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Companies with a Fortress Balance Sheet and Liquidity At the Moment


BG2008
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I think one of the easiest places to look for value today is simply locate companies with lots of liquidity and cash on balance sheet and with very little operating leverage.  This means restaurants, cruise ships, airlines etc are out. 

 

Laaco - Only $44mm of net debt, generates almost $30mm of cash from operations a year.  Gross asset value of about $700mm for self storage and Downtown LA Athletic club and parking garage.  Almost everyone pays electronically for their storage units.  During times like this, it is comforting to know that they will keep spitting out cash and won't go under.  So 8% Loan to Value. 

 

Excelsior Capital - Net net that sells mission critical coal mining electrical couplers.  Used to prevent explosion in coal mines, high liability to switching suppliers.  $47mm of current assets, $12mm of cash, vs total liabilities of $11.1mm.  Implied liquidation value is $35.9mm vs $31mm of market cap.  Earns about $5mm a year give or take $1mm either direction.  Pays out $0.05 a year on a $1.11 stock

 

Berkshire Hathaway - We all know about $100 bn of cash on the BS

 

Equity Common Wealth - Sam Zell's Cash Box for Office REIT acquisition

 

Google - $109bn of cash and mints money

 

Apple - $200bn of cash and markettable securities

 

FB - $54bn of cash and marketable securities

 

Love to hear more from others

 

 

 

 

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Pure Cycle- no debt, $20M+ cash

 

FIZZ is the epitome of a fortress. To boot, its hard to see how they arent going to produce possibly record sales for at least a quarter or two on the back of this supermarket rush. Look at the share count, short interest, and a few other things, and this could be interesting.

 

FRP Holdings- they've been prepping for times like this, maybe that cash gets put to work. They are buying back shares.

 

Home Depot/Lowes are probably good additions to the list as well.

 

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Guest cherzeca

to take the other side, is a fortress balance sheet important now given the stimulus?  I realize that most of the money is going to small businesses and workers, such that there is no reason to think that over leveraged large companies will do well under this stress, but isn't the advantage of B/S strength at this point really to enable acquisitions at current reduced prices?...and something tells me you are not going to see much trigger pulling this year.

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to take the other side, is a fortress balance sheet important now given the stimulus?  I realize that most of the money is going to small businesses and workers, such that there is no reason to think that over leveraged large companies will do well under this stress, but isn't the advantage of B/S strength at this point really to enable acquisitions at current reduced prices?...and something tells me you are not going to see much trigger pulling this year.

 

I think 80/20, 80% fortress balance sheet and 20% leveraged stuff that would be multi-baggers

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It seems to me that the better risk/reward now compared to before the covid crisis has drifted towards the names with worse balance sheets.  They're down multiples compared to the better names, which have held up.  Hard to know what survives if things stay bad for long enough, but I never thought I'd see fortune 600 names at 1-5x trailing earnings.

 

Just seems like before the crisis, risky stuff and safer names were priced much more similarly, and now the balance is much different.  Hard to know how it all shakes out, but I've sold some safety, Japanese cash boxes and al of that, for riskier stuff

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LICT Corp.

Volvere PLC

IES Holdings -- $27 million cash, no debt, undrawn $100 million revolver maturing 2024, but cyclical construction business

Rosetta Stone

Daily Journal

Park Aerospace

Pason Systems -- challenging business environment

 

Micro-caps with Good balance sheets, but unlikely to be used (several cash boxes here)

Advant-E (ADVC)

Pacific Healthcare (PFHO)

Tandy Leather Factory (retailer, so 2020 highly uncertain)

The Reserve Petroleum Company (business obviously challenged)

 

 

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It seems to me that the better risk/reward now compared to before the covid crisis has drifted towards the names with worse balance sheets.  They're down multiples compared to the better names, which have held up.  Hard to know what survives if things stay bad for long enough, but I never thought I'd see fortune 600 names at 1-5x trailing earnings.

 

Just seems like before the crisis, risky stuff and safer names were priced much more similarly, and now the balance is much different.  Hard to know how it all shakes out, but I've sold some safety, Japanese cash boxes and al of that, for riskier stuff

 

What are your favorites now?

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It seems to me that the better risk/reward now compared to before the covid crisis has drifted towards the names with worse balance sheets.  They're down multiples compared to the better names, which have held up.  Hard to know what survives if things stay bad for long enough, but I never thought I'd see fortune 600 names at 1-5x trailing earnings.

 

Just seems like before the crisis, risky stuff and safer names were priced much more similarly, and now the balance is much different.  Hard to know how it all shakes out, but I've sold some safety, Japanese cash boxes and al of that, for riskier stuff

 

What are your favorites now?

