Best Investment Idea(s) for 2023

[mt04]

my personal portfolio consists of NLS, GFG and AGAE/AESE

NLS: benefited from covid but now extremely oversold + strategic alts (average USD 1.65)

GFG: 110,5M EUR net cash & 1,7B EUR in sales (MC: 286M EUR) + could get profitable in 1-2 years (average 1,145 EUR)

AGAE/AESE: 84M USD cash (burning 2-3M USD per quarter) vs MC of 45M USD + federal NOLs of about 60M USD + growing esports business (average 1,37 USD)

[alertmeipp]

17 hours ago, Parsad said:

I'm going to stick to what I threw out last year...it's just become a bigger bargain and ridiculously cheap.  Maybe the cheapest it's ever been other than during the March 2020 pandemic.

 

OSTK - Overstock.com

 

Jonathan Johnson runs it now instead of the erratic Patrick Byrne.  They switched over to selling higher margin "Home" goods instead of everything, so that cut into sales over the last 6 months.  But essentially:

 

You have a $2B revenue online retailer that is completely profitable selling for $850M.  But they have $430M of cash on hand that they don't use...plus a corporate office that is worth north of $70M.  Only about $35M of debt that was issued to build the corporate office for $50M. 

 

Finally, you have their entire Medici Ventures portfolio, including the stake in tZero, that is now managed by tech private equity firm Pelion Ventures.  That portfolio is worth a minimum of $500M and could be worth up to $4-5B depending on what they can do with it and how they monetize it over the next few years. 

 

So you're paying net $400M or so for the entire retail business that does $2B in revenue and a no expiry call option on all of Medici Ventures.  If you believe in blockchain long-term, this one is frickin' cheap and a true deep value stock!  Cheers! 

 

 

How do get the min 500mm value for Medici Ventures portfolio?

[Whensthepaintdry?]

I just read through the old overstock thread. What a wild ride! 

[Parsad]

2 hours ago, alertmeipp said:

 

How do get the min 500mm value for Medici Ventures portfolio?

 

I'm just throwing out a low number based on other analyst reports for what the overall portfolio is worth.  For me, the $500M value is the ownership in tZero alone.  Cheers!

 

https://www.tzero.com/

 

https://www.cnbc.com/2017/12/14/overstock-com-ceo-aims-to-sell-or-reorganize-e-commerce-biz-so-he-can-focus-on-blockchain.html

[ICUMD]

I continue to hold a leveraged portfolio of Canadian Financials as my core.   Bank of Nova Scotia currently trades at a particularly attractive valuation and yield.

[no_free_lunch]

23 minutes ago, ICUMD said:

I continue to hold a leveraged portfolio of Canadian Financials as my core.   Bank of Nova Scotia currently trades at a particularly attractive valuation and yield.

 

How do you weight the risk of a recession to the banks?  I can't help thinking of all the European / US banks that had to raise funds and dilute the shareholders during the GFC.  Is that not a real risk in Canada?

[ourkid8]

25 minutes ago, no_free_lunch said:

 

How do you weight the risk of a recession to the banks?  I can't help thinking of all the European / US banks that had to raise funds and dilute the shareholders during the GFC.  Is that not a real risk in Canada?

Canadian banks are V well capitalized and would be able to handle a downturn relatively easy.  Here is an example of CET1 ratios for the two largest banks in Canada. (The lowest is bank of Nova Scotia at 12.3%)

RBC CET1 ratio: 13.7%
TD bank CET1 ratio: 15.2%

 

RBC is considered TBTF and must go through the yearly FED stress stress and always comes out with flying colours. The stress scenarios are pretty significant as well 

Edited January 6, 2023 by ourkid8

[ICUMD]

1 hour ago, no_free_lunch said:

 

How do you weight the risk of a recession to the banks?  I can't help thinking of all the European / US banks that had to raise funds and dilute the shareholders during the GFC.  Is that not a real risk in Canada?

Sure,  they can go down.   

But given their 200 yr history, unlikely to ever go out. 

 

When it goes down - I get greedy. Most importantly, I manage the dividend income vs leverage expense cash flow.

 

I'll let you know in 10 yrs how it goes.

 

 

 

Edited January 6, 2023 by ICUMD

[LearningMachine]

5 minutes ago, ICUMD said:

Sure,  they can go down.   

But given their 200 yr history, unlikely to ever go out. 

 

When it goes down - I get greedy. Most importantly, I manage the dividend income vs leverage expense cash flow.

 

I'll let you know in 10 yrs how it goes. LoL.

 

 

 

One issue you might want to look into deeper is that Canadians don’t have the luxury of 30 year mortgages. So, if interest rate portion of their mortgage is going to double or triple, how many might be tempted to let the bank have keys. 
 

I haven’t looked into this deeply, but Canadian mortgages might have recourse which should cause people to be more restrained than Americans were in 2008, but still if people can’t pay double or triple the interest rate, they can’t pay.

