What are you buying today?

[LC]

I bought some LYV yesterday.

[york]

BB

[valueinvestor]

BB

 

Would love to know your insights about it? Are you buying it because it's cheap on as asset basis where essentially 10% of market cap is cash or do you have any insights that their earnings will grow at a healthy clip which will rerate the stock?

[york]

BB

 

Would love to know your insights about it? Are you buying it because it's cheap on as asset basis where essentially 10% of market cap is cash or do you have any insights that their earnings will grow at a healthy clip which will rerate the stock?

 

You're correct in saying their balance sheet is very attractive.

I couple things I'm thinking about regarding BB:

1. I think they have done a great low key job in becoming the "Shopify" of online security and protection (WFH, combined with current political and economic stress are doing a great job in filling these sails.)

 

2. I would say Prem has done a great job in helping them find and define their circle of competence - and more importantly execute on it.

 

3. In the transcript of Q4 John Chen said:

BlackBerry has taken a number of steps to help the global community, including enabling remote working

for our customers and employees, and we are taking the lead by offering a limited licence of our

enterprise software products free to organizations around the world for 60 days.

I think this impromptu "freemium" service is going to prove to be one of the best business decisions that BB has made in the past decade. There will be some customers sticking around on Day 61 - that is a Mark Messier guarantee.

 

4. Shopify is creating a vacuum which should be backfilled by smaller Canadian tech companies. April ETF data showed an increase of 25% MoM in Tech Equity AUM.

[Spekulatius]

I'm buying puts on BURL.  Retailer with 100% of stores closed indefinitely, with no sales on website, because they closed it last year (!), and trading for over 20x trailing profits.

 

If they are closed for months, they will have stale inventory,

 

This is an interesting problem for clothing retailers, or anyone else that sells seasonal goods.  How far in advance does the typical clothing retailer acquire inventory, e.g., by mid-march I assume most winter clothing is already gone.  Is the mid-march inventory primarily spring or summer clothes? 

 

Either way, it seems like there is going to be alot of out-of-season clothing around.  Would off-price discounters benefit from that?  Also, someone's going to have to eat most of that.  Will brands take some of it back?

 

Maybe off-price can buy tons of stuff cheap, but who wants Easter stuff after the holiday?  How many people just don't need new swimsuits at any price if they are cancelling their trip to Hawaii?

 

Plus, we were at all time high consumer sentiment in February....how's consumer sentiment now?  All of my friends are delaying or cancelling vehicle/house purchases, and sticking to the necessities, even if they have money.  Who is going "shopping" even if stores re-open?  And to what extent was BURL's target market (women with incomes $25k-100k) affected financially?

 

Well, they showed a huge loss as predicted, but BURL stock is up ~20% since this post. It’s strange, the balance sheet is in much worse shape, but yet the stock and in particular the EV is higher now than pre-COVID, despite far worse fundamentals. I know they mentioned higher sales in the stores they are open, but still, that’s a lot to pay for some green shoots in a scorched yard, imo.

[york]

MDI Shares (adding to June 19 $4 Calls)

[LC]

Bought a tiny bit of Berkshire.

[LC]

Again a little bit of Berkshire, some Livenation as well.

[sleepydragon]

Added a bit to BRKb

And bought a bit of BIIB

 

[kab60]

A bit of Lion Rock Group - trading below NCAV, good business in a tough industry, fantastic owner-operator - normally pays out about 75m in dividends (growing) versus 580m marketcap atm, but took dividend down a bit and did a spinoff of a listed sub recently. Well positioned to handle trade war after establishing a large presence outside of China.

[york]

CPG yesterday (adding to a position that I started @ $1.90) and added $2.50 calls over a few dates to the mix today.

[Broeb22]

I took a flyer on SLQT.

[Ice77]

CRBP, TV

[alwaysdrawing]

I'm buying puts on BURL.  Retailer with 100% of stores closed indefinitely, with no sales on website, because they closed it last year (!), and trading for over 20x trailing profits.

 

If they are closed for months, they will have stale inventory,

 

This is an interesting problem for clothing retailers, or anyone else that sells seasonal goods.  How far in advance does the typical clothing retailer acquire inventory, e.g., by mid-march I assume most winter clothing is already gone.  Is the mid-march inventory primarily spring or summer clothes? 

 

Either way, it seems like there is going to be alot of out-of-season clothing around.  Would off-price discounters benefit from that?  Also, someone's going to have to eat most of that.  Will brands take some of it back?

 

Maybe off-price can buy tons of stuff cheap, but who wants Easter stuff after the holiday?  How many people just don't need new swimsuits at any price if they are cancelling their trip to Hawaii?

 

Plus, we were at all time high consumer sentiment in February....how's consumer sentiment now?  All of my friends are delaying or cancelling vehicle/house purchases, and sticking to the necessities, even if they have money.  Who is going "shopping" even if stores re-open?  And to what extent was BURL's target market (women with incomes $25k-100k) affected financially?

