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Your 2016 best ideas


muscleman
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My favorite stock right now is Consolidated Tomoka (CTO). They're a diversified real estate company whose assets are worth significantly more than the market's valuating them at. Decent chance the company is sold in 2016 which would result in a very high IRR from today. There are already two threads on this forum about CTO, but neither attracted much attention. I've written two posts about them on my blog (linked in my signature below) and will be posting another in a few days. There's been a lot of news coming out of the company the past 2-3 months so there's plenty to write about.

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Leucadia National (LUK):

 

http://www.remickcapital.com/files/LUK.pdf (report made a couple weeks back)

 

Cheap on an assets basis maybe 40%, and management is crazy good IMO.

 

I have several concerns regarding LUK's book value. First, there is $2.6 bn intangible and goodwill, which should be deducted from the $10 bn book value figure. Second, LUK's consolidated balance sheet inflated the book value, as it holds a few subsidiaries over 50% interest. I think GAAP's consolidation method is that if they hold over 50% interest, they will report 100% of the consolidated sub's balance sheet items, and then in the income statement, have one line that deducts the minority earnings. Therefore LUK's book value on the balance sheet is inflated. Without additional disclosure of the breakdowns, I could not figure out by how much it is inflated.

 

 

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VRX and AIG. 

 

Valeant needs to exceed their 2016 estimates and prove to the market how durable their portfolio is along with demonstrating to the market they do not need to buy other businesses as that only enhances their returns going forward.  The next catalyst is the results of the special committee, even though Philidor is now in the rear view mirror, it will give the stock another boost proving management's credibility. 

 

AIG, management is in a tough position as they need to prove it makes sense to continue with the current structure and Mr. Icahn will continue to push management to deliver or break up the company.  Either or, it's a win/win for shareholders.  With the potential for further interest rate hikes, that will further enhance returns going forward.   

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Longs:

 

AXP - great franchise selling at 12.5x EPS. In back half of 2016 people will starting looking towards 2017 when the Costco contract is lapped

 

BEN: Trades at 7x EPS when excluding the $10 bil of cash on balance sheet. Key funds Templeton Global, Franklin Income, and Mutual Global Discovery have great long term track records despite a tough 2015. Value coming back into favor over growth will help their investment performance

 

DISCK: Global content company with great CEO in Zaslav and Malone influence. Cord cutting fears are overblown in my opinion. Trades at 12x EPS and they are buying back a ton of stock

 

Short NFLX: Trades at 450x EPS and is FCF negative. Developing their own content is very expensive and they will have to raise capital

 

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I second Ben Hacker's recommendation, I think LUK is almost ridiculously undervalued because it's widely misunderstood and or because of the poor performance recently. One can certainly argue about the degree of undervaluation and on the merit of some of their recent investments but it's hard for me to imagine how to loose money at this valuation. Needless to say that I'm very long. BTW, thanks Ben for the nice write up!

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IBM - at 10X PE, and good capital allocation - I'm comfortable that management won't do anything stupid like a major acquisition to torch cash.

But if the company just continues to buyback $7B in stock per year - and revenue/profits stay flat - in 3 years, a 10PE would be $185, a 15PE - $275.

Company generates a huge amount of excess cash flow.

 

IBM has a pretty sticky offering, and having competed against them, I think they're somewhat underestimated.

 

Market looks pretty expensive - IBM looks safe and cheap to me, unless you think the business is completely falling apart.

Company has proved to be very adaptable and financially very well run.

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Leucadia National (LUK):

 

http://www.remickcapital.com/files/LUK.pdf (report made a couple weeks back)

 

Cheap on an assets basis maybe 40%, and management is crazy good IMO.

 

I have several concerns regarding LUK's book value. First, there is $2.6 bn intangible and goodwill, which should be deducted from the $10 bn book value figure. Second, LUK's consolidated balance sheet inflated the book value, as it holds a few subsidiaries over 50% interest. I think GAAP's consolidation method is that if they hold over 50% interest, they will report 100% of the consolidated sub's balance sheet items, and then in the income statement, have one line that deducts the minority earnings. Therefore LUK's book value on the balance sheet is inflated. Without additional disclosure of the breakdowns, I could not figure out by how much it is inflated.

 

Hi muscleman, gw and intangibles are all basically Jeffries and national beef. As for consolidation, I think you are confused on when consolidation is done, and also on the impact on net equity. Check the final page of my presentation. Breaks down tangible / gaap / my valuation for each segment. Some rounding errors, but captures what you would want to know imo.

 

Move any q's over to LUK board.

 

Sent from phone.

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MDR-

 

Turn around play on an international EPCI company, has been ongoing for some time 2yr, but old unprofitable contracts written by previous management are finally running off, they have been building a good book of business over the past 8-10 months and have long standing relationship working with the Saudi's (among others), despite oil prices. Over 75% of FY 2016 revenue are already booked in the current backlog. They did a refinancing last year, and have a stable balance sheet, with over half the market cap in cash, trading about 1/2 book currently. They are being very careful and have been doing a good job managing their cash since the new CEO took over. People are worried about further capex cuts hurting the backlog, but my thesis is there will be continued need for brownfield work no matter what happens to oil. Catalyst potentials in 2016, continued improvement in EBITDA as the legacy contracts fall off and maybe the market revalues the risk of further capex cuts, if oil stabilizes.

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Here's my crazy idea for 2016.

 

SHLD.  People on this board are now sick of it.  Eddie is buying up a lot of stock along with Lands End.  SYW functions a lot better.  This isn't a sum of the parts valuation, it's about how much cash flow he can get to the 106 million shares left at the current price of $20.  With Seritage now up an running, I think we can see a yieldco relationship between the two companies with a couple asset swaps beneficial to both companies. 

 

When SHLD had a market cap near $20 billion, everyone was thinking how many billions Eddie could generate on that value.  Now at $2 billion everyone is thinking how many billions he's going to continue losing.  I want to say I'll go long around $15 and I'd feel pretty good about a margin of safety. 

 

Now I'm just waiting for everyone to say I'm out of my mind so I feel better about buying it when/if it trades down to $15 or lower.

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Fiat Chrysler...this is almost 40% of my portfolio and it's probably the only time I’ve given serious consideration to going all in on a stock, the pitch is that juicy (but decided against it, small possibility of a big recall or something happening to the CEO could maybe mess things up + there are other interesting ideas). I'd be disappointed with only a double in the next year. Big thread on it in investment ideas, so I'm assuming you guys are familiar with the thesis.

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Key Tronic (KTCC) - Had a bad Q1, unless something unexpected happens (which is of course possible), it should get back up to +$10 after showing that they can deliver good results and that the company is in a very interesting position.

 

Future Bright (0703.HK) - Similarly, had a bad year due to losses from Huafa mall and Food souvenirs. When those losses aren't showing (Huafa was shut down and doesn't incur anymore losses, Food souvenirs scaled into smaller locations should lead at least to smaller losses) I would imagine the market re-rates the company as it should. Just on an asset basis it should be a double.

 

Quite a lot of names that look interesting at the moment. These two stand out as two that seem most logical to have a good 2016. Quite certain that some names not expected to have a run next year will do exactly that.

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