Your best long-term idea today?

[Aberhound]

SoftBank due to its investments in the top internet retailers in China, India and Indonesia. Also, the practice of giving all employees smartphones to boost productivity, if adopted throughout the organization like they did with the Japan cell phone business gives them a productivity per employee advantage which competitors will take a long time to copy. Finally the stock is better priced now than many US stocks, particularly Amazon.

[plato1976]

softbank is interesting. but I think they have two headwind. One is Sprint. I am afraid they will sinking in lots of money and not sure if it can be turned around. If it cannot, it will surely cost them a lot of money before they turn the white flag. The other is their Japan telecom business - in overall weak Yen will make this business less valuable when denominated in USD (not like export oriented manufacturers I don't think telecom will benefit from weak yen).

 

SoftBank due to its investments in the top internet retailers in China, India and Indonesia. Also, the practice of giving all employees smartphones to boost productivity, if adopted throughout the organization like they did with the Japan cell phone business gives them a productivity per employee advantage which competitors will take a long time to copy. Finally the stock is better priced now than many US stocks, particularly Amazon.

[shhughes1116]

CFG.  Being divested by Royal Bank of Scotland right now, and currently priced for mediocrity.

[usdtor05]

@ Plato, your point is valid. Something that people tend to overlook when thinking about Softbank is that they have roughly $50B in Yen denominated debt and say $10B in Yen denominated EBITDA from Mobile/Telephony. If you put a 5 multiple on that business the two basically net themselves out and then you have:

 

1. Alibaba

2. Sprint

3. Yahoo Japan (in Yen also so...)

4. The other investments most of which we don't even know about outside of the discussed Snapdeal, Uber India (having been there I wonder how that would really work) and the Indonesia Alibaba if you will.

 

Those are worth, based on the market, much more than it's current market cap. Of course if he has to subsidize Sprint using Alibaba the tax affect needs to be factored in. I think it's likely he will subsidize the $10B-$15B Sprint needs with the cash flow from Mobile/Telephony over the next three years.

 

Of course it rates rise significantly he is in trouble in Japan although the debt isn't due tomorrow.

 

Sprint is troubling and really you are betting on Marcelo and Masa Son to pull this off. Masa did this with Vodafone KK but he had the exclusive on the iPhone which certainly helped.

 

If you look at the playbook we can see what is coming from Sprint...price war. In Japan he was going against entrenched competitors and he pulled it off, can that happen again against the US competition I am not sure.

 

One thing I haven't been able to fully wrap my head around, there is no way data usage is going down and therefore Verizon is theoretically only going to get more expensive for me. Verizon's play is to have the best network and offer less data; Sprint has a poorer network in general but is offering unlimited data. Sprint certainly pulled back big time on their capex to take a focused approach which means their overall network roll out is pushed back somewhat.

 

I can't figure out if they come out with a really compelling offer with unlimited that significantly underprices their peers if people will switch. I am still on Verizon because of legacy feeling that Sprint is horrible. My wife uses Sprint and it works 100% fine. Will Verizon, AT&T and T-Mobile follow on pricing/data. Everything I have read on Verizon's spectrum says they can't handle that much data and therefore they might not be able to come with unlimited also but maybe the most recent auction changes this.

 

maybe it's in the too hard bucket to be honest.

[HJ]

CFG.  Being divested by Royal Bank of Scotland right now, and currently priced for mediocrity.

 

Why do you think CFG is significantly better than mediocrity for it to be the best long-term idea today?  Something about the management?  Business mix?  Just curious.  Thanks

[oddballstocks]

CFG.  Being divested by Royal Bank of Scotland right now, and currently priced for mediocrity.

 

Why do you think CFG is significantly better than mediocrity for it to be the best long-term idea today?  Something about the management?  Business mix?  Just curious.  Thanks

 

I like CFG as well, agreed on valuation.  RBS held them back after the crisis.  This is essentially a spin-off where management has told shareholders what to expect in 3-5 years.  Most shareholders won't wait that long, but the ones that do should be rewarded. 

