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rjstc
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  Question. If you could only choose one stock to buy to hold for the next five years what would it be? Straight out buy. Any market in the world that you could purchase through. Any industry.

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Guest Bronco

T-bone,

 

If you think CHK - what about the preferreds.  I would imagine if CHK spikes that the preferreds will do well. 

 

What about the call options? 

 

What makes you like CHK for 5 years? 

 

Full disclosure I own CHK preferreds in my "fixed income" portfolio, which is not that big.

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I'm going out on a limb and naming a company which is not all that 'cheap' on a pure p/e basis: Avanza Bank.

 

Financial data here:

 

https://www.avanza.se/aza/omavanza/doc/Avanza%20Key%20Data.xls

 

Quick outline, I'll elaborate if anyone is interested:

- No credit losses

- No trading department

- Non-brokerage income covering all expenses (and that income will increase in tandem with coming interest rate hikes)

- Savings market share of 2% while having a market share of net inflow of 6.2%

- Great culture, chaired by a famous Swedish capitalist named Sven Hagströmer, who has a huge Buffett complex, and also happens to control the company via his investment company.

- Basically all earnings are free cash flow, they pay out all their earnings in dividends. Growing the business is crazy cheap.

- Huge operating margin of 54% despite having considerably lower prices than the 'old' banks.

- They are, bluntly speaking, crushing their main internet-only competitor Nordnet

- As can be seen by their figures of 2008 (the year in which I started buying shares), they make pretty good money even in an extreme downturn scenario.

 

Despite sporting almost double the earnings multiple to when I made my first purchases, I have bought at current levels too. Even if the price doesn't quite fit you, I think this company should be on your radar :)

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Bronco,

 

I like the preferreds, the CHKDG's are usually a little cheaper and have a lower conversion price (but the dividends aren't qualified if that matters).

 

I also own the LEAPs and I think they are very cheap.  I think the stock is cheap at current gas/oil prices, but I think there is only one way for natural gas to go from here (long term), so LEAPS give you leverage to that too - and I don't think you are paying for it.

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5 years. All my capital.

 

I would go boring. FFH, Mastercard, Corelogic, Berkshire. Maybe or probably ATSG actually after some thought. 5 years is a long time and 100% is tough.  

 

---

 

T Bone why CHK over SD, and did you buy the SD preferreds? I think SD is safer over 5 years (due to the headstart on oil). CHK would need a gas recovery inmo to do as well. Speaking of which both got killed today  :).

 

Its days like this I think of JP Morgan + Prem Watsa -  It will fluctuate, generally in no relation to the underlying business.

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I'm going out on a limb and naming a company which is not all that 'cheap' on a pure p/e basis: Avanza Bank.

 

Financial data here:

 

https://www.avanza.se/aza/omavanza/doc/Avanza%20Key%20Data.xls

 

Quick outline, I'll elaborate if anyone is interested:

- No credit losses

- No trading department

- Non-brokerage income covering all expenses (and that income will increase in tandem with coming interest rate hikes)

- Savings market share of 2% while having a market share of net inflow of 6.2%

- Great culture, chaired by a famous Swedish capitalist named Sven Hagströmer, who has a huge Buffett complex, and also happens to control the company via his investment company.

- Basically all earnings are free cash flow, they pay out all their earnings in dividends. Growing the business is crazy cheap.

- Huge operating margin of 54% despite having considerably lower prices than the 'old' banks.

- They are, bluntly speaking, crushing their main internet-only competitor Nordnet

- As can be seen by their figures of 2008 (the year in which I started buying shares), they make pretty good money even in an extreme downturn scenario.

