Best Ideas For 2019

[investmd]

Thoughts?

 

I think it's a good bet but many unknowns so I would need to size it fairly small.  Same with FCAU, which I do own. 

 

My concern with AAPL is there really hasn't been any dominating new tech since the IPAD.  What role did Jobs play in it all and can they innovate without him?  Didn't the IPOD/IPHONE/IPAD all happen within about 7 years?  Now it has been 8 years without anything comparable.  You can also throw in itunes I think.  The company really went to hell the last time he left, I am concerned it can happen again.  I am not really into tech so I might be missing something but this is how I understand the company.

 

That is the bear case and you have laid out the bull case succinctly.  I have a hard time deciding which side is correct but agree the market is not pricing much of the bull case in.  I think closer to 10x earnings and it's a 5% position for me.  That's about all I can do with this one.  What I would like to see is some new innovation that review sites are pumped about.  If that happens and the stock doesn't move I would make it a larger position.

 

Shalab, thanks for laying out the bear case for AAPL. I agree. The idea of not coming up with a ground breaking product in the post Jobs era is a concern. However, in that case it seems that the bear case for this stock is that it does not move up and stays a blue chip paying a 2%'ish dividend.

So if bull case plays out, then win big, if bear case plays out, there is little to lose. Still a company with good revenue. Isn't that the risk ratio we want?

[Cigarbutt]

...

Another idea is wood distributor Goodfellow - GDL.  It had a bad year a couple of years ago when it put in a new IT system and it gave wrong prices (too low!), but that has been fixed and profitability is being restored.  Has never traded at a cheaper valuation in at least 25 years.

...

You have to buy stuff when its on sale.  And unless we do get a ful-blown recession, a lot of stocks are looking pretty good.

GDL is a stock I used to follow closely. Holding period was from 2001 to 2005, during the NA building boom. The decision to sell was based on a few key variables including direct comments from the Chairman, Stephen Jarislowsky, in the 2005 annual report: "It is hard to imagine a rise in construction and home improvement spending {given the evolving macro picture}". I deeply respect Mr. Jarislowsky who was Chairman for 19 years and is still (my understanding) an "honorary" director. GDL was on a watchlist in the following years but I found better alternatives after. I stopped following closely after but was aware of management hiccups. With your post, I decided to review the company, mostly for fun, because the liquidity is low and I tend to avoid public companies that are transferred from one generation to the next (also like Power Corporation). But here are a few potentially useful comments.

 

The market price to book value has become incredibly low and expectations for a return-to-the-mean type of rebound are reasonable but:

 

-even notwithstanding the "dark chapter" attributed to the short-lived outsider CEO (2014-5), sales are about the same level they were 10 years ago and the business profitability is based on very low net margins and GDL has not recovered the above 2% net margins they used to achieve before. In other words, the moat has declined.

-IMO, a key variable here is what will happen to housing markets in Canada. In the run-up to the housing peak in 2006-7, under the leadership of the previous Goodfellow and Mr. Jarislowsky, GDL lowered debt and got ready to thrive during the following phase. In the 2009 report, Mr. Jarislowsky wrote: "It was obvious that the housing boom could not last". I understand that they then bought distressed inventory and gained market share but since 2010-1, net debt has increased ++ and their financial flexibility is low vs various potential scenarios going forward.

-Their profile has evolved in the sense that they are relatively more exposed to new housing construction versus home improvement spending which is stickier in tougher economic environments.

-In the 2007 annual report, Mr. Jarislowsky wrote: "The real test in life comes when times are tough." and IMO the 2019 GDL is not sufficiently ready for adversity.

 

At first sight, the large discount to book value is appealing but I find that GDL is trading pretty much where it should.

 

Sorry for the negativity. My 2019 resolution for involvement here is to spread less negative posts which means more absence unless the environment changes. :)

[deadspace]

Thoughts?

 

I think it's a good bet but many unknowns so I would need to size it fairly small.  Same with FCAU, which I do own. 

 

My concern with AAPL is there really hasn't been any dominating new tech since the IPAD.  What role did Jobs play in it all and can they innovate without him?  Didn't the IPOD/IPHONE/IPAD all happen within about 7 years?  Now it has been 8 years without anything comparable.  You can also throw in itunes I think.  The company really went to hell the last time he left, I am concerned it can happen again.  I am not really into tech so I might be missing something but this is how I understand the company.

