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Where is the next investment opportunity?


jasonw1
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I don't seem to be able find anything interesting at this time, nothing I can be fairly convinced of, offers enough upside for investment returns.

 

In the past couple of years my stock portfolio has largely been flat, I have a bunch of value names and they haven't done well at all, while I'm holding to them and think they should do better in the future, I don't find anything I'm convinced to buy either, it's been a drought for last couple of years.

 

All of my gains for the last several years have come from real estate. I bought several properties from 2011-2014 and they have done really well. The price has went up a lot but I don't think there is bubble, however the deals are all gone and every interesting properties I looked at there have been bidding wars to drive up price. I have positive cash flow for all the properties I have, I don't think we're at the end of the real estate cycles, and I don't want to sell to trigger huge tax bill, so I'm just sitting on them and riding the wave out.

 

Keeping money in the bank or in bond is clearly losing, however I just can't find anywhere which is interesting and rewarding to put fund to use. The only places I found in stock market which may be interesting are China/South Korea/Australia, they seem to be better value, I might just buy some ETFs while figuring things out.

 

Any interesting areas you may have? And why?

 

 

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Autohome (ATHM) - there were a few interesting articles in WSJ, BloombergView recently which succintly summarize the long case as well as the risks.

 

JD.com (JD) - traded back to its IPO price.

 

Carmike (CKEC) - trading around its buyout price, but with a significant probability of a raised offer.

 

UK real estate firms - take your pick, both agencies and online platforms are down from pre-Brexit levels and some trade at 10x cash flow.

 

European budget airlines - RyanAir, flybe and EasyJet are secular winners, whatever the environment. And they are on sale.

 

Gold ETFs and gold miners (GDX, GDXJ) - more QE globally is likely, which will increase concerns about policymaker efficacy.

 

Amazon (AMZN) - continues to disrupt multiple industries and build a virtuous customer stickiness flywheel.

 

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I'm still pretty bullish on EM generally and commodities in general.

 

I have pretty large exposures to Russia (specific names), Brazil (specif names), and China (funds) and diversified EM bonds. Considering adding Fairfax India to this list to round out exposure some. Despite the recent rallies from lows, many of these names still trade at single digit P/Es with 7-10% yields which should allow them to far exceed the performance of the SP500 going forward over the next 5-10 year horizon. Especially since EM currencies are the most undervalued they've been since the Asian contagion in the 90s. 

 

Commodities I'm bullish on just due to valuations and the past 4-5 years of a bear market across most materials. Many appear to be approaching lows not seen in decades (oil and timber for example). That's how people have typically made fortunes in these types of things in the past so I want to be a buyer at multi-year lows. We may not see another route or two in specific commodities, but I don't think that a diversified exposure among them will go much lower. Key names I own for this exposure are large positions in Altius (Coal, Copper, Potash, Gold, & large iron deposits) and Pardee Resources (Hardwood, Softwood, Coal, O&G) with a basket of low P/B oil companies (spread out across midstream, production, and E&P). 

 

I've generally been adding to Europe giving significantly higher yields and lower P/Es than America - especially among financials BUT I don't see them being anywhere near as attractive as EM so allocations here have been smaller. Mix of individual names and fund exposure.

 

The other interesting opportunity to me is more speculative in nature - shorting the S&P with U.S. small caps and high beta names sprinkled in (long LEAP puts, short indices, and tiny shorts across some individual names).

Really, the only market I hate right now is the U.S. market and that's simply an argument on valuations. Hard for me to envision staying at elevated multiples after 6 quarters of profit/revenue decline with margins that peaked 2 years ago - especially since we're at the very long end of the range for most expansive cycles. Don't know what the catalyst will be to shock everyone into being rational again, but 24x trailing-12M earnings that are still projected to shrink further seems like a lesson in insanity to me and I want to profit from it. 

 

If U.S. markets crashed, everyone would say "duh" in hindsight with how obvious this should be, but few seem to be concerned about it right now. I don't want to be one of those who waits for the hindsight portion - I want to benefit from shorting it ahead of the "duh" moment.

 

Also, if you like conservative positioning but don't want to short - Fairfax is looking pretty attractive right around $500 IMO. Especially the way insurance has been going - I'm estimating something like $500M in gains simply from bonds/coupons in Q2. No idea what insurance and total equity exposure will do (too lazy to calculate the individual names at the moment), but inflation breakevens are lower across the curve this quarter boding well for their deflation derivatives too. A $500+M quarter wouldn't be too shabby for an $12B company.

 

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I don't seem to be able find anything interesting at this time, nothing I can be fairly convinced of, offers enough upside for investment returns.

