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favorite stock for 2021


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SPY. why? confidence that buying the dips will work with the name.

 

I have found over past 40 years that buying the dips makes sense. check out the long term chart, through thick and thin the results speak for themselves.  of course you need cash to buy the dips, so this requires discipline and a good day job.  but my point here is that at least for me, how confident are you that your stock will rebound after a dip translates into how convicted you will be to buy into the dip in the first instance. with an individual name, you have to know that stock very well. with SPY, you just have to know America very well. come the revolution, I am all ears for an alternative.

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SPY. why? confidence that buying the dips will work with the name.

 

I have found over past 40 years that buying the dips makes sense. check out the long term chart, through thick and thin the results speak for themselves.  of course you need cash to buy the dips, so this requires discipline and a good day job.  but my point here is that at least for me, how confident are you that your stock will rebound after a dip translates into how convicted you will be to buy into the dip in the first instance. with an individual name, you have to know that stock very well. with SPY, you just have to know America very well. come the revolution, I am all ears for an alternative.

 

Def agree with buying the dips. You can shift between SPY and cash depending on the allocation -- what Graham suggested doing between stocks and bonds. On good years as SPY goes up, you free up some cash. On dips, you use the cash to buy SPY.

 

So simple, but probably the best strategy for 95% of the retail investors.

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My largest position is PSTH covered call.

 

Long PSTH, short December 40 call, bought for $20.50, it’s at $21.30 now. Think it will be hard to lose more than 10%-15%, with upside of close to 100% if market gets very excited about a deal.

 

I don’t know if it’s my favorite idea, but it’s my biggest.

 

And I always have to show love for Tetragon. This year is the year lol.

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Same pick as a year ago - high conviction as the stock is down 30% and underlying business is not worse. Below is what i wrote a year ago with edits to make it current.

————————————-

Fairfax; reasonable risk/return bet. Growing BV should also lead to higher multiple. I am looking for a 10-15% return in 2021.

 

1.) Trading at about < 0.80 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 $750 million in cash in Q1 2021.

2.) Insurance pricing is officially in hard market: should continue to grow written premiums at double digit levels in 2021

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

4.) Equity portfolio looks cheap; will benefit if we get a recovery trade/risk-on in equity markets in 2021 (especially Indian holdings and Eurobank).

5.) Sentiment in company is likely at all time low.

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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BTC/related derivatives - whether directly, or via an ETF.

Heresy to many! but if you willing to be flexible between token/derivative, have worked in the investment industry, can do basic research, and can APPLY what you learn/know - versus just follow others? you should do very well.

 

This ain't buy and hold, and it ain't going to play on the cocktail circuit - so if you're looking for glory? this ain't it!

But if you want to see/hear the real world, smell the fear/greed, learn risk management/emotional control, and play against the very good? you'll learn more in 6 months than many would otherwise learn in a lifetime. Rough hockey can be great fun, but you have to know how to skate, give as good as you get, and realize that it's a limited term engagement.

 

Good luck!

 

SD

 

 

 

 

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Agree that BABA is positioned nicely.

 

Not too keen on the current market setup. But otherwise, I think you can throw darts at Sun Belt related real estate and housing stuff and make 10-15%+.

 

Similar to last year, I'd say if you're being conservative, Berkshire Hathaway has a lot of unique things collectively converging and I am expecting it to break out in a major way.

 

If you're willing to take a little more risk, Hamilton Thorne.

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I’m doubling down on Atento (ATTO) for 21.

 

I think Covid obscured the operational improvements in 2020. Net debt has declined materially in 2020 ($595m to $515m) to make the stock relatively cheaper and safer in my opinion. I held on (and added early unfortunately) through the volatility and feel better about the business than a year ago.

 

Management did a great job managing through Covid and the decline in the BRL but the hit to headline EBITDA was hard in Q1 and Q2 especially. EBITDA margins bounced back to 12.7% in Q3 and I’m expecting improvement in 2021 to 14%.

 

USDBRL has been stable for three quarters @5.4 and is currently below that average (which is good!). If oil rallies as many expect, ATTO could be an indirect beneficiary through its emerging market currency exposure.

 

At current exchange rates, ATTO could put up north of $200m in EBITDA in 2021, at 8x EBITDA which is a low end multiple, my intrinsic value estimate is $67 using $500m in net debt which accounts for dilution of options and RSUs. Lots of risk in that estimate of course but too much in the price of ATTO, in my opinion.

 

Street estimates for 2021, are very deceptive. The “street” is expecting $160m in EBITDA (11.4% EBITDA margin) but that’s made up of three estimates:

 

Barrington $174m

Goldman $114m

Morgan Stanley $192m

 

To the extent there are active managers left, I have been in the room when a PM asks an analyst what came up on the quant screen. In this case, Atento screens at 4.6x consensus EV/EBITDA. The PM will ask the analyst who covers it, he’ll ask what the multiple is on Goldman’s estimates and the analyst will correctly answer 7.8x. You see Goldman’s net debt ($686m vs $515m) is way higher because it’s EBITDA estimate is way lower.

