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Favorite Stock for 2020


ValueMaven
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You can only pick one name.  Brief bullet point as to why.  This will be interesting:

 

Texas Pacific Land Trust (TPL):  Stable oil prices in the mid-60s is ideal, factored with a conversion from a Trust structure to a C-Corp will improve investor ownership, and awareness of this unique security.  Possibly 1 for 10 split as well to improve liquidity for this self-liquidating Trust.  Large cash balance will be payed out sometime in 1Q either through a large dividend, or a tenor offer (co has $350M in cash and zero debt currently).  Nearly impossible to value through traditional metrics.  80% margins historically

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MO

- high roe business requiring no capital. Buffett had invested in cigarette stocks in his partnership days.

- still big room for price increases compared to international market

- no net debt if investments are sold

- stock price will bounce back when volume decline rate stabilizes.

- sin stock that’s hated and avoided by institutional investors

- good candidate to be bought out by private equity or bigger competitors.

 

 

 

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I'm going to cheat and name three:

 

Hill International:  Management will successfully grow revenue or the business will be sold

 

IDW Media Holdings:  A lot of inventory (production costs) will turn into cash over the next 6 months and the new business model in TV business should end cash burn (Jonas is also personally involved again)

 

Rosetta Stone:  I don't like the consumer language business or management's foolish tendencies, but Lexia is a great business and they have a new Lexia-related language learning product coming out next year. 

 

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Probably the same as my 2019 pick that did 123% return last year (I don't expect a repeat), Scorpio Tankers ($STNG)

 

Same themes as I wrote about last year, but coming to fruition. Hit 52 week high last week of the year, IMO 2020 is here. VLCC tankers legs are going for 7% of market caps just for one voyage. All kind of supply constrants (Clean fuel at ports, Lowest order book ever for product tankers, Scrubber installation delays, Older product tankers switching to the dirty market and not coming back to clean).

 

I still don't trust the management team/shady related party transactions, so might be better to make it a trade than a long term position but can see it running quite a bit higher if market conditions remain.

 

Besides that, starting to look at quality oil companies with low debt. Kind of reminds me of the mining companies from a year or two ago where there's a push to pay down debt with FCF vs growth for growth's sake.

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Guest cherzeca

1/15/21 SPY 320 call

 

in an election year, I am betting that SPY goes up more than 7%.  may want to cash it out if in the money around 5/20 if trump gets too meshiganuh

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Fairfax; reasonable risk/return bet. Growing BV should also lead to higher multiple. I am looking for a 10-15% return in 2020.

 

1.) Trading at about 1 X BV (not expensive) when compared to other insurers. BV should increase nicely in Q4 (underwriting and good equity markets) and recently announced UK Riverstone divestiture will add another $10 to BV in Q1 2020.

2.) Insurance pricing is firming: should continue to grow written premiums at double digit levels in 2020

3.) Bond portfolio is positioned at short end of curve; will benefit if rates in US continue to rise

4.) Equity portfolio looks reasonably valued; will benefit if we get a risk-on in equity markets in Q1 (especially Indian holdings and perhaps Greece/Eurolife).

5.) Sentiment in company is likely at all time low. However, execution in 2019 was very good. More of this should see sentiment start to slowly improve (resulting in higher PE multiple).

6.) Near term catalyst: will pay US$10/share dividend in January

 

This article sums FFH as an investment pretty well (hat tip Wisowis): https://www.woodlockhousefamilycapital.com/post/the-horse-story

 

"(FFH can reach 10% by following a number of roads. For example, one road requires a ~95% combined ratio and ~5% return on its portfolio. That seems do-able.) Anyway, a consistent 10% would grow book value at a decent clip and then you’d likely get an additional lift from the valuation even if the stock moved just to 1.2x book. As RayJay reports, a comparable set of North American insurers with an 11% ROE trades for 1.7x book value per share."

