What are you buying today?

[york]

CPG yesterday (adding to a position that I started @ $1.90) and added $2.50 calls over a few dates to the mix today.

[Broeb22]

I took a flyer on SLQT.

[Ice77]

CRBP, TV

[alwaysdrawing]

I'm buying puts on BURL.  Retailer with 100% of stores closed indefinitely, with no sales on website, because they closed it last year (!), and trading for over 20x trailing profits.

 

If they are closed for months, they will have stale inventory,

 

This is an interesting problem for clothing retailers, or anyone else that sells seasonal goods.  How far in advance does the typical clothing retailer acquire inventory, e.g., by mid-march I assume most winter clothing is already gone.  Is the mid-march inventory primarily spring or summer clothes? 

 

Either way, it seems like there is going to be alot of out-of-season clothing around.  Would off-price discounters benefit from that?  Also, someone's going to have to eat most of that.  Will brands take some of it back?

 

Maybe off-price can buy tons of stuff cheap, but who wants Easter stuff after the holiday?  How many people just don't need new swimsuits at any price if they are cancelling their trip to Hawaii?

 

Plus, we were at all time high consumer sentiment in February....how's consumer sentiment now?  All of my friends are delaying or cancelling vehicle/house purchases, and sticking to the necessities, even if they have money.  Who is going "shopping" even if stores re-open?  And to what extent was BURL's target market (women with incomes $25k-100k) affected financially?

 

Well, they showed a huge loss as predicted, but BURL stock is up ~20% since this post. It’s strange, the balance sheet is in much worse shape, but yet the stock and in particular the EV is higher now than pre-COVID, despite far worse fundamentals. I know they mentioned higher sales in the stores they are open, but still, that’s a lot to pay for some green shoots in a scorched yard, imo.

 

I'm clearly missing something.  Mr. Market willing to pay more for lots of companies these days.  I'm honestly hard pressed to understand some of the valuations in the marketplace right now.  I still have my BURL puts, and a fair few other puts, and I certainly have had my face ripped off by the recent rally.

 

My best explanation is that this is an optimism fueled rally, bolstered by liquidity from the Fed and the CARES act.  Regular people are spending substantially less than usual, and they are putting their extra funds towards financial assets, which has a significant effect on the margin.

 

You can see definite signs of excess--HTZ stock is up a lot every day despite literally being bankrupt, with shares almost surely worth $0.  AAL has even higher enterprise value than pre-COVID.  ZM trades at 100x revenues.  How do investors expect to have cash returned by companies like ZM? 

 

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

It's possible we are in a new era.  If so, I'll likely be mostly on the sidelines until I can understand what's happening.  I am mostly in cash right now, although I also have put position for Jan 2021 on what I think are bubble names (CVNA, BURL, TSLA, ETSY, GE, SHOP, ZM, SMAR, SPLK, OZK, FXI, HSBC, etc) as well as put hedges on SPY and QQQ. 

 

I have been buying some FXI puts recently, as I think US/China tensions are significantly on the rise, and the situation in Hong Kong and Taiwan could mean a rapid breakdown of relations.

[Jurgis]

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

[alwaysdrawing]

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

 

Not happy to admit it, but I very clearly do not understand!

[buffetteer1984]

low interest rates (lower discount rate = higher multiples), massive stimulus 1/3 of GDP, quicker than expected reopening (less loss rev vs more stimulus gains), more efficient operations (better margins) from companies due to pandemic, huge cash on sidelines (missed rallies from retailers and funds), index is more service companies that benefit from low cost of capital.  These are some of the things that have been mentioned lately.  It's been an amazing 3 month ride for sure

 

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

 

Not happy to admit it, but I very clearly do not understand!

[Jurgis]

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

 

Not happy to admit it, but I very clearly do not understand!

 

It was a joke, just in case you took it seriously.

 

Good luck.

[SHDL]

more efficient operations (better margins) from companies due to pandemic

 

Would you care to elaborate on why you think the pandemic will improve profit margins? TIA.

[Guest cherzeca]

more efficient operations (better margins) from companies due to pandemic

 

Would you care to elaborate on why you think the pandemic will improve profit margins? TIA.

 

jumping in, I believe this.  anecdotally I am aware of companies that are reconsidering need levels for office space and travel.  Covid was a massive actual thought experiment that showed a lot of companies that they can reduce costs without suffering revenue loss. 

[SHDL]

more efficient operations (better margins) from companies due to pandemic

 

Would you care to elaborate on why you think the pandemic will improve profit margins? TIA.