 

Despite sporting almost double the earnings multiple to when I made my first purchases, I have bought at current levels too. Even if the price doesn't quite fit you, I think this company should be on your radar :)

Please do elaborate. I'm going to study this
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Myth; Both ends of the spectrum. Was ATSG the cargo carrier that was split off from one of the big shippers a few years ago? Thanks

 

Split from Airborne when DHL bought Airborne. Was spun out because DHL cant own an airline. They lease plans and also fly / fix them, a pretty boring business. $200 EBITDA by end of the year vs. $500 million market cap. No taxes for a few years, ok leverage, good management, and long term contracts. I think $16 is possible based on $200 million ebitda, if they grow over 5 years who knows.

 

---

 

Aside from that I would like something monopoly like - Corelogic, Mastercard; or something with a good owner manager with a huge amount of capital tied into the investment - BRK, FFH. Sleep and return of capital are more important then return on capital. FFH out side of large cats I guess is the most defensive company I can think of.

 

If I were looking for a home run I would do SD.

 

5 years, no changes, 1 investment, 100%. I would aim for a single or double and just hope to stay on base.

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Myth,

 

I was never able to buy the SD preferreds, I think they are all held by large holders like FFH who don't sell . . .

 

I like CHK over SD because I think it is safer, cheaper, less levered and has more upside.  CHK will also be a much larger oil/liquids producer than SD, but never as a percentage of production.

 

As far as oil upside - and temporarily ignoring debt and other assets (two categories I think CHK wins handily) . . . 1,000 shares of SD gets you about three acres of good oil shale (Mississipian, which is actually a carbonate), whereas 1,000 shares of CHK gets you about ten acres of good oil shale (eagle ford, utica, mississipian and others).  On a per dollar basis, this is about equal, but CHK's shale is more diversified and thus safer . . . . The Mississippian isn't "proven" yet.

 

CHK is hated and valued pessimistically in my opinion, and it has hidden assets all over it balance sheet and a lot of financial flexibility.

 

I don't dislike SD, but I think the market is taking an optimisitic view of the Mississippian and that SD has limited financial flexibility and no "hidden" assets.  SD has done very well creating value out of thin air with their royalty trust (the implied per acre price they were able to get from _____ (fill in the blank) income investors was pretty obsurd).  SD will likely keep on doing this and do very well with it but . . .

 

Long term I am in it for the natural gas potential.  This is, coincidentally, the original thesis Sam Mitchel gave for getting in SD (which also has a lot of gas potential in the WTO).  I think CHK has better gas assets, more diversified and equally good oil assts, better valuation, flexibility and upside.  I like SD and only sold it recently because it combined with CHK was too big a portion of my portfolio

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Thanks T Bone. I trust Aubrey McClendon now, he has a lease on him with Ichan and Longleaf. I think you got to give guys like McClendon and Ward space to perform within reason. They have both added tremendous value. I am a natural gas bear for 5 years or so. After that all bets are off. The logical thing is to switch all coal plants to natural gas and develop natural gas as trucking and vehicle fuel, but we are still doing ethanol so .....

 

CHK is probably one of the most hated stocks in the value community because of McClendon. That margin call has created alot of negative goodwill lol. SD is dominating my portfolio, not sure what to do. Hopefully the 5th is a good day. I would like to see more trusts, a JV, more hedges, and more wells. Get it while the getting is good, oil wont be at this high the whole year inmo.

 

 

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DCG,

 

I've looked at just about every capital allocation decision they've made, and with one exeption (buying about $500MM of Antrim shale in Michigan) they have all worked out very well for shareholders.  I believe Stanley Cates of SEAM pointed out in OID a year ago that the money they get from selling a portion of the assets they've bought (JV deals in their shale plays) don't flow through the income statement so the value isn't readily apparent.  CHK uses full costs accounting, so drilling caries and up-front payments just lower the amount of the full cost pool.  

 

Even if you don't trust the above.  With Carl Icahn taking a large position and threatening to agitate, SEAM owning 12% of the stock, and Lou Simpson recently joining the board of directors . . . I think a buyer today should have some level of comfort whatever their thoughts on Aubrey are.