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A stock that I have not found yet, but will continue to look for: A company that is well-positioned to benefit from the move to renewables in electrical energy production, but not so obvious that it is already over/fully priced. I think this means that it is not a pure solar/wind production company, not electrical cars, not one of the big battery-producers. But someone who is selling the proverbial shovel in the gold rush (I might be stretching that expression). "Smart-grid", storage, something in that area. SEDG, but at a lower price ;) ABB, in lack of more specialized companies...

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I’m not particularly enthusiastic about anything at the moment. Then again, I seldom am. Some picks:

 

BMY/RT - CVR that pays out $9 in certain scenarios. As I said somewhere else: “Perfect storm: FDA uncertainty, skepticism about Bristol-Myers incentives, (perhaps) index selling pressure, and you need to have some knowledge of probability theory, medical knowledge and have a huge risk appetite. Basically the perfect unlikable security.”. Seems a nicely priced bet (for a tiny allocation) to me. Already up ~50% in a few weeks but I think it should trade even higher.

 

Conduril - Still one of the cheapest stocks out there. But will it ever rerate?

 

Boustead Projects - Decent owner-operator bla bla bla company with lots of real estate on the books. Plans to spin off a REIT. You get paid for waiting.

 

Italian real estate (QF funds). Trading / holding these funds has generated a 20%+ IRR for me the past 4 years. Not sure if that is sustainable but I like the risk/reward of a basket of these (and such a basket is one of my larger positions).

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LUV - owner earnings put this at an 11-cap. EV-to-EBITDA at 6.4. new routes opening up, 737 MAX issue is temporary and has been mitigated but not reflected in stock price yet. Possible acquisition target for BRK.

 

How is the 737 max issue mitigated? LUV is basically a single aircraft airline and their low cost position is partly build around this. If this bird never flies or is impaired in terms of resale, what is going to be their upgrade path?

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How is the 737 max issue mitigated? LUV is basically a single aircraft airline and their low cost position is partly build around this. If this bird never flies or is impaired in terms of resale, what is going to be their upgrade path?

 

By mitigated, I meant:

 

- no foreseeable route schedules or flight volumes will be impacted as they had a mitigation plan in place. Indeed they expect an increase in bookings and revenue this quarter.

 

- the impact of the 737 MAX not making schedule is a 4-6% operating cost increase. They have negotiated one settlement with boeing on financial compensation to offset this, and have future talks teed up.

 

Issues like this are temporary if you are a buy-and-hold 3-5-10 year kind of investor.

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If this bird never flies or is impaired in terms of resale, what is going to be their upgrade path?

 

Was speaking to an executive at a major airline. He's convinced that the hold up is purely regulatory cover-your-a.. politics. The issue was fixed almost immediately, but nobody wants to sign-off. Boeing is a huge employer, politics will eventually shift.

 

 

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If this bird never flies or is impaired in terms of resale, what is going to be their upgrade path?

 

Was speaking to an executive at a major airline. He's convinced that the hold up is purely regulatory cover-your-a.. politics. The issue was fixed almost immediately, but nobody wants to sign-off. Boeing is a huge employer, politics will eventually shift.

 

I love how human lives are treated as regulatory cover-your-a.. politics. Yeah, let's fly and kill some more people cause executives are missing their bonuses and investors are missing their stock pop. Cause clearly Boeing can do no wrong.

 

Maybe that executive can sign a pledge to fly only 737 Max for all their trips for a year.  8)

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CLMT

(Qualitative) Fundamentals:

-reasonably strong core business

-it's an MLP and nobody wants to own it

 

Catalysts:

-sale of refinery (which isn't exactly a done deal but has been clearly signaled to be up for sale) + ongoing business will contribute to further debt paydown

-stock is down significantly and will need to re-establish a shareholder base

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CLMT

(Qualitative) Fundamentals:

-reasonably strong core business

-it's an MLP and nobody wants to own it

 

Catalysts:

-sale of refinery (which isn't exactly a done deal but has been clearly signaled to be up for sale) + ongoing business will contribute to further debt paydown

-stock is down significantly and will need to re-establish a shareholder base

 

 

What am I missing here?