 

.....

 

Any interesting areas you may have? And why?

 

I don't mean to be rude, but you must not be digging enough....

 

There are so many opportunities out there, I've got a list 3 pages long.  Organization has never been my strong point, and I am sure I've left some names off the list. 

 

Natural resources are interesting right now.  Gold, silver, copper, zinc miners all offer some opportunities.  There are some great yields out there.  There are also some tremendous discounts to book value.  Many people have given up on this sector, but some companies are still profitable...

 

Retailers are interesting right now, especially some department stores.  Some discounts to book value, some good yields.

 

BDC's still offer some opportunity, but a lot of names have run up in value.  Great yields here of course...

 

MLP's offer some value.

 

I suspect there is some value & opportunity in refiners.  Got to be careful, as pricing structure for crude in USA has changed...discount between WTI & Brent Crude have narrowed...

 

There are some restaurant stocks that offer opportunity, some even have great dividends!

 

Then of course, you've got all the grey market ADR's.  I don't even know where to begin here.  I suspect I know about 1% of the stuff out there.  This is literally a gold mine.

 

How could I forget shipping?

 

What about the automobile sector?  There some names in the parts suppliers that are selling for a P/E of 2 or 3.  Lots of risk, but could be a lot of reward.

 

I am sure I'm leaving stuff out....

 

 

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But all of them seem value traps, aren't they?

 

I don't seem to be able find anything interesting at this time, nothing I can be fairly convinced of, offers enough upside for investment returns.

 

.....

 

Any interesting areas you may have? And why?

 

I don't mean to be rude, but you must not be digging enough....

 

There are so many opportunities out there, I've got a list 3 pages long.  Organization has never been my strong point, and I am sure I've left some names off the list. 

 

Natural resources are interesting right now.  Gold, silver, copper, zinc miners all offer some opportunities.  There are some great yields out there.  There are also some tremendous discounts to book value.  Many people have given up on this sector, but some companies are still profitable...

 

Retailers are interesting right now, especially some department stores.  Some discounts to book value, some good yields.

 

BDC's still offer some opportunity, but a lot of names have run up in value.  Great yields here of course...

 

MLP's offer some value.

 

I suspect there is some value & opportunity in refiners.  Got to be careful, as pricing structure for crude in USA has changed...discount between WTI & Brent Crude have narrowed...

 

There are some restaurant stocks that offer opportunity, some even have great dividends!

 

Then of course, you've got all the grey market ADR's.  I don't even know where to begin here.  I suspect I know about 1% of the stuff out there.  This is literally a gold mine.

 

How could I forget shipping?

 

What about the automobile sector?  There some names in the parts suppliers that are selling for a P/E of 2 or 3.  Lots of risk, but could be a lot of reward.

 

I am sure I'm leaving stuff out....

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But all of them seem value traps, aren't they?

 

I don't seem to be able find anything interesting at this time, nothing I can be fairly convinced of, offers enough upside for investment returns.

 

.....

 

Any interesting areas you may have? And why?

 

I don't mean to be rude, but you must not be digging enough....

 

There are so many opportunities out there, I've got a list 3 pages long.  Organization has never been my strong point, and I am sure I've left some names off the list. 

 

Natural resources are interesting right now.  Gold, silver, copper, zinc miners all offer some opportunities.  There are some great yields out there.  There are also some tremendous discounts to book value.  Many people have given up on this sector, but some companies are still profitable...

 

Retailers are interesting right now, especially some department stores.  Some discounts to book value, some good yields.

 

BDC's still offer some opportunity, but a lot of names have run up in value.  Great yields here of course...

 

MLP's offer some value.

 

I suspect there is some value & opportunity in refiners.  Got to be careful, as pricing structure for crude in USA has changed...discount between WTI & Brent Crude have narrowed...

 

There are some restaurant stocks that offer opportunity, some even have great dividends!

 

Then of course, you've got all the grey market ADR's.  I don't even know where to begin here.  I suspect I know about 1% of the stuff out there.  This is literally a gold mine.

 

How could I forget shipping?

 

What about the automobile sector?  There some names in the parts suppliers that are selling for a P/E of 2 or 3.  Lots of risk, but could be a lot of reward.

 

I am sure I'm leaving stuff out....

 

No doubt some of them are value traps...some of them MOST DEFINITELY are not.

 

One example is NICK.  These guys have almost always had double digit returns on equity, year after year after year.  Yet, it trades for well below conservative book value.

 

Or what about an auto parts supplier that is rapidly de-leveraging and trading for a P/E of 2.5?

