Broeb22

EPAM...valuation is much higher than when I purchased so trimmed by 50% despite fundamentals continuing to hold up.

EVI

If I may give my two cents, these reflections about your temperament may mean you would be better suited risking a smaller % of your money in the stock market, and perhaps should own more bonds. I totally get where you're coming from. Real estate has been a lot easier for me emotionally, so I've been moving more cash to that area.

There's a great case study on a utility bankruptcy (and a Wilbur Ross/Donald Trump casino restructuring) in the book The Vulture Investors by Hilary Rosenberg. Highly recommend the book in general.

While I certainly don't believe we are very close to abandoning internal combustion engines any time soon, I do wonder about some of the businesses that depend on byproducts of oil as an input. In short, I wonder if at some point there will be more demand for the by products than the oil itself. If that is the case, then the costs of extraction fall more heavily on the byproduct (i.e. plastics, specialty chemicals, resins, etc.). What will this do to the cost of some of these products (see links)? Will alternatives come about to displace these? https://www.innovativewealth.com/inflation-monitor/what-products-made-from-petroleum-outside-of-gasoline/ https://whgbetc.com/petro-products.pdf

I'm not the most educated on these things, but there are two narratives out there in the market which seem somewhat contradictory: 1) CPG companies, and really more broadly, all branded products, have a tough future in a digital world; and 2) there are some very large digital ad businesses (namely FB, GOOG, and increasinly AMZN) which will increasingly depend on large ad buyers such as large CPG companies to advertise on their platform to grow. What is everyone's take on this issue? Will CPG and other branded products simply give a larger portion of their profits away to the larger digital ad players, and by virtue of that dynamic increasingly earn lower ROICs? Or is the first and second positions in digital advertising going to eventually be equivalent to having prime shelf space in grocery stores? (Separately, with Amazon's move into physical stores, and seemingly admitting a physical store presence will likely persist in the future, does the idea that CPGs' evaporating distribution advantage will dissipate in a digital world hold less water?) In a world that is completely devoid of brands that can charge premium prices, does that spell bad news for the large digital ad players? Stratechery has made the argument that companies that abandon bricks and mortar have more dollars available to advertise, and that actually increases the advertising TAM, but if these companies can no longer charge premium prices, what does that do to their advertising budgets? As for my own views, some CPG companies have begun to sport multiples that assume they are in run-off. I understand this dynamic for 2nd tier and 3rd tier brands with poor market share in their niches, but if a brand has a #1 position, particularly in a small niche, that almost seems better protected to me than the large categories such as shaving, soaps, shampoos, beauty, etc. There does seem like some opportunity in this space, and I've made a few purchases such as PBH, SPB, and POST, which reflect this view (POST is a little more complicated as a hybrid branded/private label player).

I took a small position in Despegar recently. Leading LatAM OTA with Expedia and Tiger Global both having stakes (Tiger plus 40 pct.). They're net cash (some 300m held in USD). CFO recently left, which is a negative, and insiders don't own nearly as much as I'd like, but I think it's somewhat interesting though valuation isn't on the cheap side (unless you do a relative valuation and compare to Booking/Expedia on an EV/Sales ratio). It's basically a proven business model, and their leading position+net cash balance sheet should make them come out stronger (if LatAm ever gets better). According to management they're taking share, and they're the lowest cost producer whatever that means in the OTA industry. It's a small position for me and I haven't really figured out why exactly they hold that view (that they're the lowest cost producer nor if they can keep that spot). Despegar is interesting. I think it could get more interesting as they just filed an S-3. From what I understand Tiger Global is liquidating their fund that holds this (which has a vintage around 2010), so there will likely be some more pressure in the short-term, providing an interesting buying opportunity.

Have recent events in emerging markets pushed people to look a little closer? If so, what are you finding? I’ve made a few purchases of companies in emerging markets that are more consumer focused, such as JD in China, PAGS in Brazil, and DAVA in Eastern Europe. None of these are cheap by any stretch, but are all in my opinion strong businesses whose growth will make their multiples look cheap in a couple years. I welcome any company specific bear arguments, commentaries on EM in general, or new ideas... I heard a PM talk about Loma Nebra on a Grant’s podcast...it’s a cement producer, but doesn’t generate much cash.

The dumpster fire at Greenlight Capital continues... https://www.institutionalinvestor.com/article/b19sztwcjhfl12/Greenlight-Capital-s-Big-August-Loss-Compounds-2018-Woes#.W47RhtkhwQc.twitter

I think one good example of this would be the radio roll-ups of the past few years. I'm sure the PE buyers who put together radio broadcasters at 11x EBITDA saw a deal accretive to equity. However, as it became clearer that radio faced some secular headwinds, these deals became value-destructive. To generalize that, I guess buying a business that quickly turns south can both be EPS-accretive in the short-term and value destructive long-term. This is clear in the rationale Greg Maffei has given for why he would not combine iHeartMedia with SiriusXM or Pandora with SiriusXM at this point. Each company is valued somewhat differently (1, as a secularly declining cash flow machine, another as a growing cash flow machine, and a third based on its strategic value as a potentially viable business once turned around). It would clearly be negative for SIRI to combine with IHRT at this point in time because it would negatively impact SIRI's cash flow growth, and would likely cause the multiple to be depressed in the short- and medium-term.