ROIC TTM: 7.29%

Operating Margin: 3.25%

 

Can you articulate what you see in the core business that is strong?

 

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CLMT consist of refinery and specialty chemicals. Specialty chemicals are much more stable in terms of revenue, margins, and volumes shipped. Refinery earnings can be very volatile (slide 4 of their annual presentation http://calumetspecialty.investorroom.com/Events). Looking through earnings reports they clearly break out margins on specialty but show nothing about fuels. The reason is the volatility of earnings/losses. CLMT is moving away from fuels by selling their refineries.

 

The numbers you are referencing (I'm guessing here because I don't know what you used to get them and they different [albeit, slightly] from what I have) combine both segments. Sale of the Montana refinery shouldn't be too big of a hit on the earnings but should put a dent in debt thus improving the ROIC. Operating margins should go up as well.

 

I'd also highlight cashflow component to see (what I perceive) a cheaply priced business with few potential catalysts.

 

Cheers

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CenturyLink (CTL) - Valuable, underutilized fiber asset and rapidly paying down/refinancing debt.  The longer interest rates stay low the better for CTL.  This name also appears to have been left for dead on this board after the dividend cut. 

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How is the 737 max issue mitigated? LUV is basically a single aircraft airline and their low cost position is partly build around this. If this bird never flies or is impaired in terms of resale, what is going to be their upgrade path?

 

By mitigated, I meant:

 

- no foreseeable route schedules or flight volumes will be impacted as they had a mitigation plan in place. Indeed they expect an increase in bookings and revenue this quarter.

 

- the impact of the 737 MAX not making schedule is a 4-6% operating cost increase. They have negotiated one settlement with boeing on financial compensation to offset this, and have future talks teed up.

 

Issues like this are temporary if you are a buy-and-hold 3-5-10 year kind of investor.

 

What are the consequences, if this bird never flies again? LUV would need to change their plain procurement and costs would probably be permanently higher be sure now they would need to fly multiple aircraft rather than one.

 

Also, in the case, that the 737 max does not fly again, I expect Boeing to restructure and possibly declare bankruptcy. The main reason ai think so is because they loaded up their supply chain with unsold planes and are probably liable for inventory not just in their possession, but also for their suppliers.

 

This scenario isn’t that likely, but I think it is way higher then the probabilities assigned by Mr Market currently. The fact is that Boeing designed an aerodynamically unsound plane with that is stabilized by shoddy software. They can fix the software, but does it make the plane sound? What would happen if a other bird falls from the sky after the FAA approves it to fly again? LUV uses only Boeing planes, so they are tied to the mast, so to speak.

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I am with JRM on CenturyLink. If the 5.2-5.3x ebitda multiple holds, you get $2/share this year if the company continues deleveraging. With $1 in dividends that is a 23% return. With Brookfield taking out its most closely traded public comp(though mostly a consumer biz) at CBB and Zayo on the way out the door to private equity as the closest the enterprise peer - there is the chance for multiple expansion which i would expect in 2021 as they hit their target leverage. At that point i think the company again trades on free cash flow yield which at $3/share and a 10% fcf yield(long term telco multiple is 10x earnings so it isn’t quite apples to apples) implies that if we get multiple expansion it could be explosive.

 

Lastly, earlier this week the company vastly improved their governance. To me this was the biggest risk. A bit more color:

 

-Harvey, the chair, was a bigger issue than Glen, the former ceo, but a break in continuity was needed.

-It is more than just those two things as it puts the board on notice it is bloated in number.

-Those with a quarter century of board membership now see the door.

-It lowers the risk that Jeff Storey, the ceo, would leave out of frustration with this legacy CTL board. It also ensures Jeff's successor is a capitalist from LVLT.

-While the exit door may not be today for the rest of them, it also shows them who is in charge until the board refresh is complete.

-It allows the center of gravity to drift out of Louisiana and the RLEC mindset.

-It likely speeds the pace of decision making.

-It shows potential infrastructure buyers that this board is now open for business as the new chair was the previous nominee of the 13D filer and the new board member also comes from the 13D filer, Southeastern.

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