 

This isn't my best long term idea, but I like them more than some other banks I own and have sized the position accordingly.  Another bank worth looking at OSHC, cheap and with an activist pushing for a sale.

[shhughes1116]

CFG.  Being divested by Royal Bank of Scotland right now, and currently priced for mediocrity.

 

Why do you think CFG is significantly better than mediocrity for it to be the best long-term idea today?  Something about the management?  Business mix?  Just curious.  Thanks

 

The ten cent version of my thesis is as follows:

1. Around the time of their IPO, CFG was priced at ~0.65 P/B, and ~1.0 P/TB, with a ROE of ~3%.  I think the IPO price reflected that the divested entity has a pretty marginal ROE, and had been undermanaged by RBS due to the financial crisis.   

2. Royal Bank of Scotland divested only a portion of their stake.  They are a forced seller, and the UK government is requiring RBS to divest the remainder of their stake in the next couple of years.  Sucks to be a forced seller, but great to be on the other side of the transaction (think the forced divestiture of Voya by ING).     

3.  As oddballstocks noted, this "production" will take a couple of years to play out, keeping many short-term focused folks out of this equity. 

4.  I like regional banks.  Big enough to achieve some economies of scale, but small enough to enable effective management/oversight. 

 

(Value and Opportunity did a pretty good job laying out the bull case for CFG - http://valueandopportunity.com/page/2/)

 

So I look at it this way.  The bank is priced for a mediocre ROE.  If the divested entity is unable to improve the ROE, then there probably is not much downside.  If they are able to improve the ROE to what we would expect from an average regional bank, then they are deserving of a higher valuation.  The forced selling over the next couple of years means that end game for this stock (i.e. higher valuation reflective of improved ROE) will take a couple of years to play out. 

 

I have a few other ideas which will probably yield higher annualized returns.  However, my concept of a "best long-term idea" is not necessarily the idea with the highest annualized return, but instead the idea where the upside is skewed substantially in my favor, and downside is pretty limited, and the risk of substantial permanent capital impairment is very unlikely.  I think CFG satisfies these three criteria, and similarly to oddball stocks, my position sizing is a bit larger than some other positions I hold.           

[HJ]

Thank you, gentlemen, for your response.  As I look at that Value and Opportunity blog, one thing I'm not particularly crazy about is how they arrived at the conclusion that CFG is cheap.  They take a bunch of bank's trading P/TBV ratio, do a simple average, get to 1.58 times, and Citizen is currently at 1x, so they argue there's 50% upside. 

 

When I look into the sample, I basically see a bunch of banks trading around 2x TBV or higher, and a bunch trading right around 1-1.3x TBV.  The ones trading around 2x TBV all have something special to them, whether it's a favored geography / loan growth profile in Cullen Frost and Signature Bank or specialized lending model in the case of NY Community and SVB, MTB is Buffett's bank, no more statement needed, etc., etc.  So I kind of feel like an average bank is supposed to trade around 1-1.3x TBV.  If you can articulate something special, then you may get sponsorship among the investor community to trade you closer to 2xTBV.  Drawing the conclusion that an average bank is supposed to be at 1.58x is kind of too simplistic for my taste. 

 

That said, I don't have any insight to Citizens book of business or management quality.  Would love to learn any interesting tidbits.

[jay21]

From what I heard (forget the source) is that Citizens was very conservative on both the liability and asset side. Now management wants to be more aggressive. 

 

I haven't looked at the FS to determine if thats true. And I don't know if mgmt will be "prudently aggressive" or just aggressive.

[The Falcon]

SVW:AX , Diversified holding company, Industrial services, Investments and Media. Trading at 20% below net tangible assets. Daily on market buy back in place. Dividend yield approx 6%, PE 8x.