 

That is the bear case and you have laid out the bull case succinctly.  I have a hard time deciding which side is correct but agree the market is not pricing much of the bull case in.  I think closer to 10x earnings and it's a 5% position for me.  That's about all I can do with this one.  What I would like to see is some new innovation that review sites are pumped about.  If that happens and the stock doesn't move I would make it a larger position.

 

Shalab, thanks for laying out the bear case for AAPL. I agree. The idea of not coming up with a ground breaking product in the post Jobs era is a concern. However, in that case it seems that the bear case for this stock is that it does not move up and stays a blue chip paying a 2%'ish dividend.

So if bull case plays out, then win big, if bear case plays out, there is little to lose. Still a company with good revenue. Isn't that the risk ratio we want?

 

 

Not sure that is the only bear case for apple

 

1) Iphone sales have peaked

2) The strategy to raise prices to make up for peak sales is not looking like it is going to work

3) AI is weak

4) Apple is not making the best mobile app software --  Google software runs just about anything worthwhile on the iphone (maps, calendars, email).  If hardware increasingly become a commodity - and you are not making the very best software then what happens to the company in the long term

5) The narrative that they are a service company now is weak  -- they are a rent seeking company  -- Why cant i buy a kindle book on my iphone kindle app -- cause apple wants 30% FOR DOING NOTHING - will this stand up in court ??

6) The majority of their "service business"  profit comes from google - who they publicly denounce whenever they can ---- without acknowledging that they are indirectly in the business of selling data through this agreement with google

7) they are burning cash in projects like titan (waymo wannabee) and their movie business netflix wannabe  - 10 years too late

 

this is uninvestable -- so theres your bear thesis

 

 

[KJP]

My 2019 resolution for involvement here is to spread less negative posts which means more absence unless the environment changes. :)

 

Hopefully not.  Pushback and coherent critiques are the most useful posts on this board.

[Gregmal]

My 2019 resolution for involvement here is to spread less negative posts which means more absence unless the environment changes. :)

 

Hopefully not.  Pushback and coherent critiques are the most useful posts on this board.

 

I know there seems to be some kind of quasi-feud with some here vs other forums, but the main reason I find VIC much more productive is because people are dicks and cut your throat analysis/logic wise. Which for me at least, is the greatest gift because it challenges my thesis. Here, let's face it, a lot of people don't contribute shit, some basically just add meaningless tidbits of already out there analysis, and some indeed give pushback. I like the later. Look at the MDXG or FB threads...People take offense to pushback or differing opinions. They even get mad at disagreement. LOL ok, enjoy your thesis drift while I make money. Cheers...

[bbarberayr]

...

Another idea is wood distributor Goodfellow - GDL.  It had a bad year a couple of years ago when it put in a new IT system and it gave wrong prices (too low!), but that has been fixed and profitability is being restored.  Has never traded at a cheaper valuation in at least 25 years.

...

You have to buy stuff when its on sale.  And unless we do get a ful-blown recession, a lot of stocks are looking pretty good.

GDL is a stock I used to follow closely. Holding period was from 2001 to 2005, during the NA building boom. The decision to sell was based on a few key variables including direct comments from the Chairman, Stephen Jarislowsky, in the 2005 annual report: "It is hard to imagine a rise in construction and home improvement spending {given the evolving macro picture}". I deeply respect Mr. Jarislowsky who was Chairman for 19 years and is still (my understanding) an "honorary" director. GDL was on a watchlist in the following years but I found better alternatives after. I stopped following closely after but was aware of management hiccups. With your post, I decided to review the company, mostly for fun, because the liquidity is low and I tend to avoid public companies that are transferred from one generation to the next (also like Power Corporation). But here are a few potentially useful comments.

 

The market price to book value has become incredibly low and expectations for a return-to-the-mean type of rebound are reasonable but:

 

-even notwithstanding the "dark chapter" attributed to the short-lived outsider CEO (2014-5), sales are about the same level they were 10 years ago and the business profitability is based on very low net margins and GDL has not recovered the above 2% net margins they used to achieve before. In other words, the moat has declined.

