Fish where the fish are

[HubbadaPow]

One litmus test I've used for "unloved" is when I start describing an opportunity to an intelligent person and they start laughing.  If it doesn't feel a little bit terrible to consider buying it, then it's probably not unloved.

 

One example was Oil/Gas in mid-2020.  I made some calls to operators to discuss putting some money to work and they had just been through like 7 years of nightmares and couldn't contemplate buying anything at any price.  Since then, the industry has done pretty well.

[Luca]

12 hours ago, HubbadaPow said:

One litmus test I've used for "unloved" is when I start describing an opportunity to an intelligent person and they start laughing.  If it doesn't feel a little bit terrible to consider buying it, then it's probably not unloved.

 

One example was Oil/Gas in mid-2020.  I made some calls to operators to discuss putting some money to work and they had just been through like 7 years of nightmares and couldn't contemplate buying anything at any price.  Since then, the industry has done pretty well.

China+Financial Institution--> Lufax Holdings (0.2x book). I think thats a neglected in the corner but can be wrong. If id tell this combination to most people theyd probably start laughing

[backtothebeach]

36 minutes ago, Luca said:

China+Financial Institution--> Lufax Holdings (0.2x book). I think thats a neglected in the corner but can be wrong. If id tell this combination to most people theyd probably start laughing

 

Sentiment on China for sure is at an extreme low.

 

In the fall of 2018 I sold out of a small basket of Chinese stocks that I had: BILI, BZUN, HUYA, IQ, and SOGO. I had gotten sucked in by a China hype at the time lol.

 

After almost 5 years BILI and SOGO are up 10-20% (it appears SOGO was taken over by someone), the other 3 are down 80-90%. HUYA, while the business seems in decline, and will probably decline further, has more cash than it's market cap.

 

What could change the sentiment on China?

1. political change: change in leadership and/or strong, provable shift in policy.

2. actions by companies that indicate that they are actually run for their shareholders, including foreign shareholders (i.e. large buybacks with all that cash lying around, large (special) dividends.

3. strong growth of Chinese economy, and companies' metrics.
4. rising trend in stock prices.

 

Without two out of points 1. to 3., I don't see how 4. will happen.

[no_free_lunch]

I think it's worth hanging a line in medical devices / services.   A lot of stuff is blowing up.  Admittedly a lot of stuff was over priced but still I think there are some deals to be had.

 

Just bought some $MLAB, a medical diagnostic company.  It screens horrid, with like a 100-300 PE but that is nonsense.  They are a serial acquirer so there are numerous accounting charges.  In their annual report they break out their adjusted earnings and they are going for 10-12x that number.  This for a company that has grown EPS 15-20% per year over the past couple decades.   I think they have hit some recent challenges but yet they are still very profitable and historically that has been part of the business, it is a lumpy 15-20% growth rate.   I don't know how much of a moat they have, I suspect there might be a small one based on the high margins and due and due to small size of these businesses discouraging competitors but I won't pretend to be an expert.

 

Anyone else got any idea in this area?

Edited October 5, 2023 by no_free_lunch

[WayWardCloud]

No opinion on valuation but I noticed that Align Tech who makes the famous invisalign aligners everyone around me uses, has used or is considering using is down quite a bit. They seem to have a moat with first mover advantage, brand recognition and an existing relationship with most US dentist offices. The stock experienced a big bump up during COVID because people seeing themselves a lot on a webcam got self conscious about their teeth.

[Luca]

16 hours ago, no_free_lunch said:

I think it's worth hanging a line in medical devices / services.   A lot of stuff is blowing up.  Admittedly a lot of stuff was over priced but still I think there are some deals to be had.

 

Just bought some $MLAB, a medical diagnostic company.  It screens horrid, with like a 100-300 PE but that is nonsense.  They are a serial acquirer so there are numerous accounting charges.  In their annual report they break out their adjusted earnings and they are going for 10-12x that number.  This for a company that has grown EPS 15-20% per year over the past couple decades.   I think they have hit some recent challenges but yet they are still very profitable and historically that has been part of the business, it is a lumpy 15-20% growth rate.   I don't know how much of a moat they have, I suspect there might be a small one based on the high margins and due and due to small size of these businesses discouraging competitors but I won't pretend to be an expert.

 

Anyone else got any idea in this area?

I am having a close eye on Carl Zeiss Meditec, 25x earnings still, traded at double that in 2021. Decent company but too expensive. 

[Spekulatius]

19 hours ago, no_free_lunch said:

I think it's worth hanging a line in medical devices / services.   A lot of stuff is blowing up.  Admittedly a lot of stuff was over priced but still I think there are some deals to be had.