 

I'll just dump what I sent in a email earlier about that same topic, things I've purchased recently.  A lot of this was ready, fire, aim, and some of it has run up since.  Mixture of riskier stuff and sturdier stuff:

 

CAL-I’ve seen this name over the years, got to like 1-2x projected ’20 earnings, pre-Covid.  Cheap if they make it, but it’s rallied some since.  Not overly indebted, but it’s retail.  Has some established consumer brands

 

CPRI-fashion name with tons of debt, but cheap on pre-covid earnings.  Some established consumer names, not all of them in the greatest shape I think though

DFS-killed even though it was cheapish before, likely some problems here with delinquency in a longer downturn, but got to a low earnings multiple

GRIF-not beaten down as much as some other names, but I was a least familiar with it

LAMR-Billboards don’t seem like a terrible asset, but this name was killed because of the debt.  If it survives, a 10% earnings yield will be cheap

MLHR-I’ve seen this name of the years, low or zero debt, less than 5x pre-covid earnings at some point, decent consumer brand

RM-Beaten down name in the family industry, selling below private-market transaction value.  You never know exactly what’s on their books or how they’ll hold up, but worth a bet I think

SKX-Shoe company that had a 10% earnings yield, decent consumer brands, 1B+ in cash, low or no debt.  Feel like they can survive and it was on the cheaper side

TPC-Really beaten down construction name that I got really cheap, maybe 20% of book or something, and sold a bit after it rallied on me to use on other names

VNO-the big REIT situation they always talk about, something like 9% cap rate at some point, depending if earnings hold up

HBB-crummy white-goods importer, recognizable consumer brands with some secular issues maybe.  Negligible book value, but a long record of decent earnings.  Probably was 5x earnings at some point

ZEUS-bought then sold this.  Steel distributer that I bought cheap, maybe 35% of book, and it held up enough that I sold and put the money somewhere else.  Still cheap here I think

MNPP-bought this early in, maybe 8-9% cap rate on NYC real estate and a big shopping center.  Weird structure because they only have small interest in most buildings.  Could have held on for cheaper prices I imagine, and it’s certainly cheaper now

 

FLXS-bought then sold.  Who wants to own a turnaround right now when you can get something that pre-covid didn’t have problems, unless it’s way cheaper, and I don’t think this was anymore

GTS-bought then sold this, was about even on it when everything else got killed

WEYS-earlier in, but I was able to get a few shares cheaper.  Boomer shoe brands, family controlled, well capitalized, double-digit pre-covid earnings yield

WVFC-owned this before, didn’t realize they loaded up on corporate bonds in the last few years.  Mark-to-market on these things must be lovely

SWGAY-early in, has held up pretty well because it’s well capitalized, although the industry is going to have some trouble I expect outside of the turnaround issues here already

LEVI-9-10% earnings yield, lots of debt but not a ton of net debt, iconic consumer brand

STRT-Crummy no-earnings auto supplier, was at maybe 20% of book at the lows.  No debt, but I bought this thing too early

PVH-Maybe 5-6x earnings, but tons of debt and no tangible book value.  Established consumer brands, and healthy sales grown pre-covid

GCO-Mall shoe store at maybe 2-3x earnings.  Cheap if they survive, but who knows

RL-Maybe 10% earnings yield, no net debt & 1B+ in cash, family controlled.  Struggling with sales growth pre-covid, but well established consumer brands

SPG-mall REIT that sold off tons, has some debt, but seems cheap if they can survive.  Maybe secular trend against them

NEN-residential real estate, Boston apartments.  Maybe 7-8% cap rate?  Seems like it would hold up, below private market value but maybe not beaten down enough.  Weird tax structure that will probably cost me more with the accountant that I earn on this thing

 

CUZ-office rest that seems cheap, maybe 9% cap rate, reasonable debt levels

OXM-Boomer apparel name that I’ve seen before in resort areas.  10%+ earnings yield at some point pre-covid at least, low or zero debt, sales grown issues

LAACZ-got filled on 1 share of this thing.  That self-storage CA real estate name that Chen was in and everyone talks about.  Price has probably held up better than a lot of things

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I have a 30 pct allocation to Berkshire, which I view as a bit of a cash box, leveraged bond portfolio and equities... And I'm keeping that as a solid sleep well slow-mo tax advantaged compounder... But I think the money is to be made in leveraged companies - the big money in those that might trip their covenants... Yeah, sounds bad, but most banks would give good companies hit by a temporary airhole a waiver (that's what I hear from companies in those discussions in Europe. Covenants tests postphonedfor 6-12 months). So I understand the flight to safety, but I think one would be better for swapping some of that today for leveraged equities... those tend to do well I believe after HY spreads have blown out... Equipment rentals like Ashtead probably a decent bet because despite high leverage capex can be deferred for better times and even be liquidated if needed...