-IMO, a key variable here is what will happen to housing markets in Canada. In the run-up to the housing peak in 2006-7, under the leadership of the previous Goodfellow and Mr. Jarislowsky, GDL lowered debt and got ready to thrive during the following phase. In the 2009 report, Mr. Jarislowsky wrote: "It was obvious that the housing boom could not last". I understand that they then bought distressed inventory and gained market share but since 2010-1, net debt has increased ++ and their financial flexibility is low vs various potential scenarios going forward.

-Their profile has evolved in the sense that they are relatively more exposed to new housing construction versus home improvement spending which is stickier in tougher economic environments.

-In the 2007 annual report, Mr. Jarislowsky wrote: "The real test in life comes when times are tough." and IMO the 2019 GDL is not sufficiently ready for adversity.

 

At first sight, the large discount to book value is appealing but I find that GDL is trading pretty much where it should.

 

Sorry for the negativity. My 2019 resolution for involvement here is to spread less negative posts which means more absence unless the environment changes. :)

 

Thanks for the review - certainly don't mind negative opinions, especially when expressed thoughtfully and respectfully.  Differing views only help with understanding the stock.

 

I do agree that there are some risks with the Canadian housing market, but I see that more as a Toronto thing and a slowdown in Toronto and region would hurt, but 60% of their sales are Quebec, Atlantic and the US, which haven't had the same bubble as Toronto.  but I am watching that.

 

The other thing which makes me optimistic is GDL has never made less than $0.85 per share from 1996 to 2015 and had average EPS of $1.41.  They then got into trouble with their new ERP System and took some losses, but seem to be turning things around and had had positive EPS of $0.24 and $0.21 the last 2 quarters.  Unless their earnings capability has somehow been impaired or competed away, if they can move back even to the lower end of that previous period (say $1.00, but I expect higher), hard to see the stock doesn't move from $5.00 to at least $8 or $9.

 

 

[KJP]

My 2019 resolution for involvement here is to spread less negative posts which means more absence unless the environment changes. :)

 

Hopefully not.  Pushback and coherent critiques are the most useful posts on this board.

 

I know there seems to be some kind of quasi-feud with some here vs other forums, but the main reason I find VIC much more productive is because people are dicks and cut your throat analysis/logic wise. Which for me at least, is the greatest gift because it challenges my thesis. Here, let's face it, a lot of people don't contribute shit, some basically just add meaningless tidbits of already out there analysis, and some indeed give pushback. I like the later. Look at the MDXG or FB threads...People take offense to pushback or differing opinions. They even get mad at disagreement. LOL ok, enjoy your thesis drift while I make money. Cheers...

 

I agree there's a lot of useless posts here, but there is a fair amount of useful stuff and some real gems.  I don't think you can expect more from an anonymous, free and open-to-all internet forum. 

[Guest cherzeca]

re apple. "Why cant i buy a kindle book on my iphone kindle app -- cause apple wants 30% FOR DOING NOTHING - will this stand up in court ??"

 

scotus heard argument on P's class action antitrust case this past month; decision this coming spring.  if that case moves forward, apple will have a large money damages exposure (3X) as well as breaking up its apple store.  too hard to make book on it from a legal point of view

[Spekulatius]

FB May be one of the best “obvious” or plain sight opportunities out there for 2019. I bought a bit more on the last trading day. It will be interesting how they navigate the choppy waters this year. I feel like the reputational damage is fixable. I also think they could surprise on the cost side, relative to their projections in Q3.

 

GOOG is essentially flat in 2018, while the business has grown 20%+, so its significantly cheaper than early last year.

[John Hjorth]

... My 2019 resolution for involvement here is to spread less negative posts which means more absence unless the environment changes. :)

 

Cigarbutt,

 

Your posts here on CoBF to me do not contain negativism, but healthy skepticism, based on facts, observations & documentation. And always polite posts & to the point. Personally, I hold a list, where I'm in overdue with qualified replies to your posts. The replies from me will eventually come up, after I have done my own home work, to get better. [NVO comes to mind here.]

 

Please keep them coming, Cigarbutt!