 

Just bought some $MLAB, a medical diagnostic company.  It screens horrid, with like a 100-300 PE but that is nonsense.  They are a serial acquirer so there are numerous accounting charges.  In their annual report they break out their adjusted earnings and they are going for 10-12x that number.  This for a company that has grown EPS 15-20% per year over the past couple decades.   I think they have hit some recent challenges but yet they are still very profitable and historically that has been part of the business, it is a lumpy 15-20% growth rate.   I don't know how much of a moat they have, I suspect there might be a small one based on the high margins and due and due to small size of these businesses discouraging competitors but I won't pretend to be an expert.

 

Anyone else got any idea in this area?

MLAB does look interesting on a quick look. They do seem to grow massively with acquisitions and have put some debt on. I will have a closer look. Thanks for sharing.

 

One I like is $CRL which has the largest market share in contract pre-clinical and safety research for Pharma. They are sort of the shovel makers for Biotech and Pharma. Even big Pharma who used to do this internally, more and more outsources this part of their work. Aran up with COVID he the bio funding boom , but the business is quite resilient and valuation is back to earth. I have been buying some shares as a LT hold. Trades at less than 19x earnings, but there is some leverage as well.

Edited October 6, 2023 by Spekulatius

[Spooky]

8 hours ago, WayWardCloud said:

No opinion on valuation but I noticed that Align Tech who makes the famous invisalign aligners everyone around me uses, has used or is considering using is down quite a bit. They seem to have a moat with first mover advantage, brand recognition and an existing relationship with most US dentist offices. The stock experienced a big bump up during COVID because people seeing themselves a lot on a webcam got self conscious about their teeth.

 

Anecdotal but my girlfriend went with a competitor's product since it was cheaper and undifferentiated.

[no_free_lunch]

5 hours ago, Spekulatius said:

MLAB does look interesting on a quick look. They do seem to grow massively with acquisitions and have put some debt on. I will have a closer look. Thanks for sharing.

 

One I like is $CRL which has the largest market share in contract pre-clinical and safety research for Pharma. They are sort of the shovel makers for Biotech and Pharma. Even big Pharma who used to do this internally, more and more outsources this part of their work. Aran up with COVID he the bio funding boom , but the business is quite resilient and valuation is back to earth. I have been buying some shares as a LT hold. Trades at less than 19x earnings, but there is some leverage as well.

Thanks for $CRL, was not on my radar.  It's exactly what I am looking for though.  Bit of a moat, margins expanding with scale, larger player, track record, reasonable valuation.   Probably will end up buying it if it stays in this price range but need to some DD.  I wonder what FCF is at, there is quite a bit of amortization so could it be higher even than earnings?

Edited October 6, 2023 by no_free_lunch

[Spekulatius]

14 minutes ago, no_free_lunch said:

Thanks for $CRL, was not on my radar.  It's exactly what I am looking for though.  Bit of a moat, margins expanding with scale, larger player, track record, reasonable valuation.   Probably will end up buying it if it stays in this price range but need to some DD.  I wonder what FCF is at, there is quite a bit of amortization so could it be higher even than earnings?

No unfortunately their Capex exceeds depreciation. All these scientists need expensive labs and toys to do their thing. FCF is < earnings. There is also SBC based dilution creep. So, $CRL not super cheap, but I think the moat is there and likely fairly durable.

[vakilkp]

On 10/5/2023 at 8:12 AM, no_free_lunch said:

I think it's worth hanging a line in medical devices / services.   A lot of stuff is blowing up.  Admittedly a lot of stuff was over priced but still I think there are some deals to be had.

 

Just bought some $MLAB, a medical diagnostic company.  It screens horrid, with like a 100-300 PE but that is nonsense.  They are a serial acquirer so there are numerous accounting charges.  In their annual report they break out their adjusted earnings and they are going for 10-12x that number.  This for a company that has grown EPS 15-20% per year over the past couple decades.   I think they have hit some recent challenges but yet they are still very profitable and historically that has been part of the business, it is a lumpy 15-20% growth rate.   I don't know how much of a moat they have, I suspect there might be a small one based on the high margins and due and due to small size of these businesses discouraging competitors but I won't pretend to be an expert.

 

Anyone else got any idea in this area?

Danaher and TMO.  I believe @Spekulatius has posted on or tracks DHR.

[nwoodman]

12 hours ago, vakilkp said:

Danaher and TMO.  I believe @Spekulatius has posted on or tracks DHR.