 

Anyway, didn't answer the question. Ulta Beauty has net cash and it is a great biz. That 40 pct plus ROIC, SSS plus new stores and buybacks is a killer combo

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Guest cherzeca

It seems to me that the better risk/reward now compared to before the covid crisis has drifted towards the names with worse balance sheets.  They're down multiples compared to the better names, which have held up.  Hard to know what survives if things stay bad for long enough, but I never thought I'd see fortune 600 names at 1-5x trailing earnings.

 

Just seems like before the crisis, risky stuff and safer names were priced much more similarly, and now the balance is much different.  Hard to know how it all shakes out, but I've sold some safety, Japanese cash boxes and al of that, for riskier stuff

 

sort of where I was coming from.  risky strategy, but strong B/S companies wont give you the recovery appreciation of the more leveraged names.  I sort of do a mixed strategy, focusing a little on banks now, which have strongish B/S but are highly leveraged as a biz model

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It seems to me that the better risk/reward now compared to before the covid crisis has drifted towards the names with worse balance sheets.  They're down multiples compared to the better names, which have held up.  Hard to know what survives if things stay bad for long enough, but I never thought I'd see fortune 600 names at 1-5x trailing earnings.

 

Just seems like before the crisis, risky stuff and safer names were priced much more similarly, and now the balance is much different.  Hard to know how it all shakes out, but I've sold some safety, Japanese cash boxes and al of that, for riskier stuff

 

sort of where I was coming from.  risky strategy, but strong B/S companies wont give you the recovery appreciation of the more leveraged names.  I sort of do a mixed strategy, focusing a little on banks now, which have strongish B/S but are highly leveraged as a biz model

 

I don't think you have to go crazy here, but if you were heavy on safety before, full of net-nets and cash boxes, blue chips and the like, which were all priced relatively closer to riskier names before, it might make sense to devote some new money or rotate into some crummier stuff.  You don't have to buy stuff that's on the verge of bankruptcy, but risk is much cheaper than safety now than is was before, assuming things don't go to complete heck at least.

 

And I'm not sure it makes sense to rush in to safety now being that it's priced comparatively so much higher.  Hard to know any of this for sure however, and it could be that things are worse than they seem with the covid mess

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SRT.UN?

 

Is it safe? Seems cheap.

 

1.3B of US shopping malls backed by supermarket and grocery rent (38%). 12% rent from restaurants and 4% from fitness is bad though.

About a USD $1 adjusted FFO on a CAD $6 stock.

800M of debt

285M on their revolver

 

Trades at 50% of book. 5x adj 2019 FFO

 

Maybe not exactly a fortress.

 

No position.

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U.S. Lime: limestone quarries and processor in TX, AR, OK, and CO. $360 million MC, $54 million cash, no debt. That's after paying a $30 million special divvie in 2019 and funding a $44-$50 million kiln upgrade at one of its plants. Won't likely be a top performer in a recovery, but fits profile requested.

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I don't think I would exclude Airlines. A sector that has been beaten down revolves around energy, materials, and to an extent chemicals. There are sound companies in those spaces. Also, look for companies that have non-recourse debt that might be getting hit heavily (due to optics on balance sheet) but in fact are not in danger of near term bankruptcy risk.

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Maybe not "a ton of cash" but Solar Edge (SEDG) and Silicon Motion (SIMO) are both companies with little to no debt, good ROA and in areas of business that are probably not less important in the future. SEDG is probably not considered cheap yet, but I am thinking of buying (more of) both if they continue down.

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Google and Facebook don't have significant operating leverage? Datacenters aren't cheap and the cost doesn't decline with revenue, plus the expensive moon shot programs. AirBNB just announced cutting like $800M in marketing, I have to think most of that comes right out of the bottom line of GOOG and FB. If they have operating leverage on the upside, they should have it on the downside.

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That is great thinking. Have you looked at how companies with non-recourse faired during the 2008 crisis? Anyone know of good companies with majority of debt as non-recourse? Looked a bit but couldn’t find much information, which is probably a good sign.

 

I don't think I would exclude Airlines. A sector that has been beaten down revolves around energy, materials, and to an extent chemicals. There are sound companies in those spaces. Also, look for companies that have non-recourse debt that might be getting hit heavily (due to optics on balance sheet) but in fact are not in danger of near term bankruptcy risk.

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There’s still quite a number of those in Japan and Hong Kong.

 

Some of them held up pretty well against their respective indices over the past few months. But because they didn’t drop as much makes me think their upside upon a future rebound will tend to be lesser also.

 

Interesting to note also is that among the few HK cash boxes/net-nets I own, instead of cutting div, most of them maintained their div and I even saw an increase in some of them. 

 

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That is great thinking. Have you looked at how companies with non-recourse faired during the 2008 crisis? Anyone know of good companies with majority of debt as non-recourse? Looked a bit but couldn’t find much information, which is probably a good sign.

 

 

BAM? Sailed through the crisis and was able to grow as a result of it.

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