Stocks Discussed At the FFH Dinner

[NormR]

I know that lots of interesting stocks were highlighted at the different tables over sup.  So, if you made a pitch for a stock, (or if you remember one) post it here for all.  :D

 

For instance, @ the drinks before the FFH dinner we got to hear about

 

MGAM

NRG

SEB

 

At the dinner Sam talked lots about

 

SD

ICO

 

Sanjeev, as his meeting, talked about

 

ITEX

 

What stocks did you guys discover at the meeting(s)? ...

 

[Guest Bronco]

I wish I was there!  Too far for us New Jersey folk though.

 

Can you drill down more on the stocks.  I own a little NRG (and a little AES).  I could see these in the BRK/Mid America portfolio some day.  I am interested to see not just what stocks were discussed, but what was said. 

 

BTW - I think this is a great topic.

 

Thanks and Regards,

 

Bronco.

[gaf63]

I'm interested in what was said about ICO , and also if LVLT came up .  Thanks in advance.

[kilroy04]

Good to see everybody again.....and to meet more of you.  Sanjeev - as always, thank you for organizing the dinner and speakers.

 

The following came up at our table.  Not sure if people want names associated so will leave it anonymous.

 

Natural gas - Pengrowth.  2.9B in tax credits.  MCap of 3.3b.  To convert to a dividend paying corp.  Presently pays about 7%

 

Medical devices - Boston Scientific.  Struggled with overpaying for Guidant several years ago.  Legal settlements in the billions.  Presently some FDA issues. Generates close to 1b cash/yr on a Mcap of about 10-11B.  Balance sheet that is improving (debt 5-6B).  New CEO with a good track record at Zimmer.  Seems to be making good moves.  A case of poor management and the company still spins off cash.

 

Yellow pages:  16% margins and high dividend  (12 ish%) on a declining but still real business.

[Hawk4value]

Can anyone elaborate on what was said about Sandridge (SD). The company has high debt. Seems to have sold cheap gas assets to buy expensive oil assets. Recent $100mil office headqtrs building did not seem like a good use of capital. Also, Prem's recent conversion of 7mil common shares to 8.5% converts seems to mean that recovery in these shares may be a long time in the making. Did Prem elaborate on his opinion about Tom Ward as a CEO.

 

Thanks. 

[FFHWatcher]

Can anyone elaborate on what was said about Sandridge (SD). The company has high debt. Seems to have sold cheap gas assets to buy expensive oil assets. Recent $100mil office headqtrs building did not seem like a good use of capital. Also, Prem's recent conversion of 7mil common shares to 8.5% converts seems to mean that recovery in these shares may be a long time in the making. Did Prem elaborate on his opinion about Tom Ward as a CEO.

 

Thanks. 

 

Prem didn't mention SD at all during the public presentation. I believe I did see Tom Ward walking around.  Sam Mitchell discussed SD in some detail during our dinner.  Essentially, SD are extremely data driven and know the area better than anyone else.  He (and SD) also believe that simple (non-fractured?) drilling with less annual depletion is a better long term, low cost solution than the Shale plays/high fracturing needed in some areas.  He said that the Forest purchase was very cheap.  Arena purchase not so cheap but still pretty good value.   

 

Might I respectively add or suggest that you avoid asking a question about what someone else thinks/feels/said about something and then proceed to list your personal (negative) opinions on the subject.  In my opinion, you are telling the reader that you are hoping to respond, that you have already made up your mind on the subject.  It injects conflict into your question right at the outset, IMO.  You may be able to get a higher quality response with more detail if you avoid asking leading questions.  Essentially, the reader did not need to know your opinion in order to fully respond to your question and in my opinion, your response will be biased one way or another based on what you included in your question. 

[Sea Island]

SD

CHK

SJT

Frontier Telecommunications (FTR?)