+1 I only wish he wrote more.

LXFT on Friday. LXFT can likely grow @ 15% CAGR for an extended period, and its operating margins should be able to increase 50% once UBS/DB headwinds subside over the next 2-3 years. Business model is a lot like Cognizant's except the work they do is more technical and customer-facing. Kerrisdale wrote this up a few years ago, and the thesis has largely stayed the same despite a pretty large dip in the stock price, mainly due to continued issues at DB/UBS. Closest comp, EPAM trades at approx. 30x FCF, while LXFT trades for approx 15x (at lower margins than EPAM, for now). I don't used their adjusted earnings which are BS and add-back significant stock-based comp. My estimate of cash flow adds back everything but stock-based comp.

A friend showed me a pitch for IEA. has warrants since it came out of a SPAC. Trades at 2-3x EBITDA due to concerns wind energy tax credits do not get extended. If they do get extended, then the company could be worth more like 6-8x EBITDA, based on more diversified peers. Warrants would make returns very nice. But it also could be a zero.

Does anyone think that self-driving trucks, if they ever get here, would seriously challenge the current ground transportation supply chain? Could self-driving trucks eventually gain a cost advantage on rail?

SPB Company guided down and replaced its CEO with its Chairman David Maura who is well-respected as a capital allocator. He stated that much of the guide down in FCF is due to transitory factors, which have been ongoing for about a year at this point. Announced $1BN share repurchase over 3 years would wipe out ~30% of market cap. Company will be largely unleveraged after selling its battery and appliance businesses. Transaction with HRG will allow index funds to own the stock once its no longer controlled. ~10% FCFF yield pro forma for divestitures of battery and appliance business.

I'm considering going out to the Sitestar meeting this year. I would like to find other similar meetings worth attending. For instance, ALJJ is one on my list. Does anyone else know of small companies run by investor-managers worth going to?

Some of the moves Disney has made recently certainly fit the bill of thinking long-term: Buying BAMTech - Bought leader in streaming at a time when most acknowledged streaming was the future but few were willing to invest aggressively in building their own capabilities Merging with FOX Assets - makes company more internationally diversified, and provides add'l avenue to grow Disney brands internationally Opening Disney in Shanghai - long in the works, big risks taken in time and capital... There is a potential (likelihood?) that DIS continues to suffer as the cable bundle frays, but DIS is likely to continue to be relevant 10 years from now due to these moves... Others I like: Danaher Devin Wenig, CEO of EBAY - Has done a great job reinventing the user experience at EBAY. There is a lot of work to do to compete with AMZN, but the company's increasing growth rates and lower margins (largely due to increased investment) indicate the company was a sleeping giant for a long time. POST - I always look forward to Post Holdings' calls because hearing the strategic thoughts of Robert Vitale is worth it. They carry a lot of debt, but I think they constantly think about their businesses strategically.

+1

https://www.businesswire.com/news/home/20180118005771/en/Amazon-Announces-Candidates-HQ2 Columbus, OH - Dallas, TX - Denver, CO - Indianapolis, IN - Los Angeles, CA - Miami, FL - Montgomery County, MD - Nashville, TN - Newark, NJ - New York City, NY - Northern Virginia, VA - Philadelphia, PA - Pittsburgh, PA - Raleigh, NC - Toronto, ON - Washington D.C.

22%, held 15-20% cash throughout the year. Contributors: AMOT, EPAM, ALLY, TEVA, MKL Losers: NYRT, POST

Is Under Armour too obvious a candidate? Given its significant losses YTD, I wouldn’t be surprised by continued pressure on the stock. It also looks pretty cheap to me at 1x sales vs. NKE at 2.8x. Full disclosure: I own UA shares.

NC - Even after large spike in price, the company still trades at 4-5x.

Homebuilding - NVR Corp (NVR) Specialty Insurance - RLI Corp (RLI), Workers Comp Insurance - Amerisafe (AMSF) Branding/OTC Pharmaceuticals - Prestige Brands Holdings Conglomerates/Capital Allocation - Roper Technologies (ROP)

VRTV

Looking a little closer, GRPN has also expanded its capital lease obligations notably in the last few years. These are operating assets, but are shown in the financing section. Additionally, the $120MM of stock compensation expense should arguably not be added back. So FCF at GRPN may be closer to $70MM when accounting for these factors.