 

Or what about a department store that has a conservative balance sheet, strong history of earnings, good dividend, and massive insider buying?

 

Call me crazy, but those don't really sound like value traps....There is certainly value out there, I've bet almost all my net worth on it...

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Autohome (ATHM) - there were a few interesting articles in WSJ, BloombergView recently which succintly summarize the long case as well as the risks.

 

JD.com (JD) - traded back to its IPO price.

 

Carmike (CKEC) - trading around its buyout price, but with a significant probability of a raised offer.

 

UK real estate firms - take your pick, both agencies and online platforms are down from pre-Brexit levels and some trade at 10x cash flow.

 

European budget airlines - RyanAir, flybe and EasyJet are secular winners, whatever the environment. And they are on sale.

 

Gold ETFs and gold miners (GDX, GDXJ) - more QE globally is likely, which will increase concerns about policymaker efficacy.

 

Amazon (AMZN) - continues to disrupt multiple industries and build a virtuous customer stickiness flywheel.

 

 

 

https://oraclefromomaha.wordpress.com/2016/05/05/jd-com-a-multi-decade-compounder/

 

https://oraclefromomaha.wordpress.com/2016/06/13/a-response-to-the-jd-short-thesis-on-sumzero/

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DCG -

In general, I agree, but I see it as more of a matter of "not at any price" vs "everything - at the right price".

Then there are some specific aspects of each investment, e.g. Telstra retains a stake in ATHM; Wal-Mart is invested in JD. These (at least to some extent) mitigate the corporate governance concerns.

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JD is interesting. E-commerce in China is the war between Alibaba and JD, two very different models, the more affluent buyers are moving to JD platform in the past several years. Top tier companies in China are pretty trustworthy, they are at the scale that they get enough scrutiny from VC firms, regulators, investors, and it's not worthwhile for the founders and CEOs to cheat. I consider JD to be one of them.

 

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Hersh....oh, nevermind.

 

On a more serious note, although I may get flamed for saying this, I think shorting these 'safe', 'bond-like' consumer stocks like Hershey, Nestle and their ilk is a tempting opportunity.

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Hersh....oh, nevermind.

 

On a more serious note, although I may get flamed for saying this, I think shorting these 'safe', 'bond-like' consumer stocks like Hershey, Nestle and their ilk is a tempting opportunity.

 

Why?  Nestle has grown low/mid single digits for a very long time and can pass through inflation (if we ever see it again) to consumers.  It's yielding a little over 4% right now with absolutely no leverage.  In a world with 2.5% fixed 30 year treasury yields, why on earth would you not rather own Nestle? 

 

Now you may say you think its crazy to lend money at 2.5% for 30 years (I agree), but in a world where that's the "safe" place to put money, I would say Nestle looks pretty cheap as a "safe" investment.

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Hersh....oh, nevermind.

 

On a more serious note, although I may get flamed for saying this, I think shorting these 'safe', 'bond-like' consumer stocks like Hershey, Nestle and their ilk is a tempting opportunity.

 

Why?  Nestle has grown low/mid single digits for a very long time and can pass through inflation (if we ever see it again) to consumers.  It's yielding a little over 4% right now with absolutely no leverage.  In a world with 2.5% fixed 30 year treasury yields, why on earth would you not rather own Nestle? 

 

Now you may say you think its crazy to lend money at 2.5% for 30 years (I agree), but in a world where that's the "safe" place to put money, I would say Nestle looks pretty cheap as a "safe" investment.

 

Well, Hershey is up big today after Mondelez's takeover offer, so....short away ;)

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I hear what you are saying, I mean what is HSY's business really worth if it stranded asset beholden to a trust where like three board members have been removed over the past several years for improper activities if I remember correctly.  Then again, they are probably clipping what 25%+ ROE annual coupons, so I would never short it.  I was closely monitoring MDLZ, hoping for some Ackman distressed selling or some fear about their massive euro exposure or something.

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  • 1 month later...
Commodities I'm bullish on just due to valuations and the past 4-5 years of a bear market across most materials. Many appear to be approaching lows not seen in decades (oil and timber for example). That's how people have typically made fortunes in these types of things in the past so I want to be a buyer at multi-year lows. We may not see another route or two in specific commodities, but I don't think that a diversified exposure among them will go much lower. Key names I own for this exposure are large positions in Altius (Coal, Copper, Potash, Gold, & large iron deposits) and Pardee Resources (Hardwood, Softwood, Coal, O&G) with a basket of low P/B oil companies (spread out across midstream, production, and E&P).

 

I'm thinking about timber. What do you think of WY?

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