency exposure.

 

At current exchange rates, ATTO could put up north of $200m in EBITDA in 2021, at 8x EBITDA which is a low end multiple, my intrinsic value estimate is $67 using $500m in net debt which accounts for dilution of options and RSUs. Lots of risk in that estimate of course but too much in the price of ATTO, in my opinion.

 

Street estimates for 2021, are very deceptive. The “street” is expecting $160m in EBITDA (11.4% EBITDA margin) but that’s made up of three estimates:

 

Barrington $174m

Goldman $114m

Morgan Stanley $192m

 

To the extent there are active managers left, I have been in the room when a PM asks an analyst what came up on the quant screen. In this case, Atento screens at 4.6x consensus EV/EBITDA. The PM will ask the analyst who covers it, he’ll ask what the multiple is on Goldman’s estimates and the analyst will correctly answer 7.8x. You see Goldman’s net debt ($686m vs $515m) is way higher because it’s EBITDA estimate is way lower.

 

The PM will then look the analyst directly in the eye and say “Can we short it or buy puts?” and the analyst will say “No, it has no listed options and it’s illiquid.” That’s the end of the discussion. What the PM doesn’t know is that Goldman has not updated their estimates since before ATTO reported $45m in EBITDA in Q3. In fact, their 2020 EBITDA estimate is $94.9m while ATTO has already reported $107.8m 9MTD.

 

Goldman will eventually drop coverage or change their estimate if ATTO decides to pursue refinancing the 2022 debt in January forcing them to update the street on Q4 preliminary estimates which will likely improve on Q3. If consensus moves to Morgan’s $192m in EBITDA, even at the current EV/EBITDA multiple of 4.6x that would result in an ATTO price of $25.

 

If the active funds don’t come, maybe the quant funds will. If there is a lot of variation in estimates, it makes sense for low volatility quant strategies (most of them!) to avoid those stocks. ATTO’s estimates will become significantly less variable if Goldman updates or removes it’s estimates although the former is better as more estimates are helpful.

 

Recently spun out peer Concentrix (CNXC) trades at around 9x EV/EBITDA.and has very strong free cash flow. Their business strategy (growth by acquisition) and market position (big in Asia and smaller in LATAM) makes them seem like the perfect dance partner for Atento in 2022 when ATTO has achieved 15% EBITDA margins and has grown sales for a couple of years (assuming stable exchange rates).

 

At 8x 2023E EBITDA of $270m (assumes 16% EBITDA margin expectations with 5% CC revenue growth) which CNXC would pay in the summer of 2022, ATTO would fetch ~$100/share give or take. ATTO would still be accretive to CNXC even if paying a fair multiple because of synergies and CNXC has a much lower cost of capital and would save on refinancing the bonds. 

 

It’s possible, CNXC wants to buy ATTO now but the three controlling shareholders of ATTO, GIC, HPS and Farallon (~70% ownership) will want a fair price and I think they recognize it’s a lot higher than here.

 

I don’t know what’s going to happen but with the stock less than $14 and a recently incentivized management team and BOD (1.7m options with an 8 handle in August), I like the odds.

 

Next week should see some stock for sale as RSUs vest today and there is some forced selling to pay taxes next week by the RSU trustee. I'm estimating about 150k shares for sale.

 

Nice job so far Safety.  Price has risen a good bit so far this year, but as you mention, risk has gone down substantially.  There is still a lot of upside left, but without some of the larger risks.  Refinancing closes on Feb 10th.  My comments assume that everything with that and the tender go smoothly, which is what I am expecting. 

[ourkid8]

I cannot pick only one but my top pics right now are Atlas Corp, Fairfax, Facebook, Wells Fargo and Trisura. 

[rkbabang]

I cannot pick only one but my top pics right now are Atlas Corp, Fairfax, Facebook, Wells Fargo and Trisura. 

 

I currently own 3 out of 5 of those and I'm thinking of getting back into Fairfax.  I sold Wells Fargo last year, I'm interested in why you think it belongs on this list with the others?

[ourkid8]

Trading at 0.77x book and ~1x TBV, $8B cost cutting initiative to reduce non interest expense by 14% (I wish this was larger but additional efficiencies will be found), Selling-off non core divisions and continuing to improve it's risk control which will in turn ensure the asset cap is lifted.  While all this is happening, all the excess capital will be soaked up by share repurchases and they are authorized to repurchase 667M shares.  Their medium term goal is a 10% ROTCE and 15% long term.    What is really not to like? 

 

I cannot pick only one but my top pics right now are Atlas Corp, Fairfax, Facebook, Wells Fargo and Trisura. 

 

I currently own 3 out of 5 of those and I'm thinking of getting back into Fairfax.  I sold Wells Fargo last year, I'm interested in why you think it belongs on this list with the others?

[Patmo]

Genworth financial, GNW. Years of suffering through the most painful M&A transaction ever. The deal more or less fell out recently, GNW called the deal off after about 50 extensions, but mentioned it would still welcome a close if the buyer came back quickly with financing in hand (I hope they don't).

