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I thought I would gauge interest in a thread about identifying and utilizing general themes in the market, such as out-of-favor sectors/industry groups, nascent or overlooked macro developments, legislative developments, etc. 

This could be helpful in the process of considering where to look for value.

Most obvious to me at the moment would be overarching issues like inflation, rate hikes, returning to a focus on resolving China trade, slower sales growth among pandemic-boosted companies, increased global commercial activity.

I've considered that these themes could be favorable to payment processors (especially for freight and energy processors with a bank component like CASS?), and insurance/reinsurance companies.

If there's interest, I'll provide further thoughts as I make investment decisions.

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Good topic. Dont imagine its gonna be too popular here but this is probably, at least in my experience, the easiest way to make absurd amounts of money short term.  Why this happens, is because you can effectively bet on news=alpha. The theme is the backdrop, but when you catch the right ones, you just need to be directionally correct, and of course be positioned with the right vehicle. Ive discussed the yo-yo effect before...here its big. Find the popular theme, pick the instrument of your choice, and then ride the wave. When you study the underpinnings of major disruptive or alpha generating investments, the meat of the returns tend to be overlooked while they are happening by traditional fundamental oriented investors. Its basically momentum trading with a twist. Find something thats working, and stick with it until it doesnt work anymore. Try to have a value backstop. As you mentioned above, rising rates, inflation, housing, covid fad reversals...good place to look for this currently. 

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I've been thinking airports look interesting; toll-gate like monopolies, high margins, good dividend yields.

Only worry is the broad market recovery coupled with experts forecasting a 3-4 years time-frame before traffic reaches back to 2019 levels; valuation then becomes tricky imo.

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Thanks for your reply.  Your post reminds me of Philip Fisher style investing.  I try more to combine a value analysis with nascent themes or dying themes - either way there is a chance of good companies which are undervalued because nobody is watching yet or everybody is giving up.

For instance, when the current tech run falls apart, there will probably be some great companies which fall to great values.  

Energy companies continue to lag the markets generally, while renewables will likely see enhanced focus in the coming administration, presently looking through renewables.

How do you like Future Fuel (FF)?  I haven't had a free moment to review in detail, but I very much like the idea of virtually no debt, about 45% cash per share, somewhere around 9% FCF yield per share.

 

 

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On 4/5/2021 at 8:07 AM, Gregmal said:

Good topic. Dont imagine its gonna be too popular here but this is probably, at least in my experience, the easiest way to make absurd amounts of money short term.  Why this happens, is because you can effectively bet on news=alpha. The theme is the backdrop, but when you catch the right ones, you just need to be directionally correct, and of course be positioned with the right vehicle. Ive discussed the yo-yo effect before...here its big. Find the popular theme, pick the instrument of your choice, and then ride the wave. When you study the underpinnings of major disruptive or alpha generating investments, the meat of the returns tend to be overlooked while they are happening by traditional fundamental oriented investors. Its basically momentum trading with a twist. Find something thats working, and stick with it until it doesnt work anymore. Try to have a value backstop. As you mentioned above, rising rates, inflation, housing, covid fad reversals...good place to look for this currently. 

Thanks for your reply.  Your post reminds me of Philip Fisher style investing.  I try more to combine a value analysis with nascent themes or dying themes - either way there is a chance of good companies which are undervalued because nobody is watching yet or everybody is giving up.

For instance, when the current tech run falls apart, there will probably be some great companies which fall to great values.  

Energy companies continue to lag the markets generally, while renewables will likely see enhanced focus in the coming administration, presently looking through renewables.

How do you like Future Fuel (FF)?  I haven't had a free moment to review in detail, but I very much like the idea of virtually no debt, about 45% cash per share, somewhere around 9% FCF yield per share.

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Posted (edited)
2 hours ago, n.r98 said:

I've been thinking airports look interesting; toll-gate like monopolies, high margins, good dividend yields.

Only worry is the broad market recovery coupled with experts forecasting a 3-4 years time-frame before traffic reaches back to 2019 levels; valuation then becomes tricky imo.

 

Very interesting idea, thank you.  Which companies are you considering, if you don't mind sharing?   I think I will take some time tonight to look through airports, see if I can come up with some nice looking fundamentals.