[Viking]

Have cash to take advantage of market dislocations. It looks to me like the easy money has been made from the 10 year bull market in stocks and 30 year bull market in bonds. If Druckenmiller is right and liquidity matters (and is contracting) we should see continued volatility in stocks and bonds (perhaps similar to 2018). Having cash to take advantage of fire sale prices would be ideal.

 

To keep this strategy working it will also be important to rebuild cash reserves on strength. Rinse and repeat.

 

In your view, is anything at a "fire sale" price right now?  If so, which companies?

 

After Christmas I purchased BAM, AAPL, JPM, FDX and a smaller amount of GS

I would love to add GOOG (below $1,000), DIS (below $103) and BRK (below $195). Facebook and Fairfax are also on my watch list.

[kh812000]

MRVL is pretty interesting here.  10% holder activist Starboard driving the company's focus on adding value.  Big lift in op margins as they integrate CAVM which has higher margins and synergies add.  Mkt is missing that this is no longer a HDD and consumer semi company but enterprise.  Trading way cheap now....

 

[KJP]

Have cash to take advantage of market dislocations. It looks to me like the easy money has been made from the 10 year bull market in stocks and 30 year bull market in bonds. If Druckenmiller is right and liquidity matters (and is contracting) we should see continued volatility in stocks and bonds (perhaps similar to 2018). Having cash to take advantage of fire sale prices would be ideal.

 

To keep this strategy working it will also be important to rebuild cash reserves on strength. Rinse and repeat.

 

In your view, is anything at a "fire sale" price right now?  If so, which companies?

 

After Christmas I purchased BAM, AAPL, JPM, FDX and a smaller amount of GS

I would love to add GOOG (below $1,000), DIS (below $103) and BRK (below $195). Facebook and Fairfax are also on my watch list.

 

Thanks for the thoughts.  The examples are very helpful in understanding what you mean by "fire sale" prices, which can vary alot depending on who you ask.

[LightWhale]

My best value ideas (risk adjusted) are preferred and selected bonds. You can buy lower grade investment quality or high grade junk with good coverage and pot. forcredit upgrades with around 9% yield. Upside potential is about 20% plus whatever you earn in interest until they recover.

Which issuers/CUSIPs fit your description?

 

 

CTL (Centurylink) might be one of them.  My parents' account needs to remain liquid and short duration, so I bought the APR2020 bond, 1.1Y duration, for 6% YTM.  The company currently pays out 2.3B dividend annually, vs 2.1B interest payments, so plenty of fat to cut before defaulting. 

[LightWhale]

Any further thoughts given the recent declines? 

 

I'll also confess that when judged against the criteria of (i) underlying business quality, (ii) current valuation, and (iii) potential catalysts, these are all B-level ideas at best.  I don't have what I believe to be an A-level idea.

 

You might want to have a look at Westaim, which possesses the opposite traits to the names you've mentioned, in terms of business/management quality. Has been trading around ~0.8 book  (or 0.85 after adjusting the multiple on HIIG back down to x1), of which >50% is managed house money. So you pay 0.85 cent for a dollar of mid-duration credit portfolio, and 0.85 p/b of an insurance company. 

 

on the cashflow side, Both HIIG and Arena might reaching an inflection point. HIIG has finally improved underwriting and disposed of its legacy (money-losing) lines.  Arena's AUM has probably crossed 1B at yearend, and its operating leverage should soon shift from negative to positive.  The credit cycle is also turning in its favour.

 

I don't think the stock will skyrocket in 2019, but it should at least take off, and with little downside risk.

my biggest concern is that most created value will go to the employees. Holdco overhead has an annual run rate of 10m CAD, and at Arena average salary is around 350K USD

 

 

I figure I will get this thread started since the market has been volatile lately.  I have a few cheap names.  But I don't have a single one that is table pounding for 2019.  It's getting awfully close though.

 

BG, would you share the cheap names you like?

[Sullivcd]

AHT-F, SSW-D, HT-E, AHL-D, NS-C are all interesting looking preferreds.