 

Also in addition to stocks a question was asked about reading materials and I believe Sam Mitchell recomended the following:

 

Matt Simmons on Energy

Michael Porter on Competitive Advantage

Phillip A. Fisher on Investing

 

Mr. Mitchell also made reference to the local optima of ants

[Hawk4value]

FFHWatcher,

 

Thanks for your response. The negative issues which I raised in my question was not intended to influence anyone's response. Its just that I am trying to understand Prem's interest in this company and Tom Ward in particular. Given the $100mil hqtrs building he recently erected, the shareholder dilution, and the high debt, I don't think he has been a good steward for shareholders.

[T-bone1]

Hawk, I am an SD shareholder, so I am biased but here it goes:

 

The $100 for the building is annoying, but they are only spending $20MM or so in the near term, and they are avoiding the cost of leasing office space, and the building is worth something . . . so basically they are spending the shareholders money on something stupid, but the net loss to shareholders is probably $5-10MM for now, and maybe some more later. This stinks, but its a lot better than spending $100MM this year.

 

The ARD acquisition takes care of the high debt, assuming it goes through. By paying with so much equity, they are delevering their balance sheet. If the deal doesn't go through, they are indeed very levered, but their debt maturities are pushed out to 2014 and beyond, so - at least in my opinion - gas will have recovered well before they have to think about terming out or paying off the debt.

 

As for shareholder dilution . . . yup, but its either that or high debt. I actually would prefer that they stayed a highly-levered natural gas player, but if instead I get a safer, more oily investment that isn't quite as cheap . . . thats okay too.

[FFHWatcher]

FFHWatcher,

 

Thanks for your response. The negative issues which I raised in my question was not intended to influence anyone's response. Its just that I am trying to understand Prem's interest in this company and Tom Ward in particular. Given the $100mil hqtrs building he recently erected, the shareholder dilution, and the high debt, I don't think he has been a good steward for shareholders.

 

I would go back and do some more research on Tom.  If Tom felt $100M was required/justified for his H.O., than Aubrey M. (CHK) would likely spend $500M?  It doesn't make it right but from the research I have done on Tom W., I don't feel the same way you do.  Go back and start fresh with an open mind?  SD is growing exponentially (with huge debt, yes!!) but given their size now, $100M for their headquarters is becoming more and more justifiable versus when it was announced.  There is no doubt that Tom W. and almost everyone else in Nat Gas are WAY more aggressive than your average Value Investor. 

[Zorrofan]

At the dinner Sam talked lots about

 

SD

ICO

 

 

Can anyone about a bit more color on Sam's comments. He strikes me as FFH's CM. Always interesting to hear what he has to say.....

 

cheers

Zorro

[Packer16]

I think Sam's comments were that SD is a bet on whether gas prices will be greater than $6 (good return) or less than $6.  He said the Forest acquisition was good one and the Arena acquisition was not as good.  SD gave up some gas upside for Permian Basin wells SD knows well.  He thinks SD is creating an advantage by using knowledge of region and analytics (seismic data). 

 

For ICO, he stated ICO has good reserves with 31% met and 70% underground.  The underground resources are important because hill-top mining is being reviewed for stoppage.  Met coal is important due to high steel demand.  ICO is in the process of completing an large underground met coal mine which should come on stream in the next few years.  ICO has recently also delevered the balance sheet.

 

Packer

[JackW0]

Sam also mentioned possibility of demand growth from Asia, he ponited out that last year China was a net importer of coal.

[valuecfa]

I think Sam's comments were that SD is a bet on whether gas prices will be greater than $6 (good return) or less than $6.  He said the Forest acquisition was good one and the Arena acquisition was not as good.  SD gave up some gas upside for Permian Basin wells SD knows well.  He thinks SD is creating an advantage by using knowledge of region and analytics (seismic data). 

 

For ICO, he stated ICO has good reserves with 31% met and 70% underground.  The underground resources are important because hill-top mining is being reviewed for stoppage.  Met coal is important due to high steel demand.  ICO is in the process of completing an large underground met coal mine which should come on stream in the next few years.  ICO has recently also delevered the balance sheet.

 

Packer

 

Appreciate the SD comments. I have been following this one fairly closely in recent weeks. Did Sam happen to have any other pertinent details about their SD investment?

[oldye]

Sam also mentioned possibility of demand growth from Asia, he ponited out that last year China was a net importer of coal.

