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Any good values out there?


twacowfca
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  Do you know of one and only one outstanding value

available now?  If so, what is it, and what's your thesis

briefly for your idea?

 

  I like the new Third Avenue Focus Credit Fund.

(I have never before invested in a fund)  Why?

  Its fees are resonable, and it's managed by a team

that's the best in that field.  It's not something that

would be expected to be correlated closely with the

stock market, usually, and it's net asset value IMHO

should have very low volatility on its prospective

upward climb.

 

  That's my idea; what's yours?

 

 

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  I like the new Third Avenue Focus Credit Fund.

(I have never before invested in a fund)  Why?

  Its fees are resonable, and it's managed by a team

that's the best in that field.  It's not something that

would be expected to be correlated closely with the

stock market, usually, and it's net asset value IMHO

should have very low volatility on its prospective

upward climb.

 

I was thinking about this fund but the expense ratio of 1.4% for a bond fund kind of turned me off.  Isn't that high for a bond fund?

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This isn't an ordinary bond fund.  They will be sifting

through thousands of possibilities of often illiquid distressed

debt such as bank loans to ferret out the best values.

If a performing loan that they've bought at a bargain price

stops performing, they may load up on it so that they

can establish a controlling position to give them leverage

in a reorganization and likely receive securities of greater value

post bankrupticy.  In summary, they will be focusing

on securities that, if wisely selected, should have a much

better payoff than funds that merely buy only publicly

traded debt that in the event of a reorganization will

have less seniority than what they will be buying.

 

Needless to say, this involves much work and requires

a long track record of past success, which they have,

to be predictive of future success.  Therefore, 1.4% is a

bargain for all the work they will be doing.

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 Oh, one more thing.  The only other funds that I'm aware of

 That are very hands on activists in distressed debt and that

 have good track records are hedge funds that charge 2%&20%

 or private equity funds that take a similar big bite of the

 upside.  Beside them, TAFC's 1.4% is a mere pittance.

 

 IMHO Third Ave Funds is second to none in realizing

 value from distressed debt.  Plus, the managers of

 TAFC are going to be eating their own cooking!

 

  Yum yum!

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Wiht regard to Martin Whitman  and co  (and with all due respect to his often succesful efforts to value invest), Didn't he break rule number one and two badly (never loose money) by obstinatly investing in losers like MBIA.

 

Now maby third avenue is competent at diging out value bonds out of distress situations; but the fact that they were not able to identify that some companies were bound to distress, distresses me. therefore I  pass, particularly at 1.4% of capital a year  ;) . Besides I would never invest in a fund but that's me.

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 Good point, Philassor.  But, did you know that their flagship

 TAVF has had positive returns in recent years ( +35.73% YTD  +5.57% TTM

 & +3.84% avg annual for last 5 years ) I know this because we

 offer it in our 401K although I don't own it personally because

 I self direct.  That's after fees, and those results are better

 Than the other domestic equity funds we offer in our 401 K menu.  Not a bad record

 For a long mutual fund, all things considered.

 

 Re: TAFC.  There is no impact on price per share if

 others come to share my view.  It will always trade

 At NAV / share no matter how popular it becomes. :)

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The only fair/good value i see is in high quality names. Most all of the junk and cyclical companies have already priced in a rosy scenario that may or may not occur. I can not find any terrific bargains at the moment. Similar to Fairfax, I have hedged 25% of my equity portfolio with an S&P short position.

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Genuine Parts, Dr. Pepper, Sherwin Williams.  May be attractive at prices here or slightly lower.

 

I own a small position in GPC and am short puts on DPS.  No position in SHW.

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There are a few media values but they have modest amounts of debt and have good lock-in recurring revenue characteristics: RCNI, MCCC, LNET, FUN, SGA and SALM.  REXI is also cheap when looked at as an asset manager.  And there are always the cigar buts: USMO, ELNK, UNTD and S.  I just got back from the CFA valuation conference and there was one hedge fund manager that had some interesting insights into financials.  Namely, that loan demand is going to be weak along with higher capital requirements which will lead to declining RoE for most balance sheet based institutions to pre-1980s levels of 7 to 9%.  This type of decline in demand has been present in Japan since the bust and there has been a net destruction of capital since the bust.  Similar to what may happen in the US.  If you use this benchmark of 7% to 9% RoE, many banks look overvalued and the future does not look bright with delevering going on throughout the economy. 

 

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And this is something that I have only been made aware of recently.  I have a friend who is a senior loan officer, and he told me that requirements for loans have just gotten stricter.  Before, you could qualify for a loan with a 55-65% debt payment to income ratio.  It's now lowered to 45%.  I have to change my thesis for the housing recovery and financials based on that.  That will dent the supply of qualified applicants.