Definitely starting to look interesting . So much easier when yesterday’s hero’s flatline for 5 years but we are getting close.  

[Gregmal]

Elbit Systems 

[nwoodman]

5 hours ago, Gregmal said:

Elbit Systems 

 

Seems fully priced but interesting suggestion.  Given the ever growing number of  shitshows, defence contractors might be a sensible hedge.  Any particular mispricing/insight?
 

“Elbit Systems Ltd is a globally recognized defense electronics company based in Israel. It specializes in the design, development, manufacturing, and integration of advanced systems and equipment primarily for defense, homeland security, and aerospace sectors. Here’s a more detailed breakdown of the company’s profile:

    1.    Core Expertise:
    •    Aerospace, Defense, and Homeland Security Solutions: Elbit Systems provides a broad range of solutions across airborne, land, and naval domains. This includes systems and equipment for command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) among others .
    •    Precision Weaponry and Surveillance Systems: The company has a notable emphasis on delivering advanced surveillance and precision weaponry systems, which form a part of its extensive portfolio .
    2.    Global Presence:
    •    Elbit Systems operates internationally, engaging in a wide range of programs throughout the world. This global outreach allows it to cater to different markets and clientele, including various governmental agencies .
    3.    Historical Background:
    •    Founded in 1976, Elbit Systems has built a legacy over the decades as a reliable provider of defense electronics and related services to the military and homeland security sectors .
    4.    Innovative Technology:
    •    The company is known for its high-performance defense electronic and electro-optic systems. It continues to invest in innovative technology, aiming to deliver integrated and network-centric solutions .

Elbit Systems’ diverse portfolio and its emphasis on innovation underline its commitment to meeting the evolving needs of its global clientele in the defense and security sectors.”

Edited October 8, 2023 by nwoodman

[Stuart D]

This may have already been mentioned, but following the Japanese companies that have recently started buying back shares might be a good pond to fish in.

 

I googled Japan buyback screeners and one of the first results (quant investing.com) had the following table: 

 

I checked the first two names on https://www.kaijinet.com/jpExpress/ and the recent buybacks looked relatively large.

[Spekulatius]

Since med tech was mentioned the kidney dialysis plays  $DVA and $FMS are down ~18% (on Ozempic news), $BAX ~9% and ZBH $5.6%.

 

I am more interested in $BAX and $ZBH then the former $ZBH is close to a 52week low and has produced decent (but not great numbers). BAX is heavily leveraged at around ~5x EBITDA, but at least they cash flows have been improving. BAX has a business supplying kidney dialysis consumable which was supposed to get spun off. I am not sure this is an option now, but we will see. $BAX dialysis business is less vulnerable to GPT-1 disruption than $DVA and $FMS because it is mostly foreign (imo).

 

GPT-1 seems like  wrecking ball for the med tech sector. If you regard this as a zero sum game than the gains of LLY and NVO are coming from the med tech co's that have business connected to diabetic and overweight people. For example, ZBH business (hip and knee surgeries) has a disproportional exposure to this group because overweight people tend to have bad hips and knees. On the other hand, nothing will change quickly here.

[Cod Liver Oil]

@Spekulatius ZBH has had a nice flurry of insider buying recently. I am going to call a surgeon friend who uses their products. Any burning questions for him?

 

[Spekulatius]

21 minutes ago, Cod Liver Oil said:

@Spekulatius ZBH has had a nice flurry of insider buying recently. I am going to call a surgeon friend who uses their products. Any burning questions for him?

 

I Wasn't aware of the insider buying cluster until you mentioned it. I agree it makes ZBH more interesting. I don't really have a clever question other than how ZBH product (hip/ knee replacement) compare to SYK (the big kahuna) in terms of pricing and function.

 

I just noticed that ZBH gross and EBITDA margin is higher than SYK. I thought its the other way around, but it may be a result of a different product mix. SYK also spends more on R&D as a percentage of revenue and of course in absolute terms. I just wonder if we buy a cigar but like market share donor (to SYK here).

 

Then I guess his view on how the GPT-1 weight loss craze may impact the hip/knee replacement business would be interesting.

Thanks for doing the expert call.

 

Edited October 11, 2023 by Spekulatius

[Sweet]

Long term I think Biotech is going to be a good long term bet and I expect the sector to grow faster than the rest of the economy.  However I think the higher rates are only just working through the sector.  I don’t believe we are at near the bottom - I could be wrong.  It’s very difficult to stick pick in the sector so I’d almost rather bet via an etf and maybe pick a choose a few favourites at a much smaller allocation.