 

The above can quickly turn into a snowball like it did in the US in 2007-2012, and if it does, those CET1 ratios can quickly turn underwater.
 

US banks also had a long history before it happened :-).

 

Just do the math what would be the CET1 ratio if say 20% percentage of home loans lost 30-50% of their value and another 30% lost 10-20% of their value.

Edited January 6, 2023 by LearningMachine

[no_free_lunch]

Thanks ourkid.  This is reassuring.   I am still not sure exactly how to compare that against say a nation-wide housing bust but I recognize those ratios are higher than what existed in the US pre GFC.

 

LearningMachine, as i understand most provinces in Canada the banks have recourse for the mortgages.   However, if things go ugly I have to think the feds or provinces will step in.  They did in the early 80s when interest rates went parabolic.  There are just too many homeowners and they vote, something would be done.

 

It's hard to weigh it all out for me.  I would need at least some OTM puts to feel safe with these.  You could probably use the dividends to pay for the puts and hope for capital appreciation.

[ICUMD]

49 minutes ago, LearningMachine said:

One issue you might want to look into deeper is that Canadians don’t have the luxury of 30 year mortgages. So, if interest rate portion of their mortgage is going to double or triple, how many might be tempted to let the bank have keys. 
 

I haven’t looked into this deeply, but Canadian mortgages might have recourse which should cause people to be more restrained than Americans were in 2008, but still if people can’t pay double or triple the interest rate, they can’t pay.

 

The above can quickly turn into a snowball like it did in the US in 2007-2012, and if it does, those CET1 ratios can quickly turn underwater.
 

US banks also had a long history before it happened :-).

 

Just do the math what would be the CET1 ratio if say 20% percentage of home loans lost 30-50% of their value and another 30% lost 10-20% of their value.

Definitely good points.  

Canadian Mortgages are Full Recourse - so there is some insulation there.

Further, those with less than 20% down payment require Canadian Mortgage and Housing Insurance against default.

 

BNS trades at a PE of 8 and Dividend of 6.2% which is historically fairly attractive - so have modestly added to this recently.  AFAIK, CDN banks have never in their history cut their dividend.

Edited January 6, 2023 by ICUMD

[ourkid8]

2 hours ago, ICUMD said:

Definitely good points.  

Canadian Mortgages are Full Recourse - so there is some insulation there.

Further, those with less than 20% down payment require Canadian Mortgage and Housing Insurance against default.

 

BNS trades at a PE of 8 and Dividend of 6.2% which is historically fairly attractive - so have modestly added to this recently.  AFAIK, CDN banks have never in their history cut their dividend.

Yes, Canadian mortgages are fully recourse besides I believe the province of Alberta.  I heard many stories of people mailing their keys to the banks in the 80s. 

[bizaro86]

51 minutes ago, ourkid8 said:

Yes, Canadian mortgages are fully recourse besides I believe the province of Alberta.  I heard many stories of people mailing their keys to the banks in the 80s. 

 

Mortgages in Alberta are only non-recourse if they don't have mortgage insurance, which requires 20% down. 

[Dinar]

In many states like NY, mortgages are fully recourse

[jfan]

10 hours ago, bizaro86 said:

 

Mortgages in Alberta are only non-recourse if they don't have mortgage insurance, which requires 20% down. 

Thanks for this...very interesting. Apparently Saskatchewan also has non recourse mortgages as well. 

 

A friend chatted with a CFO at one of the Canadian banks and was told that pre pandemic, 5% of mortgages had 30 year amortization whereas now, this has reached 30%. 

 

With such banking concentration, and forced renewals every 5 years, the key economic indicator may actually be unemployment rates. The Canadian housing system/politics/banking has every incentive to keep people in their homes. Keeps everything and everybody solvent. The velocity of housing transactions may slow but as long as people can keep paying something, the price correction hopefully won't be precipitous. 

 

That said, the banks will have some degree of pain, and I'm not sure all of them have this scenario priced in yet.

[james22]

On 1/2/2023 at 8:29 AM, james22 said:

Small Value

 

To expand, I'm really guessing the next couple years looks something like the 2000-2002 Value/Sector rotation.

 

So SV, Energy, Financials, Industrials, and International rather than US LG/Tech.

 

Have a bet on Gold too.

[Gamecock-YT]

On 1/3/2023 at 11:57 PM, Dinar said:

I think that you will regret your choice.  BTI is losing volumes at 3%+ per annum, and even faster in the more profitable US market.  Revenues barely grew by 3-4% in 2022 in constant currency despite 10% inflation.  I would not touch it and Altria with a ten foot pole.  PM (which I own) is a much better choice in my opinion.

to be fair if the stated hurdle rate in the original post is 10% THIS year, Altria has a dividend yield of 8%, BTI is even higher at 8.6%, throw in a 2% buyback and you are there. 