 

There are a few media values but they have modest amounts of debt and have good lock-in recurring revenue characteristics: RCNI, MCCC, LNET, FUN, SGA and SALM.  REXI is also cheap when looked at as an asset manager.  And there are always the cigar buts: USMO, ELNK, UNTD and S.  I just got back from the CFA valuation conference and there was one hedge fund manager that had some interesting insights into financials.  Namely, that loan demand is going to be weak along with higher capital requirements which will lead to declining RoE for most balance sheet based institutions to pre-1980s levels of 7 to 9%.  This type of decline in demand has been present in Japan since the bust and there has been a net destruction of capital since the bust.  Similar to what may happen in the US.  If you use this benchmark of 7% to 9% RoE, many banks look overvalued and the future does not look bright with delevering going on throughout the economy.  

 

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has anyone looked at ISCA  (International Speedway Corp) currently at$28.75

 

see analysis by Mark Boyer at http://www.boyarvalue.com/files/Download/Researchinsight.pdf

 

My quick overview:

 

-operates a unique business model, with a large amount of recurring revenue,

minimal capital requirements and high barriers to entry (I am not a race fan, but the people I know that are , are quite fanatical)

-owns and/or operates 13 of the nation’s

premier motorsports entertainment facilities( Daytona International Speedway, Talladega Superspeedway in Alabama, and the

Auto Club Speedway of Southern California. Michigan Speedway)

 

-Family (France group) that  owns NASCAR owns 39% of the stock (part of the moat, along with Political opposition also helps to buttress the high barriers to entry into the motorsports facilities business)

 

 

-has "hidden assets + development opportunity" in large real estate portfolio

 

-balance sheet does not look bad with $217 million in cash vs $370 million in long term debt

 

Appears to be selling at a discount:

Based on replacement value=$34/share(only 15% discount)

Based on "owner's earnings" of ~$3.15 (average of last 3 years of FCF), 3 % growth rate x 10 years + 10% discount rate=~$50 (almost 40% discount)

 

-co. was buying back shares in the $25-27 range. A lot of insider buying in $21 range last Feb

 

Don t own any, just did quick review of 10Q , 10K for last year

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Some new additions am wondering if folks have looked at include VTRS (cheap recently spun-off money manager - 37 bp of AUM) and LSE, LXP or PEI in the REIT space.

 

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Hi Packer,

 

I am in LXP pretty heavy at $4-$4.90. Still upside potential, but it is now nearing the lower end of the conservative value range.

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I got in in the low 5s and averaged down to the low 4s over the past year.  LXP still only sells for 5x FFO versus 13x for most other office/retail REITs so there is still upside.  The one REIT that is cheaper is FUR 2.7x FFO excluding cash and investments with a great capital allocator to invest the cash.

 

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I beleive that Royal Host is safe and cheap based on the below analysis. Depressed RevPar/earnings and a cut in distributions have likely caused sell off. Any thoughts/comments?

 

 

Royal Host REIT (RYL on TSX)

$2.50

 

Business Owner/operator of 31 hotels primarily in eastern Canada

 

Margin of Safety

-Assets are flexible and marketable

-Major upgrades to properties over last 3 years

- Stable cash flow

- Aggressively repurchasing shares (tender to purchase approx. 1/4 of outstanding)

- 12% yield

- activist Chairman (George Armoyan) has a 27% interest via holding company. Reputation for unlocking s/h value.

-Selling at 50-70% discount to estimated NAV (GBV of properties, working capital and market securities net of all debt). Travelodge franchise rights and management business for free.

 

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Please do not throw anything at me and this is NOT for the faint hearted and if you still own it 18 months from now you are on your own but Air Canada. It is not going to zero in the next 12 months thanks to patient creditors and it could earn on per share basis what it is trading for right now in 2010

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Air Canada???  I should short them on principle.  They are probably the worst airline I have ever flown on.

 

Lol, I think any airline, lumber mill, steel mill can be shorted. Peter Drucker explains the reasons pretty well for it in Innovation and Entrepreneurship: Practice and Principles.

 

The problem lies that any increase in demand over capacity, asks for huge capital expenditures to supply the demand. But the return on the added asset are very small at the beginning, with a slow growth. If a company does not expand to accommodate the demand then it loses irrecoverable market shares.

 

BTW. I recommend Peter Drucker to any person that wants to understand management. This guy must have written the 5 out of the 10 best articles on management ever.

 

BeerBaron

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I honestly don't know if this would be considered a good value or not, but I've been looking at Hallmark Financial (HALL).  It is a P&C insurance company in Texas, priced a few dollars under book.  The stock seems cheap, and has been acting kinda weak lately.

 

If HALL is a good value, do you require a "catalyst" before you buy, or do you buy on faith that sooner or later the price will move towards a more realistic valuation of the business.

 

Thanks everybody!

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HALL actually looks really good. Flat 08, discount to book of 25% or more, and 92% combined ratio. Plus a buyback program. This is a 2 minute review of there last release but, why so cheap. There has to be something going on. Time to dig a bit deeper.

 

 

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