[BG2008]

I like Excelsior Capital Limited CMI.AU.  There is a thread on it.  In short it is a net net that pays a 4% dividend.  The tangible assets backing the stock is in the $1.20 to $1.30 per share range.  Tangible assets includes account receivables, inventories, and investments net of total liabilities.  The company did $6.2mm of EBITDA and earned 13.5 cents per share for FY18 ending in 2018.  They bought back some stock in November at $1.44.  Now you can buy it at prices cheaper than that at $1.41 AUD.  This is a net net because they sold a badco segment in recent years and is now focus on their coupler business.  The coupler is used in mostly underground coal mines mostly in Australia.  There is a lot to like about the business in that if you use the wrong coupler, it could lead to coal mine explosion.  I also think that we are at trough or near trough EBITDA and NI figures.  I've talked to the chairman and we talked about how hard/easy it is for new entrants to enter the space. It's tough.  The Chinese can't really introduce a product into this space.  The Australian competitors haven't been able to make headway.  There are real barriers to entry in this business.  Ultimately, it is a small ticket item relative to the large financial consequence of a coal mine catching fire.  Just ask the FELP people on what it is like to have a coal mine burning, i.e. Deer Run. 

 

You also get a free call option on an asset management business where it will only cost the company about $0.5 to $1.0mm.  My understanding is that the publicly traded asset management firms in Australia is worth quite a bit.  Getting listed in Australia is tough. So starting the asset management firm inside Excelsior Capital and then potentially spinning it off is an easier way.  No idea on the probability and the value of the asset management business, but it could potentially be worth quite a bit (more than market cap).  I got lucky in that I sold Teekay Offshore to buy this and my avg cost is $1.46 AUD while TOO has pretty much cratered during that time per my commentary in the TOO thread. 

 

On the negative, there are a couple post on the CMI thread that said that the people involved are bad people.  Objectively, I see the company selling off a badco, the company trading at net-net valuation, and they try to buy back 10% of the S/O at 10-15% above net tangible asset value.  Is it their reponsibility to take out shares at fair value?  Could they take us under?  I think when you have something trading at 85-90% of liquidation value that generates a 10% FCF yield with a decent business, it's worth taking the risk.  FYI, I bought back some TOO as well in the low $1.20s.  My gut told me that the year end price was partially due to oil prices collapsing but also largely due to tax loss harvesting.   

 

 

[BG2008]

I like Excelsior Capital Limited CMI.AU.  There is a thread on it.  In short it is a net net that pays a 4% dividend.  The tangible assets backing the stock is in the $1.20 to $1.30 per share range.  Tangible assets includes account receivables, inventories, and investments net of total liabilities.  The company did $6.2mm of EBITDA and earned 13.5 cents per share for FY18 ending in 2018.  They bought back some stock in November at $1.44.  Now you can buy it at prices cheaper than that at $1.41 AUD.  This is a net net because they sold a badco segment in recent years and is now focus on their coupler business.  The coupler is used in mostly underground coal mines mostly in Australia.  There is a lot to like about the business in that if you use the wrong coupler, it could lead to coal mine explosion.  I also think that we are at trough or near trough EBITDA and NI figures.  I've talked to the chairman and we talked about how hard/easy it is for new entrants to enter the space. It's tough.  The Chinese can't really introduce a product into this space.  The Australian competitors haven't been able to make headway.  There are real barriers to entry in this business.  Ultimately, it is a small ticket item relative to the large financial consequence of a coal mine catching fire.  Just ask the FELP people on what it is like to have a coal mine burning, i.e. Deer Run. 

 

You also get a free call option on an asset management business where it will only cost the company about $0.5 to $1.0mm.  My understanding is that the publicly traded asset management firms in Australia is worth quite a bit.  Getting listed in Australia is tough. So starting the asset management firm inside Excelsior Capital and then potentially spinning it off is an easier way.  No idea on the probability and the value of the asset management business, but it could potentially be worth quite a bit (more than market cap).  I got lucky in that I sold Teekay Offshore to buy this and my avg cost is $1.46 AUD while TOO has pretty much cratered during that time per my commentary in the TOO thread. 

 

On the negative, there are a couple post on the CMI thread that said that the people involved are bad people.  Objectively, I see the company selling off a badco, the company trading at net-net valuation, and they try to buy back 10% of the S/O at 10-15% above net tangible asset value.  Is it their reponsibility to take out shares at fair value?  Could they take us under?  I think when you have something trading at 85-90% of liquidation value that generates a 10% FCF yield with a decent business, it's worth taking the risk.  FYI, I bought back some TOO as well in the low $1.20s.  My gut told me that the year end price was partially due to oil prices collapsing but also largely due to tax loss harvesting. 

