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Companies/Industries in Secular Decline or Have Flawed Business Models


BG2008
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This is a thread for industries or companies facing structural headwinds.  I'm trying to identify themes/names where the challenge is structural and secular rather than cyclical.  However, I prefer names where the market has a misconception about the steepness of the decline rate.  For example, everyone knows cigarette volume is going down, but nicotine is addictive and the shareholders can continue to milk that cashflow.  On the other hand, coal mining is a sector that is doomed because of the relative cheapness of natural gas. 

 

1) Iron Ore producers - Heavily tied to China's RE and Infrastructure build out.  Steel consumption will revert from infrastructure (rail, skyscraper, et) towards more consumption (auto, appliances etc), the shift is dramatic when it happens. 

2) Coal - Nat Gas is simply cheaper

3) Radioshack - Hard to compete when Amazon is so much cheaper and more convenient

 

 

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Iron ore is cyclical.  Chinese government policy is causing unusually high levels of demand for steel and therefore iron ore.

 

Coal is facing structural headwinds but it's also cyclical.  At some point I think you have to start getting bullish.  Brian Dalton of Altius is going long coal right now.

 

I think Gamestop will, sooner or later, hit an inflection point.  Digital distribution of games + online retailing is extremely compelling.  For example, PC gaming is very healthy and it has almost completely moved to digital distribution via Steam.

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BG,

 

Are you looking for short ideas?  Is that the reason for asking?

 

I've had success with structural themes on the long side but can't say I've had success with this on the short side.

 

That being said, maybe Class B or C types of malls?  I'm still uncertain if everyone is going to be buying everything on Amazon in 5-10 years but when I drive past the strip malls, I do see a lot of vacant space.

 

If the US was ever to become a investor based society as opposed to a consumer based society (God forbid), then I can see where the strip malls would get decimated. 

 

 

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In a market where undervalued securities are hard to find, I'm trying to look for a few structural shorts.  I also find it fascinating how quickly industries like Coal collapsed. The objective here is to find a few short ideas and also to understand the short thesis if I am long in a name.  I fully agree with the class B and C malls. Rouse properties is a good example of a turd of a mall.  The issue is that they pay out dividends and the credit market is very accommodating at this moment. 

 

BG,

 

Are you looking for short ideas?  Is that the reason for asking?

 

I've had success with structural themes on the long side but can't say I've had success with this on the short side.

 

That being said, maybe Class B or C types of malls?  I'm still uncertain if everyone is going to be buying everything on Amazon in 5-10 years but when I drive past the strip malls, I do see a lot of vacant space.

 

If the US was ever to become a investor based society as opposed to a consumer based society (God forbid), then I can see where the strip malls would get decimated.

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BG,

 

I think the problem with coal is that it is being demonized in the US (and Europe) and China's pollution issues are so overwhelming that they need to get away from coal. 

 

The opportunities overseas seem better to me than in the US and the last time I felt this way was in 2008. 

 

Outside of Russia, Greece, SK pfd shares, uranium and maybe HK real estate companies; there doesn't appear to be very many cheap sectors.  There certainly hasn't been an asset class that has blown up in a while (outside of Russia). 

 

A friend was telling me he thinks that drillers are expensive and stock prices will go lower.  He said day rates are too high and when rates fall further, stock prices need to go lower.

 

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coal is going nowhere. There is simply no alternative for most of asia. There is not nearly enough gas to make a dent. Only place where you will see serious decline is in the US. But India and China are far bigger energy consumers. You will see usage go up before you will see it go down 5-10 years from now.

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Soda industry looking like cigarettes: Top analyst

 

http://finance.yahoo.com/blogs/talking-numbers/soda-industry-looking-like-cigarettes--top-analyst-135244610.html

 

Perhaps this could be similar, KO's main business of selling liquid diabetes may be less and less viable in the US, but expects growth internationally, but at some point developing nations might also wake up to the joys of obesity and stop drinking this.

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