Value_Added

The inflation reduction act has made nuclear power an amazing business in the U.S. for the next 10 years. Guaranteed money with a near completely protected downside. There’s a lot of upside optionality as well such as above 2% inflation, volatile power prices and selling their base-load power at a premium to mega cap and tech companies who are “going green”. Take a look at CEG (Constellation) earnings call and accompanying presentation from yesterday. Pretty impressive how much the inflation reduction act has helped them.

Seems GTX may fit here now with their recent capital restructuring (now a single share class). Tons of cash flow with minimal reinvestment needs, they seem hellbent on paying off debt and buying back stock. They bought back 10% of their shares in 2023 and approved another 15% (at current prices) for 2024. I don’t see why this wouldn’t continue going forward. Business is in a good position too from both a turbo standpoint and zero emission vehicle (battery and hydrogen fuel cell) standpoint. Seems like the focus switch to hybrids could be a small tailwind for their core turbo business as well.

Sure, anything is possible but it’s not likely. Big tech is always a day away from some new innovation that turns the world on its head. If these develop into additional high margin revenue streams, valuations and sentiment will continue in their favor. With that said, their current offerings can become out of favor just as quickly and valuation could go the other way. All businesses in their current form have a growth ceiling - even small caps. It’s important to keep this in mind. Just because something is small doesn’t mean it’s destined to be bigger. Oftentimes when small businesses chase growth, it’s value destructive which will ultimately be reflected in the stock price. Best thing to do is understand what you’re buying and understand how to value it. Once you do, buy it with a margin of safety. If you can’t, just index.

Knowing the circumstances which would cause a margin call is the big pause for me. I know a lot of people out there use leverage in an unintelligent way which is also where most of the horror stories come from. When I get a mortgage on a rental property, I have a pretty good idea of the risk before signing the papers. The value of the home dropping during a housing downturn doesn’t scare me because I won’t get a call that the loan is due because of it. I’m ignorant on the subject, but it seems like stock market hysteria could cause just that even though you know you hold a company’s stock which didn’t really lose any long term value (hopefully). I just don’t understand that aspect enough to feel comfortable with it.

I’m at 0% but not because I think it’s stupid. I think it is an extremely useful tool , but unfortunately is one I don’t understand how to properly manage. To elaborate, I understand leverage…but I don’t understand how it is initiated, what kind of market scenario would constitute a margin call, which investments are viewed by the broker as risky vs safe, etc…for now I just use options as a form of leverage, though it isn’t true leverage which is the topic of this poll. I’ve looked into it via some Google searches in an attempt to learn the ins and outs but can’t seem to get comfortable. All I really find is how people use it for their investment style versus a fact sheet of how it works. Probably because of the multitude of different results and scenarios possible with its use.

Tikr https://app.tikr.com/register?ref=e2vcqf

I don’t know the screens that finviz offers but I would screen for: +12% revenue growth +12% net income growth +12% operating cash growth (use FCF if they have the screen for it) +12% equity/book value growth ROIC of 12% or higher. Market cap <$1B Ev no more than 30% above market cap That should find you a quality company with manageable debt. Just remember that Covid really hammered these metrics for small businesses in 2020 so I would run your screen starting in 2020 or ending in 2019. You probably aren’t going to find a lot of +25% early stage growers here because they won’t be able to show profit and operating cash/FCF growth. This is more of a quality screen.

They certainly exist but quality comes at a price. The micro and small cap market aren’t as overlooked anymore and anything of quality that’s proven itself and shows up on a screen for high quality metrics, will not come cheap unless there’s an event to make them cheap. If they’re truly high quality, the current multiple may be okay given a long timeline to continue executing but you’d better have a good understanding before placing that bet because if you’re wrong, multiple contraction paired with falling metrics is an expensive mistake.

GLDD -Basically just need to execute on their backlog. Pretty good setup and with the recent approval of special funding for their venture into offshore wind, it decreases a lot of risk that was unnecessarily taken when rates were cheap. Business, though crappy and capital heavy, is a necessity and they have the cost advantage by a long shot. Record funding from their biggest client paired with much of that funding being higher margin should offer an 80% upside. Short of prolonged periods of bad weather and another round of inflation/supply chain issues I don’t see much downside. Simple execution is the catalyst here. 2024 should be a great year for the business. IMXI - Continual execution from a great management in an extremely niche business should keep the stock chugging. Recent partnership with Visa should offer them more competitive advantages on top of their already large heap they have in their market. I expect to see large amounts of buybacks as they continue to generate plenty of FCF and the business needing very little capital. KRO - Down in the dumps for numerous reasons as any commodity is during a down cycle. With production being located in Europe, they were hit harder than others due to electricity costs. TIo2 is a necessity and market dynamics will again be in their favor. Historically, this has performed very well for investors when purchasing at or below a price/tangible book value of 1 or below. 9% dividend is a nice bonus.

The quick and dirty I use is equity plus debt. Every business is different and as you learn more about a specific business you can adjust certain balance sheet items as you see fit. I don’t attempt to be too precise because at a certain point you’ll lose the forest through the trees. I think it’s more important to understand how capital flows through the business to make it work and use crude metrics for ROIC.

+1 Also purchased DBI, HIBB, IMXI and METC throughout the week.

Isn’t this the whole premise of “look through” earnings according to Buffett?

If in 2018 they waived raises to tier the pay, they may well deserve 40%. Remember that raises are compounded. Assuming $60k per year 5 years ago, a 40% increase would’ve been 6.5% per year which is basically a cost of living increase plus a little bump on top of that each year. 2.5 of those years were during a period of higher inflation as well. Again, I don’t have all of the facts and am making assumptions. Traditional pensions are being phased out nationwide and isn’t surprising to see here. By the way, they will still get a pension but it will be a cash balance type. Granted, this isn’t nearly as good but if you’re making $85k base with a 401k plus matching, and a cash balance style pension, you should be able to plan for retirement pretty easily. But f*** them in regards to 40 hours of pay for 32 hours of work. How could anything else be taken seriously.

The Union asking for a 32 hour work week with 40 hours of pay is disgraceful. The unions all across the board are venturing far away from the foundation they were built on. Now they exist solely to gain membership and protect the p.o.s worker who would’ve been fired without the union behind them. Sure, they negotiate contracts and fight for more benefits and wages, but that’s no longer at their core. Does anyone know how often their contract is negotiated and what previous negotiates entailed as far as yearly raise increases? Have they been locked at their current rate for a while?

That was me. Not an amazing company, but is a necessity and they are the lowest cost producer allowing them to win more bids with better margin. Yes they are reliant on government but these projects have to happen to maintain proper infrastructure and supply chain. I’m extremely hopeful for wind contracts to proceed as planned but not holding my breath. I may reach out to investor relations to see if they’ll divulge their plans if it doesn’t come to fruition and their new expensive wind vessel is left sitting without work.