I like the concept of the most indispensable components of an (erstwhile?) out-of-favor industry group.

What do you think of renewables - possibly FF mentioned in my post above?

I have individual stock ideas, but I'm trying to save this thread for an overall theme/industry group/economic trend/etc. that provides fertile ground for scouring value opportunities.

-----

Took a quick look at airports, I could only find about 10 available in the US, via ADRs.  Companies available via ADR look like they starting making a share price comeback around October 2020.  I will take a deeper dive when time allows!  The operators in Vietnam look very interesting, but I have no access to the Vietnamese public markets.  

Looking forward to your airport picks as well as other interesting themes you may consider.  

 

Edited by market malocclusion
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38 minutes ago, market malocclusion said:

 

Very interesting idea, thank you.  Which companies are you considering, if you don't mind sharing?   I think I will take some time tonight to look through airports, see if I can come up with some nice looking fundamentals.

I like the concept of the most indispensable components of an (erstwhile?) out-of-favor industry group.

What do you think of renewables - possibly FF mentioned in my post above?

I have individual stock ideas, but I'm trying to save this thread for an overall theme/industry group/economic trend/etc. that provides fertile ground for scouring value opportunities.

 

My work on airports are still at infancy; have been distracted by other industries, Munger going big on Alibaba has pivoted my attention to China's tech space once again.

I generally try to look for those with superior EBITDA margins, healthy B/S and good dividend yields. Thus far, $ASR fits the bill best. Shanghai airport looks interesting as well but seems to trade at an EV/19 EBITDA premium. Another that's on my list with a more levered B/S is Aena. 

I don't have much opinion on FF; I'm wary of cyclicals unless they have some sort of "cornered resource" or I can figure out the normalized FCF going forward and pay a low multiple on it.

Do share your thoughts if you decide to delve deeper into airports. 

 

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Look at the commodities and oil drilling sectors. Viscerally hated by many value investors, as it is not a 'predictable' sector - therefore 'too hard'.

The entire world is trying to get out of Covid, and bring their economies back. More activity = more demand for commodities = higher prices. High prices make even the turkeys fly, the well-run players fly even higher. Oil, gas, electricity, base minerals, etc. For most o/g companies a USD 15-20 rise in WTI to USD 75-80, will more than double existing FCF. Overpaying on the existing FCF is just not a big deal.

Different strokes.

SD

 

 

 

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I just gave it a 5 minute glance and I'd say FF is a splendid sardine. Low flat, no debt with big net cash position. Heard of REGI before which seems to be a peer. I'd definitely give it a thumbs up and will probably be keeping an eye on it. Reminds me a bit of something like GILT in Q4 in terms of setup. I like small/micro caps that have a floor and some exposure to popular themes. Great idea!

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10 hours ago, market malocclusion said:

 

Very interesting idea, thank you.  Which companies are you considering, if you don't mind sharing?   I think I will take some time tonight to look through airports, see if I can come up with some nice looking fundamentals.

I like the concept of the most indispensable components of an (erstwhile?) out-of-favor industry group.

What do you think of renewables - possibly FF mentioned in my post above?

I have individual stock ideas, but I'm trying to save this thread for an overall theme/industry group/economic trend/etc. that provides fertile ground for scouring value opportunities.

-----

Took a quick look at airports, I could only find about 10 available in the US, via ADRs.  Companies available via ADR look like they starting making a share price comeback around October 2020.  I will take a deeper dive when time allows!  The operators in Vietnam look very interesting, but I have no access to the Vietnamese public markets.  

Looking forward to your airport picks as well as other interesting themes you may consider.  

 

Spun out of Eastman Kodak as a SPAC before taking its current form in 2006ish. I've bought & sold this a number of times over the years but stopped to reduce my trading activity. It seems to be at the top of it's price range ATM. If I remember right, when BTC expires it languishes and then moves up roughly when the credit gets renewed.

 

FF Relies heavily on Blenders Tax Credit (BTC). Renewal is spotty & often affects financials retroactively.