 

Well, they showed a huge loss as predicted, but BURL stock is up ~20% since this post. It’s strange, the balance sheet is in much worse shape, but yet the stock and in particular the EV is higher now than pre-COVID, despite far worse fundamentals. I know they mentioned higher sales in the stores they are open, but still, that’s a lot to pay for some green shoots in a scorched yard, imo.

 

I'm clearly missing something.  Mr. Market willing to pay more for lots of companies these days.  I'm honestly hard pressed to understand some of the valuations in the marketplace right now.  I still have my BURL puts, and a fair few other puts, and I certainly have had my face ripped off by the recent rally.

 

My best explanation is that this is an optimism fueled rally, bolstered by liquidity from the Fed and the CARES act.  Regular people are spending substantially less than usual, and they are putting their extra funds towards financial assets, which has a significant effect on the margin.

 

You can see definite signs of excess--HTZ stock is up a lot every day despite literally being bankrupt, with shares almost surely worth $0.  AAL has even higher enterprise value than pre-COVID.  ZM trades at 100x revenues.  How do investors expect to have cash returned by companies like ZM? 

 

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

It's possible we are in a new era.  If so, I'll likely be mostly on the sidelines until I can understand what's happening.  I am mostly in cash right now, although I also have put position for Jan 2021 on what I think are bubble names (CVNA, BURL, TSLA, ETSY, GE, SHOP, ZM, SMAR, SPLK, OZK, FXI, HSBC, etc) as well as put hedges on SPY and QQQ. 

 

I have been buying some FXI puts recently, as I think US/China tensions are significantly on the rise, and the situation in Hong Kong and Taiwan could mean a rapid breakdown of relations.

[Jurgis]

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

[alwaysdrawing]

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

 

Not happy to admit it, but I very clearly do not understand!

[buffetteer1984]

low interest rates (lower discount rate = higher multiples), massive stimulus 1/3 of GDP, quicker than expected reopening (less loss rev vs more stimulus gains), more efficient operations (better margins) from companies due to pandemic, huge cash on sidelines (missed rallies from retailers and funds), index is more service companies that benefit from low cost of capital.  These are some of the things that have been mentioned lately.  It's been an amazing 3 month ride for sure

 

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

 

Not happy to admit it, but I very clearly do not understand!

[Jurgis]

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

 

Not happy to admit it, but I very clearly do not understand!

 

It was a joke, just in case you took it seriously.

 

Good luck.

[SHDL]

more efficient operations (better margins) from companies due to pandemic

 

Would you care to elaborate on why you think the pandemic will improve profit margins? TIA.

[Guest cherzeca]

more efficient operations (better margins) from companies due to pandemic

 

Would you care to elaborate on why you think the pandemic will improve profit margins? TIA.

 

jumping in, I believe this.  anecdotally I am aware of companies that are reconsidering need levels for office space and travel.  Covid was a massive actual thought experiment that showed a lot of companies that they can reduce costs without suffering revenue loss. 

[SHDL]

more efficient operations (better margins) from companies due to pandemic

 

Would you care to elaborate on why you think the pandemic will improve profit margins? TIA.

 

jumping in, I believe this.  anecdotally I am aware of companies that are reconsidering need levels for office space and travel.  Covid was a massive actual thought experiment that showed a lot of companies that they can reduce costs without suffering revenue loss.

 

That was the expected answer, thanks.

 

However here is something to consider: Suppose you own/operate a consulting business of some kind and you notice, thanks to the pandemic, that you can cut your RE/travel costs by having half your staff work from home and Zoom-ing your clients when you need to talk to them face to face. But guess what, you are not the only one who noticed that. Your competitors did too. And so what you are going to end up with is tougher price competition which will bring your operating margins closer to where they were previously.

 

So my guess is that the end result of this will be lower prices for consumers, lower rents for CRE owners, less business for airlines etc, and little change in profit margins for the vast majority of businesses. Probably a net negative for the corporate sector as whole.

 

That said, the situation may be different for the small number of businesses that actually have pricing power. You probably want to focus on those if you want to bet on this type of margin improvement.

[Spekulatius]

low interest rates (lower discount rate = higher multiples), massive stimulus 1/3 of GDP, quicker than expected reopening (less loss rev vs more stimulus gains), more efficient operations (better margins) from companies due to pandemic, huge cash on sidelines (missed rallies from retailers and funds), index is more service companies that benefit from low cost of capital.  These are some of the things that have been mentioned lately.  It's been an amazing 3 month ride for sure

 

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

 

Not happy to admit it, but I very clearly do not understand!

 

For the company, I work for (manufacturing business) the costs have gone up across the board. Higher salaries (temporarily) additional consumables (PPE) and cleaning and the occasional shutdown when someone tests positive. We also had some supply chain disruptions although those have waned.

[valueinvestor]

SHOP, ESTC, GAN

[jgyetzer]

TWTR

[fareastwarriors]

small add to BRK/B