They also mentioned that India will soon be a net importer of coal.

[Myth465]

Sandridge got killed today and I think now its time to buy. I am looking at the options. My only concern is that the ARD deal may not go through. ARD has been dragged down all month and it may be the better deal at this point. The CEO went on Cramer and for some reason the stock is down 10%.

[valuecfa]

I love the company at current prices. I understand why, and like, the decision and timing (from an operational & hedging perspective) for entering the ARD deal for several reasons. However, i hate that they are swapping their stock so cheaply relative to their own NAV. It really is a fascinating company to research,  in my opinion. The discovery potential is pretty large in my opinion once they get all their natty rigs going, upon a rise in prices (much of this is currently on the back burner). I own quite a bit of the OOTM 2012s, that i am currently taking a bath on (purchased about a week ago). Though i think there is a great deal of optionality over the next several years for many reasons other than just valuation as a stand alone catalyst. I would of liked to have gone to the dinner solely to share views on this company with Sam.

 

Fairfax has a pretty sweet arrangement going on with them too. I could easily see why they traded in much of the common for the prefs. I would take that deal in a heartbeat.

[Myth465]

I think its a matter of survival. Not doing the deal is akin to betting the farm on gas prices. We got $9 hedges and CF per share looks amazing, but that will fall off at year end and we will be looking at $4 gas with everyone drilling much more. I think Tom is a bet the farm kinda guy, but that margin call may have killed some of his recklessness umm, spirit.

 

I would do much the same if I owned 10 percent of the company. With oil he can literally drill till he is blue in the face. Even $40 oil has great CF.

[T-bone1]

I agree Myth, the company is not as cheap after the deal (as they were more undervalued than ARD and are paying with stock), but now they have much less risk.

 

This fixes both their balance sheet and their oil/gas mix, and takes BK risk off the table in my opinion.

 

I would not want to be short SD here . . . and I would imagine that those who are (not including the merger arbs) are going to come to a similar conclusion very quickly.

 

On that note, ARD has traded in a very tight spread to the SD deal (never more than about 2% off) . . . so I think the market is saying that this deal gets done.

[oldye]

Unless oil goes to 30 again and then its just retarded. 

[T-bone1]

SD has hedged their oil for the next three years at $87 . . .

 

I don't think there is enough world supply for the price to go to $30 for more than a year or two . . . there are very few new projects that make sense at this price and legacy production is declining (just like natural gas, but with more complicated global dynamics in both supply and demand).

[alertmeipp]

why not buy ARD instead.

couple percent cheaper if you think the deal will go through.

 

if not, ARD does not have the debt load to deal with.

[oldye]

Unless oil demand already peaked in the U.S back in 07...it hasn't peaked in the Brics but we can absolutely see 30$ oil again like we did last year.

 They're fully hedged through what 2011...well Natural gas use is going to fall in the U.S between 2010-2014 and inventories are already very high.    

Also remember that Sd hedged their legacy production not Arena's but that doesn't matter because a) arena shareholders would be nuts to go through with the deal (I'm not saying it won't happen but somehow it seems that the deal doesn't benefit shareholders of either company unless you assume high oil)  b) even with the hedges all that money and more is going to be spent paying interest and drilling just like every other company out there.

 

 

 

 

[T-bone1]

Oldye,

 

I agree that a fair amount of the money will be spend on interest and drilling, but they currently have IRRs over 100% in their permian oil wells, so they will have substantial FCF if they want to.

 

As far as oil going to $30 . . . right now inventories are very high worldwide and it is possible, but longer term there is no way that demand will decline at a faster annual rate than the "$30 breakeven" oil production will. The BP spill (disaster that it is) also hurts the long-term supply outlook as there will be less offshore drilling and it will be more expensive.

 

I agree with you that ARD is a slightly better deal as you get about a 2% discount, but I prefer SD. I'm bullish on gas so if the deal falls through I'll take SD and the breakup rather than own ARD.

[valuecfa]

"IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC"

 

Apparently Mad Money lighting round or whatever requires a disclosure, lol:

 

http://sec.gov/Archives/edgar/data/1123871/000119312510127998/d425.htm