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Stocks Run by Owner Manager Capital Allocators, Top Ideas and Why


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Hi all,


This topic comes up quite a bit, but we tend to get long laundry list of names / stocks. We typically dont get any other detail then the ticker and Manager. I thought it would be a good idea to repost the topic but limit it to 1 or 2 ideas. I think the idea plus some sort of detail as to why you like the company / what you think the company may be worth, and if you think the company might be a good investment now.


Hopefully it catches on.


For me I will grab some low hanging fruit and start with FUR. I posted my thoughts on valuation here - http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2022.30

Basically its a play on commericail real estate. I think its worth around $13 - $15, and gives you a free call option on Ashner's ability to keep finding good deals. They just sold some shares and have several good prospects for new building and loan acquisition. I sold shares around $14 and would bought more around $11. I would buy here but its already a decent size holdings. I am guessing the stuff they are looking at will prove to be very profitable.


Loews is other low hanging fruit. A member posted a valuation here - https://spreadsheets.google.com/ccc?key=0ApYtMgkh8FHjdHNvVHZJUk51QjNzZ3doSkxjaTlweHc&hl=en#gid=1 and I think its a good proxy. Loews is buying back shares, flush with cash, and is run by decent capital allocators. I bought a bit ago when the moratorium took RIG shares down, and I think its a good deal because all of the subs are experiencing weakness / stress (CNA, Highmount, DO, BWP, Loews Hotels). You get a double discount, and should do quite well if Energy or Insurance turns.



Congrats on the baby Bronco, is it still any day now?

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While not an Owner Manager Capital Allocator (they have probably been poor capital allocators in past), one of my larger holdings is UNH.


I think it is a good buy at <$35.


I think it is worth ~$70/share based on ~$3.50-$4 FCF and estimated growth of 7% (approximate growth of health care spending).


Why are they cheap? (Negatives)

-very negative market sediment. (have not read to many positive articles on this company. A lot of people hate health care sector)

-concern over health care reform

-management has had questionable capital allocation--buying in shares at higher price + options scandle just a few years ago

-fear that U.S. government regulation will kill business (it may very well, but government  needs the infrastructure that the HMO's provide. It will enable people to make a choice of what they want to have for health care.) They may not be as profitable in the future as in the past.


I think it is a good company because (Positives):

-have had consistent FCF over last 10 years


-have excellent ROC of 20%.

-have started to pay out a dividend. Yield is 1.4%

-will not need to much capex (they don t need to spend any more dollars to expand the people they look after)

-they have been able to increase the price they charge for coverage

-I think they have a endurable competitive advantage:


626,000 physicians and health care professionals. 5,035 hospitals. 60,000 pharmacies which I feel gives them a network effect (patients want to join the network because UNH provides a lot of choice + flexibility, providers want to stay on the network because there are a lot of patients in the network)


(from seekingApha article July 2010)

Any price war will probably occur down market and UnitedHealth Is a "Luxury" Provider

-UNH's outsized presence in up market health insurance products means its corporate customers are more willing and able to pay higher premiums when UNH needs to raise them.

-employers are more inclined to retain their white collar employees by keeping trusted doctor networks and customer service.


Any price war will effect smaller companies. UNH better positioned to withstand short term losses.



UnitedHealth Owns Ingenix

-health information is more important competitive advantage in health insurance than ever, rendering Ingenix, the leading health analytics and actuarial consulting firm owned by UNH, a hidden jewel.

-Long-term winners under Reform's restrictions will be those companies that determine the most accurate fair-value prices for the health risks they are underwriting. That is, those companies with the best predictive health information.

UNH is the only major American health insurer to have its own such first-class health information and analytics firm.


To quote Bruce Berkowitz:


” To kill the HMOs, you just have to answer the following question:Who would do what they’re doing if they weren’t doing it?” Th e big issue with HMOs is a radical restructuring of the healthcare system and whether or not someone else can do what they are doing, or whether they can be forced to do it at much lower prices. By studying the industry and the participants, you can come to the conclusion that the only thing the government can do is cut a check. And every time they’ve tried to run a healthcare system by cutting checks, such as with Medicare, the costs just escalate the HMOs have become gatekeepers and they do it for reasonable prices. Th ere is no other organization or other industry that we believe is a competitive threat, and there are no other people that have the scale or skills by which to carry forth the future healthcare system, whether it is universal health or corporate healthcare policies. So when we are trying to kill an HMO, the first question that we address is the obvious issue of how they can be pushed aside, and our answer is that we can’t find any way to kill them from a competitive or regulatory threat. Once you get to that, then you can say that these companies have had really poor capital allocation policies in the past. Th ey have spent billions of dollars buying their stock back at two times or three times current prices. Th e only conclusion that we can come to there is that it wouldn’t be a mistake for them to do that today. Most likely they are all buying their stock back. So if the HMOs— United Health, WellPoint , and others—are not going to manage the healthcare system, then who is? And I can’t find an answer to that. I can’t find an alternative.”


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Morgard, (MRC) is a great company in Canadian CR.  Relatively high quality assets, excellent cash flow, and most importantly a great CEO capital allocator with most of his assets invested in the co.  It's been a while since I looked at them so I can't answer questions.  It's a gem among its peers, from the best I can tell.

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Looks like there are 2 Morgard, the REIT and the regular corporation. Any idea why they have it segmented into 2 companies. Also looks like they do joint deals from time to time.



If I'm not mistaken, the CEO may be mostly invested in the non REIT.  I think the dual structure may help them upload -  download risk as the market changes over the years.  REITs may be more attractive to a certain type of holder.  Their return over time has been exceptional.  That's the key metric, rather than the current snapshot which still should be very good if there hasn't been any deterioration since the last time I looked.

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