CMI_FY_2018_Year_End_Results.pdf

Full_Year_2017_Presentation.pdf

[Cigarbutt]

...

Another idea is wood distributor Goodfellow - GDL.  It had a bad year a couple of years ago when it put in a new IT system and it gave wrong prices (too low!), but that has been fixed and profitability is being restored.  Has never traded at a cheaper valuation in at least 25 years.

...

You have to buy stuff when its on sale.  And unless we do get a ful-blown recession, a lot of stocks are looking pretty good.

I do agree that there are some risks with the Canadian housing market, but I see that more as a Toronto thing and a slowdown in Toronto and region would hurt, but 60% of their sales are Quebec, Atlantic and the US, which haven't had the same bubble as Toronto.  but I am watching that.

 

The other thing which makes me optimistic is GDL has never made less than $0.85 per share from 1996 to 2015 and had average EPS of $1.41.  They then got into trouble with their new ERP System and took some losses, but seem to be turning things around and had had positive EPS of $0.24 and $0.21 the last 2 quarters.  Unless their earnings capability has somehow been impaired or competed away, if they can move back even to the lower end of that previous period (say $1.00, but I expect higher), hard to see the stock doesn't move from $5.00 to at least $8 or $9.

This is unlikely to become a long discussion so won't start a thread for this idea which I'll follow for a while.

The stock is up 15% since your last post.

Q1 results out and one quarter does not mean much.

Results show a typical rise in inventories for the season but sales are down which means that the bottom line is likely to be hurt going forward unless housing activity picks up significantly later this year.

https://www.globenewswire.com/news-release/2019/04/12/1803442/0/en/Goodfellow-Reports-Its-Results-for-the-First-Quarter-Ended-February-28-2019.html

https://www150.statcan.gc.ca/n1/daily-quotidien/190408/t002a-eng.htm

https://eppdscrmssa01.blob.core.windows.net/cmhcprodcontainer/sf/project/cmhc/pubsandreports/preliminary-housing-start-data/2019/preliminary-housing-starts-data-64695-2019-m04.pdf?sv=2017-07-29&ss=b&srt=sco&sp=r&se=2019-05-09T06:10:51Z&st=2018-03-11T22:10:51Z&spr=https,http&sig=0Ketq0sPGtnokWOe66BpqguDljVgBRH9wLOCg8HfE3w%3D

 

[Aberhound]

With US facing challenges from Russia and China (plus mysterious others?) and with the new secret funding system discussed on Solari report I suggest the top recipients of US government contracts:

 

https://en.wikipedia.org/wiki/Top_100_Contractors_of_the_U.S._federal_government

 

I wonder if Lockheed Martin #1 and Boeing #2 will finally be allowed to deploy their Ion engines used on the B2. Why not? It is hardly a secret anymore and it would be embarrassing if the Chinese or Russian deploy it first and take market share from Boeing and Airbus. I wonder if the Max 8 was designed for a better engine and Boeing was forced to use an obsolete turbofan creating a pig that flies.

 

The period of lack of real competition is ending so hopefully we will find out what goodies the US military industrial complex has been hiding in the closet for the last 80 years after the $28 Trillion+ unaccounted for spending well described and documented on Solari.com.

[DooDiligence]

With US facing challenges from Russia and China (plus mysterious others?) and with the new secret funding system discussed on Solari report I suggest the top recipients of US government contracts:

 

https://en.wikipedia.org/wiki/Top_100_Contractors_of_the_U.S._federal_government

 

I wonder if Lockheed Martin #1 and Boeing #2 will finally be allowed to deploy their Ion engines used on the B2. Why not? It is hardly a secret anymore and it would be embarrassing if the Chinese or Russian deploy it first and take market share from Boeing and Airbus. I wonder if the Max 8 was designed for a better engine and Boeing was forced to use an obsolete turbofan creating a pig that flies.

 

The period of lack of real competition is ending so hopefully we will find out what goodies the US military industrial complex has been hiding in the closet for the last 80 years after the $28 Trillion+ unaccounted for spending well described and documented on Solari.com.

 

Go Berkshire!