"There currently is uncertainty as to whether we will produce biodiesel in the future. This uncertainty results from changes in feedstock prices relative to biodiesel prices and the lack of permanency of government mandates including the blenders’ tax credit, the small producer’s tax credit, the renewable fuels program, and the California low carbon fuel program credits. See “Risk Factors” above as well as Note 3 to our consolidated financial statements. This uncertainty also results from government mandates that strengthen markets that we compete against including renewable diesel and electric vehicles."

"For the year ended December 31, 2020, approximately 61% of our revenue was derived from biofuels, 31% from manufacturing specialty chemicals for specific customers (“custom manufacturing”), and 8% of revenues from multi-customer specialty chemicals (“performance chemicals”)."

 

Concentrated customer risk varies from year to year but has always been a concern.

"No chemical customer represented greater than 10% of total sales revenue in 2020. One of our chemical customers and its affiliates, represented 10% or more of our 2019 and 2018 consolidated sales revenues. This customer represented approximately 22%, and 27% of our chemicals revenue (11% of total revenues each year) in 2019 and 2018, respectively. We sell multiple products to various affiliates of this customer under both long-term and short-term contracts. One product contract was not renewed at December 31, 2020 representing 17%, 10%, and 12% of chemical revenue (7%, 5%, and 5% of total revenue) for 2020, 2019, and 2018, respectively. Another product contract was not renewed at December 31, 2019 representing 15% of chemical revenue in 2019 (7% of total revenue) and 14% of chemical revenue in 2018 (6% of total revenue). We are actively considering new business for the general purpose equipment vacated; however, there is no guarantee if or when we will be successful finding new business."

Edited by DooDiligence
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Look at Uranium. It's been in the dumps for nearly a decade since the Fukushima disaster happened. Bill Gates has this crude mathematical model that he postulated a few years back where he argued that we just don't have sufficient energy to take care of the world - you either face the prospect of a big population collapse or need a major breakthrough in energy generation. Nuclear has to be a part of the solution despite these occasional disasters like Chernobyl and Fukushima. Who knows when that market eventually turns - bulls have been waiting for years much like the gold bulls - but the space is interesting if you have a 2-5y time horizon for an idea to workout big.  

Edited by Ice77
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Posted (edited)

@Gregmal careful on FF - I took a close look last night and this could be a bit of a trap - its exists in a challenging market and it doesn't look like they've been able to deploy their long-standing massive cash position.  

@DooDiligence provides some excellent insight above.

I will try to post more on FF when I have a spare few minutes.

 

@SharperDingaan which companies do you like in commodities?  

 

@Ice77 uranium is a tough one, but we may be thinking alike - a few months ago I randomly found a 90s vintage uranium play proposed by now-famous Dr. Michael Burry.  Didn't work out back then, but I hear Dr. Burry is back to being a uranium bull currently.  Article attached for download. Burry Uranium Article.pdf

 

Another idea - staffing agencies.  Not darlings during the pandemic, hiring is improving, will be taking a closer look at KELYA when I can.

 

Edited by market malocclusion
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Yea I dont think(again, looked at it for all but 5 minutes) its anything worth investing in, but with momo/thematic investments you dont really look for that stuff anyway. The technical stuff is way more important. As is the narrative. Good business, bad business, whatever, you just need something that has the right dynamics and gives you a reasonable idea of what a worst case downside is...and from there its just about waiting for the market to get giddy about "the prospects" of some legislation or new breakthrough or whatever. Look at CLNE and WPRT during the Obama terms. Best example I can think of is the genetics stuff. Look at the run those have gone on the past several years...all on hype. Most of the could've been had for cash +a few hundred million to the EV not long ago. GILT is another I mentioned that has the whole space theme behind it. Granted, biodiesel and renewables are a pig thats been around the block before, but its good to keep tabs on vehicles that under the right scenarios can really rip. Or so Ive found.

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We primarily invest only on the TSX, and own all 5: 

Drilling: PD for the conservative, ESI for those with higher risk tolerances.

Oil/Gas. CVE for the conservative, WCP for those with higher risk tolerances.

Wildcard: OBE for for those with both a higher risk tolerance, and a horizon > 1 year. Just be prepared for loathing! 

SD

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