 

Shares are still priced at a fat discount to merger at 3.60ps, 4 years ago the business was a lot worse off than it is now and natural owners (aka non arbitragers) were paying just about the merger price (~5.40ps, shares traded slightly higher on day of deal disclosure), and was on a major rising trend. So either the buyer comes back hat in hand and the deal closes within 3 months for a quick 50% gain or (hopefully) the deal is fully terminated and share price rerates significantly as natural owners come back to the fray.

 

Trades at 10% BV, 4.7x ttmEBITDA (per koyfin) and 3x forward PE, to give you a quick-and-dirty look into its current valuation.

 

Covid is sending many old people who were claiming long term care insurance to a slightly earlier demise than anticipated, so claim terminations are on the rise. They're forecasted to net over $1ps in profit in 2021.They're also about to IPO 20% of their mortgage insurance unit to pay off a note due in September (refinancing is also on the table), and it's pretty much smooth sailing from there.

 

There's some hair on it but I'll let others figure it out if they're interested, have a peek.

 

[dpetrescu]

I think 2020 and 2021 has reinforced a key concept of investing. The most important thing in investing is how much certainty you can have that a company will be around and will be successful for a very long time.

 

SSD -Simpson Strongtie

Keeps announcing impressive earnings and revenue growth year after year. This is an old school Buffet type company that has not yet been disrupted by new technology. It has maintained a strong moat for decades. Just last week they announced very impressive growth and it fell 10% - yes please! It maintains a great moat because it has established a competitive advantage in a very specific niche industry - a collection of thousands of tiny connectors along with code compliance testing and engineering support. If another company were to sell a product twice as good for half the cost I wouldn’t switch - is it worth spending 2 hours of research to save $1 on 1 of 500 connectors - the total of which is a small tiny fraction of the cost of a house? Risks - 50% correlated with housing market. And on the watch to see if it could somehow be disrupted in the future. I’ll “likely hear about it from my engineer:)

 

Discovery and Disney

Discovery copied and executed the way Disney executed and copied  Netflix. Others tried to copy Netflix.  But they missed Thiel’s concept - don’t try to do it all, establish a competitive advantage in a small focused and distinct market market. (The way most food carts fail - when they have a large menu. The best food arts are usually the ones with 1 or 3 things in the menu that they do well). All three streaming services are not exactly competing - but have/are capturing very distinct streaming market. Disney is for family content, Discovery (Malone) is for reality tv. Just imagine how much more valuable the large content is for both with their streaming plans.

 

ADSK - Autodesk

Valuable software subscription with a strong moat. Autodesk copied what Adobe did. Yes this is extremely expensive - but it was extremely expensive 5 years ago, and 10 years ago, and 30 years ago. It takes years for a firm to train employees to use this program, takes a few more years for a firm to set up templates/standards for their documents for this program. That’s for the engineers and architects. Then consider the network effect with contractors and owners. And for public agencies, it takes them decades to adopt and establish their own standards - For example Ports, federal, state, libraries, transportation depts - they’re still using 2-d CAD standards!! (Autocad 2-d is also owned by Autodesk). After 3-d BIM has been around since about 2006. They’re in the process of switching to 3D BIM standards - they’ll stick with Autodesk but use Revit(3D).  They won’t switch programs after a few years - the whole benefit is they have one model for the building so that every 5 or 10 years when they renovate they update the same model. Sure the company is very! Expensive.  The test I like to use - if another company has a product that’s twice as good and half the cost would firms switch? Small firms would but most wouldn’t and no way would public agencies ever switch.

 

[drzola]

If only one and the trend is my friend i.e. Spac's

Then it would be this shell company GHVI Gores Holdings and I would hedge my bet with equal amounts long/short the warrants in various time/series combinations.

 

their taking Matterport to market via a  SPAC asap and you know for a general contractor or independent realtor you can just get Canvas for something like 1/100th the cost if you have an Apple ios product with lidor for darn sakes .

[StevieV]

Genworth financial, GNW. Years of suffering through the most painful M&A transaction ever. The deal more or less fell out recently, GNW called the deal off after about 50 extensions, but mentioned it would still welcome a close if the buyer came back quickly with financing in hand (I hope they don't).

 

Shares are still priced at a fat discount to merger at 3.60ps, 4 years ago the business was a lot worse off than it is now and natural owners (aka non arbitragers) were paying just about the merger price (~5.40ps, shares traded slightly higher on day of deal disclosure), and was on a major rising trend. So either the buyer comes back hat in hand and the deal closes within 3 months for a quick 50% gain or (hopefully) the deal is fully terminated and share price rerates significantly as natural owners come back to the fray.

 

Trades at 10% BV, 4.7x ttmEBITDA (per koyfin) and 3x forward PE, to give you a quick-and-dirty look into its current valuation.

 

Covid is sending many old people who were claiming long term care insurance to a slightly earlier demise than anticipated, so claim terminations are on the rise. They're forecasted to net over $1ps in profit in 2021.They're also about to IPO 20% of their mortgage insurance unit to pay off a note due in September (refinancing is also on the table), and it's pretty much smooth sailing from there.

 

There's some hair on it but I'll let others figure it out if they're interested, have a peek.

 

From the headlines, it doesn't seem like they totally killed the deal today.  Why not?

 

Isn't the management a big problem?  Failed to execute a sale for more than 4 years and apparently created no value over that time as they claim that is still the best deal.  I don't know how there could be a much clearer case for the CEO losing his job, but he remains.