 

The PM will then look the analyst directly in the eye and say “Can we short it or buy puts?” and the analyst will say “No, it has no listed options and it’s illiquid.” That’s the end of the discussion. What the PM doesn’t know is that Goldman has not updated their estimates since before ATTO reported $45m in EBITDA in Q3. In fact, their 2020 EBITDA estimate is $94.9m while ATTO has already reported $107.8m 9MTD.

 

Goldman will eventually drop coverage or change their estimate if ATTO decides to pursue refinancing the 2022 debt in January forcing them to update the street on Q4 preliminary estimates which will likely improve on Q3. If consensus moves to Morgan’s $192m in EBITDA, even at the current EV/EBITDA multiple of 4.6x that would result in an ATTO price of $25.

 

If the active funds don’t come, maybe the quant funds will. If there is a lot of variation in estimates, it makes sense for low volatility quant strategies (most of them!) to avoid those stocks. ATTO’s estimates will become significantly less variable if Goldman updates or removes it’s estimates although the former is better as more estimates are helpful.

 

Recently spun out peer Concentrix (CNXC) trades at around 9x EV/EBITDA.and has very strong free cash flow. Their business strategy (growth by acquisition) and market position (big in Asia and smaller in LATAM) makes them seem like the perfect dance partner for Atento in 2022 when ATTO has achieved 15% EBITDA margins and has grown sales for a couple of years (assuming stable exchange rates).

 

At 8x 2023E EBITDA of $270m (assumes 16% EBITDA margin expectations with 5% CC revenue growth) which CNXC would pay in the summer of 2022, ATTO would fetch ~$100/share give or take. ATTO would still be accretive to CNXC even if paying a fair multiple because of synergies and CNXC has a much lower cost of capital and would save on refinancing the bonds. 

 

It’s possible, CNXC wants to buy ATTO now but the three controlling shareholders of ATTO, GIC, HPS and Farallon (~70% ownership) will want a fair price and I think they recognize it’s a lot higher than here.

 

I don’t know what’s going to happen but with the stock less than $14 and a recently incentivized management team and BOD (1.7m options with an 8 handle in August), I like the odds.

 

Next week should see some stock for sale as RSUs vest today and there is some forced selling to pay taxes next week by the RSU trustee. I'm estimating about 150k shares for sale.

 

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CenturyLink (now Lumen) was my 2020 pick, and it didn't work out even though the business held up well.  I still like it going forward.

 

For 2021 I think Smith & Wesson Brands (SWBI) is interesting.  It is optically cheap at a Forward P/E of 5.5 with a clean balance sheet.  They started paying a dividend this past year as well as started a share buyback program.  The market cap is sub $1B, and for some reason has 10-11% short interest.  Not sure if that's correct; seems like an insane stock to short.

 

From a consumer perspective I think we see a repeat of 2009 when Obama was inaugurated and resulted in 12-18 months of increased gun and ammo sales. 

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My own picks  for 2020  were Megacable and DD. Both didn’t really work (went on a COVID-19 hellride ) but stocks recovered. I sold them on the downdraft for what I consider better opportunities.

Megacable is still on my watchlist - their Operation performance was Ok, but being located in Mexico for sure didn’t help. US cablecos (which I owned but subsequently for decent returns) were the better choice.

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4.) Equity portfolio looks cheap; will benefit if we get a recovery trade/risk-on in equity markets in 2021 (especially Indian holdings and Eurobank).

 

Viking, arent we already past recovery in stocks? I thought many markets were at all time highs (some names in the hospitality, air travel industries that I follow are now higher than before the February/March crash!). MSCI India closed the year 15% up. And if I heard correctly, value had performed well at last.

Anyway, good luck with the pick!

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Berkshire seems like the biggest no-brainer and with minimal risk, but since I have no idea on timing I'd probably pick something in the UK for 2021. That market has been lagging badly, but now brexit has fallen in place, vaccines are being rolled out, so I'd probably go with Cambria Automobiles and S&U Plc (subprime auto finance) which has been lagging US peers badly and are both too cheap (disclosure: long both).

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CASH = Metabank. Still has a long runway in prepaid cards. A bank with a 1.5% ROA even in this environment. Could even go to 2%.

 

On the speculative side, SSPK = Weedmaps. The stock might explode when the SPAC is completed; this is a pure play, SAAS 'sell shovels to miners' play. Unique in the Cannabis space.

 

 

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4.) Equity portfolio looks cheap; will benefit if we get a recovery trade/risk-on in equity markets in 2021 (especially Indian holdings and Eurobank).