Edited January 10, 2023 by Gamecock-YT

[Dinar]

45 minutes ago, Gamecock-YT said:

to be fair if the stated hurdle rate in the original post is 10% THIS year, Altria has a dividend yield of 8%, BTI is even higher at 8.6%, throw in a 2% buyback and you are there. 

There is an implicit assumption in your analysis that the stock price will not change.  Say Altria sees another 7% volume decline, 5% price hike, then revenues are down 2%.   If market starts pricing in 3-5% annual profit declines, then using an 8-9% nominal discount rate, then you could see P/e = 7-9, vs 9 today.   BTI is not at an 8.6% dividend yield, it is actually 6.63% dividend yield.  

[frommi]

3 hours ago, Dinar said:

There is an implicit assumption in your analysis that the stock price will not change.  Say Altria sees another 7% volume decline, 5% price hike, then revenues are down 2%.   If market starts pricing in 3-5% annual profit declines, then using an 8-9% nominal discount rate, then you could see P/e = 7-9, vs 9 today.   BTI is not at an 8.6% dividend yield, it is actually 6.63% dividend yield.  

Who cares about revenues?

Latest Altria Q3 numbers: (and it was a horrible year with 9% volume declines)
 

Total cigarettes

64,971

71,370

(9.0)

%

Revenues net of excise taxes

$

13,731

$

13,655

Reported OCI

$

8,112

$

7,901

2.7

%

$

 

Add in share buybacks and you have 4% EPS growth in a very bad year with 9% volume declines. These 9% volume declines are not the long term average and are just that high because smokers have downtraded to cheaper cigarettes. That will normalize and Altria will go back to 7-9% EPS growth. Should trade back to a P/E of 15 someday. They also have a lever to pull when they sell their BUD stake. 

[frommi]

But since you dont like it i pick Karelia Tobacco as my pick of the year . See Investment Ideas. GIGM is statistically also a good bet, but its possible that it wont be the best performer at year end, because you have to sell into price spikes.

Edited January 10, 2023 by frommi

[Dinar]

11 hours ago, frommi said:

Who cares about revenues?

Latest Altria Q3 numbers: (and it was a horrible year with 9% volume declines)
 

Total cigarettes

64,971

71,370

(9.0)

%

Revenues net of excise taxes

$

13,731

$

13,655

Reported OCI

$

8,112

$

7,901

2.7

%

$

 

Add in share buybacks and you have 4% EPS growth in a very bad year with 9% volume declines. These 9% volume declines are not the long term average and are just that high because smokers have downtraded to cheaper cigarettes. That will normalize and Altria will go back to 7-9% EPS growth. Should trade back to a P/E of 15 someday. They also have a lever to pull when they sell their BUD stake. 

If you like high dividends, take a look at Clipper realty (I own it.)  I think that the dividend will go from 5.4% on today's stock price to around 7.5% on today's stock price in 2025 as first building in Prospect Heights Brooklyn gets fully leased and the second one gets built and leased, which is a late 2024/early 2025 event.

[Red Lion]

Just now, Dinar said:

If you like high dividends, take a look at Clipper realty (I own it.)  I think that the dividend will go from 5.4% on today's stock price to around 7.5% on today's stock price in 2025 as first building in Prospect Heights Brooklyn gets fully leased and the second one gets built and leased, which is a late 2024/early 2025 event.

I followed you in on this one and have some in the money June calls as well. 

[frommi]

39 minutes ago, Dinar said:

If you like high dividends, take a look at Clipper realty (I own it.)  I think that the dividend will go from 5.4% on today's stock price to around 7.5% on today's stock price in 2025 as first building in Prospect Heights Brooklyn gets fully leased and the second one gets built and leased, which is a late 2024/early 2025 event.

That is not in my circle of competence, i always think that NY real estate is in a bubble

[alertmeipp]

On 1/5/2023 at 2:42 PM, Parsad said:

 

I'm just throwing out a low number based on other analyst reports for what the overall portfolio is worth.  For me, the $500M value is the ownership in tZero alone.  Cheers!

 

https://www.tzero.com/

 

https://www.cnbc.com/2017/12/14/overstock-com-ceo-aims-to-sell-or-reorganize-e-commerce-biz-so-he-can-focus-on-blockchain.html

 

 

Very interesting name, 400mm-500mm for the retail business itself is cheap.

 

Seems its larger competitors are selling at way higher valuation with less profitability.

 

 

[K2SO]

On 1/10/2023 at 2:30 AM, frommi said:

That will normalize and Altria will go back to 7-9% EPS growth. Should trade back to a P/E of 15 someday.

Why should it? Altria is in big trouble with PM re-entering the US market and is way behind the competition on RRPs. Given management's recent history (look no further than JUUL) I'm not betting on them to right the ship anytime soon. At the end of the day all they will have is the Marlboro brand in the US and that's a declining customer base.