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DCG,

 

I've looked at just about every capital allocation decision they've made, and with one exeption (buying about $500MM of Antrim shale in Michigan) they have all worked out very well for shareholders.  I believe Stanley Cates of SEAM pointed out in OID a year ago that the money they get from selling a portion of the assets they've bought (JV deals in their shale plays) don't flow through the income statement so the value isn't readily apparent.  CHK uses full costs accounting, so drilling caries and up-front payments just lower the amount of the full cost pool.  

 

Even if you don't trust the above.  With Carl Icahn taking a large position and threatening to agitate, SEAM owning 12% of the stock, and Lou Simpson recently joining the board of directors . . . I think a buyer today should have some level of comfort whatever their thoughts on Aubrey are.

 

I know it was with his personal account, but him buying huge amounts of CHK stock on Margin at around $60 a share near the top of the oil boom, and then doing tons of media appearances pumping CHK stock destroyed his credibility in my eyes. Every time I hear this guy speak I get the impression that his only goal is making as much money for himself as possible and could care less about CHK shareholders.

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CRT, you are certainly in the majority!

 

Whatever you think about McClendon buying stock at $60 on margin and almost bankrupting himself, then being bailed out by the company (I would imagine that I, along with the rest of the board, agree with your thoughts in this regard), I don't think anything he did was dishonest.

 

He was buying stock on margin at $60 - stupid? yes! - but not dishonest like Angelo Mozzillo pumping his stock while selling.  McClendon put his money where his mouth was (and additional monies as it turned out).  The resulting "bonus" and company purchase of his map collection for $13MM was not shareholder friendly, but didn't have any effect on the value of the company ($15MM a year plus the maps is less than $0.05 per share).

 

I think that the resultant criticism chastened the board of directors.  They are still highly-paid and not entirely independant, but they are in the limelight, and I view the addition of Lou Simpson very positively.

 

I sincerely believe that McClendon wants to get the stock back to its old highs to prove he was right at least as much as he wants to make money, and by industry standards his compensation has been high but not an outlier.  This guy is working very hard for shareholders, even if it is for some vain or monetary purpose.

 

Bottom line, I think the company is incredibly valuable and I just don't see any way that McClendon destroy or steals that value (In fact, I believe he is actively adding to it).  With SEAM, Icahn, and Simpson around - I believe that the problem 99% of investors have with McClendon is more emotional than rational.  This still might keep the value depressed, but not forever.

 

 

For what it's worth, I think the break-up value of the company is significantly higher than the trading price, and Icahn isn't exactly known for his passive-buy-and-hold-forever strategy.  . .

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For what it's worth, I think the break-up value of the company is significantly higher than the trading price, and Icahn isn't exactly known for his passive-buy-and-hold-forever strategy.  . .

 

Very interesting point, and something I have neglected till now. Value is its own catalyst but......

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I'm going out on a limb and naming a company which is not all that 'cheap' on a pure p/e basis: Avanza Bank.

 

Financial data here:

 

https://www.avanza.se/aza/omavanza/doc/Avanza%20Key%20Data.xls

 

Quick outline, I'll elaborate if anyone is interested:

- No credit losses

- No trading department

- Non-brokerage income covering all expenses (and that income will increase in tandem with coming interest rate hikes)

- Savings market share of 2% while having a market share of net inflow of 6.2%

- Great culture, chaired by a famous Swedish capitalist named Sven Hagströmer, who has a huge Buffett complex, and also happens to control the company via his investment company.

- Basically all earnings are free cash flow, they pay out all their earnings in dividends. Growing the business is crazy cheap.

- Huge operating margin of 54% despite having considerably lower prices than the 'old' banks.

- They are, bluntly speaking, crushing their main internet-only competitor Nordnet

- As can be seen by their figures of 2008 (the year in which I started buying shares), they make pretty good money even in an extreme downturn scenario.

 

Despite sporting almost double the earnings multiple to when I made my first purchases, I have bought at current levels too. Even if the price doesn't quite fit you, I think this company should be on your radar :)

7x book and 22x free cash flow? Seems awfully pricey to me.
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