 

Viking, arent we already past recovery in stocks? I thought many markets were at all time highs (some names in the hospitality, air travel industries that I follow are now higher than before the February/March crash!). MSCI India closed the year 15% up. And if I heard correctly, value had performed well at last.

Anyway, good luck with the pick!

 

Eliott, i am going to post my reply in the Fairfax equity holdings thread :-)

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GDYN closed 2020 strong but I think by year-end 2021 that people will really start to see the business’ underlying growth and that it is very similar to publicly traded peers EPAM and DAVA.

 

Other than that, emerging market stocks are an area of some interest. There are a number I own or have owned or know well which are very cheap (DESP, ARCO, KOF, etc.)

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Berkshire Hathaway has a lot of unique things collectively converging and I am expecting it to break out in a major way.

 

Berkshire seems like the biggest no-brainer and with minimal risk...

 

Yep.

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Berkshire Hathaway has a lot of unique things collectively converging and I am expecting it to break out in a major way.

 

Berkshire seems like the biggest no-brainer and with minimal risk...

 

Yep.

 

Agreed,

 

Simplest way to un-elaborate things. Thank you.

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NVGS - Navigator Gas. I wouldn't be surprised if it trades closer to book value or around $17 a share in next year or two if earnings come in at or above 2015 records

 

The catalysts are beginning to accumulate:

 

Ethylene Terminal fully operational (50% interest)

Ethane/Ethylene shipments to benefit from first year of Luna pool 

Handy-size and midsize shipping rates firming due to increasing utilization

Two Handysize-only terminals become operational in 2021 (NJ and Canada)

 

Risks:

No global growth, or lackluster growth

Delays or disruptions in ethane/ethylene/NGL projects

Spikes in bunker fuel cost not offset by rates

Spike in handy/midsize order book (~2 year build rate, order book currently clean)

 

Toss-Up:

Venezuela sanction relief

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My largest position is PSTH covered call.

 

Long PSTH, short December 40 call, bought for $20.50, it’s at $21.30 now. Think it will be hard to lose more than 10%-15%, with upside of close to 100% if market gets very excited about a deal.

 

I don’t know if it’s my favorite idea, but it’s my biggest.

 

And I always have to show love for Tetragon. This year is the year lol.

 

me (seeing my large position in PSTH covered calls go from $20.5 to $23.5): is this what being a growth/SPAC guy feels like?

 

guy (loaded on TSLA and crypto) up a gazzilion percent: no, this is definitely not what it feels like.

 

 

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Berkshire Hathaway has a lot of unique things collectively converging and I am expecting it to break out in a major way.

 

Berkshire seems like the biggest no-brainer and with minimal risk...

 

Yep.

 

My first post in years.

 

Berkshire makes a lot of sense here for many reasons. I posted some on twitter at

 

Not getting style points for this one but:

 

Big Berkshire $BRKA $BRKB fan over next few years

 

1) Valuation has gone nowhere for past three years

2) Within buyback range (repurchasing ~7%+ of company annually) + no share issuances!

3) earnings only ~15% down, coiled for 2021

4) at current valuation, you get huge part of biz for free

5) insurance is in a hard (prices up) market

6) 1.2x BV is historical low end of the range

speculative:

7) asset-based cash flowing biz could re-rate higher if inflation fears arise

8 ) buffett optionality (stock bounce if he passes away RIP) as discussion centers on increased buybacks, distributions, or spinoffs

9) $550B as a market cap doesn't seem that high

 

 

 

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Berkshire makes a lot of sense here for many reasons.

 

The 2019-2020 two-year performance gap between Buffet and the S&P 500 index was among the widest by which he has ever trailed, at 37%.

 

...

 

In 1999, the performance gap between Berkshire and the S&P 500 reached close to 40%, but in hindsight, that was a buy signal. After 1999, Berkshire had one of its best stretches in recent history against the S&P 500, gaining approximately 30% during a period of years when the index was down by close to 40%.

 

https://www.cnbc.com/2021/01/08/how-warren-buffetts-uphill-battle-against-the-sp-500-is-changing.html

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  • 2 weeks later...

Berkshire makes a lot of sense here for many reasons.

 

The 2019-2020 two-year performance gap between Buffet and the S&P 500 index was among the widest by which he has ever trailed, at 37%.

 

...

 

In 1999, the performance gap between Berkshire and the S&P 500 reached close to 40%, but in hindsight, that was a buy signal. After 1999, Berkshire had one of its best stretches in recent history against the S&P 500, gaining approximately 30% during a period of years when the index was down by close to 40%.

 

Just remember they were ~5x smaller then. Berkshire is a great company only they are just too big. I would be flabbergasted if they could even reach 20% per year performance for 3 years in a row.

https://www.cnbc.com/2021/01/08/how-warren-buffetts-uphill-battle-against-the-sp-500-is-changing.html

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