 

jumping in, I believe this.  anecdotally I am aware of companies that are reconsidering need levels for office space and travel.  Covid was a massive actual thought experiment that showed a lot of companies that they can reduce costs without suffering revenue loss.

 

That was the expected answer, thanks.

 

However here is something to consider: Suppose you own/operate a consulting business of some kind and you notice, thanks to the pandemic, that you can cut your RE/travel costs by having half your staff work from home and Zoom-ing your clients when you need to talk to them face to face. But guess what, you are not the only one who noticed that. Your competitors did too. And so what you are going to end up with is tougher price competition which will bring your operating margins closer to where they were previously.

 

So my guess is that the end result of this will be lower prices for consumers, lower rents for CRE owners, less business for airlines etc, and little change in profit margins for the vast majority of businesses. Probably a net negative for the corporate sector as whole.

 

That said, the situation may be different for the small number of businesses that actually have pricing power. You probably want to focus on those if you want to bet on this type of margin improvement.

[Spekulatius]

low interest rates (lower discount rate = higher multiples), massive stimulus 1/3 of GDP, quicker than expected reopening (less loss rev vs more stimulus gains), more efficient operations (better margins) from companies due to pandemic, huge cash on sidelines (missed rallies from retailers and funds), index is more service companies that benefit from low cost of capital.  These are some of the things that have been mentioned lately.  It's been an amazing 3 month ride for sure

 

One thing I've been reading a lot of is people suggesting that revenues are down 20%, so it makes sense the stock is down that % too.  It's not clear to me that as many investors understand how -20% often means earnings are -50%, -100% or worse.

 

You don't understand. The fact that revenues are down 20% means that the stock should be flat or up. Since the revenue growth will be 25%+ just to get back to the old revenues! Market is forward looking, duh!

 

Not happy to admit it, but I very clearly do not understand!

 

For the company, I work for (manufacturing business) the costs have gone up across the board. Higher salaries (temporarily) additional consumables (PPE) and cleaning and the occasional shutdown when someone tests positive. We also had some supply chain disruptions although those have waned.

[valueinvestor]

SHOP, ESTC, GAN

[jgyetzer]

TWTR

[fareastwarriors]

small add to BRK/B

[Spekulatius]

FPE.MI - Italian artisan jewelry manufacturer. Got a buyout offer, but then the new majority owner decided not to go all the way due to COVID-19. The business will take a hit this year, but I think Italy will recover faster than thought. Seems very cheap for this great little business.

 

Hmm, another buyout another problem. Price for FOPE SPA seems a bit low at nary a premium. I own a few shares recently acquired at 8.4 Euros. It seems like aninvestor has acquired shares from the controlling family for 9.25 Euro and now wants to tender for shares from minority shareholder for the same price. I wonder if I should hold out for more. knowing this is Italy, I shouldn’t get my hopes too high I guess. This is a nice business I think - high end artisan jewelers sold in their own stores., worth 9x EV/EBIT? Where is Arnault?

width=600http://i.imgur.com/nemNQnJ.png]http://i.imgur.com/nemNQnJ.png[/img]

[DooDiligence]

FPE.MI - Italian artisan jewelry manufacturer. Got a buyout offer, but then the new majority owner decided not to go all the way due to COVID-19. The business will take a hit this year, but I think Italy will recover faster than thought. Seems very cheap for this great little business.

 

Hmm, another buyout another problem. Price for FOPE SPA seems a bit low at nary a premium. I own a few shares recently acquired at 8.4 Euros. It seems like aninvestor has acquired shares from the controlling family for 9.25 Euro and now wants to tender for shares from minority shareholder for the same price. I wonder if I should hold out for more. knowing this is Italy, I shouldn’t get my hopes too high I guess. This is a nice business I think - high end artisan jewelers sold in their own stores., worth 9x EV/EBIT? Where is Arnault?

width=600http://i.imgur.com/nemNQnJ.png]http://i.imgur.com/nemNQnJ.png[/img]

 

This is just anecdotal, but may add a little more color to anyone wanting to understand the industry.

 

I've been to VicenzaOro many times & if you want quality, Italy is a great place to go (bring a very large wallet with you though).

 

Hong Kong manufacturers (and Thai jewelers to a lesser extent) will copy just about anything & do a very good job of it, but will frequently use inferior quality gemstones (in particular, diamond melee). TBF they offer significantly lower prices, and something has to give, but even if you offer to pay a bit more for better melee, you'll be hard pressed to get the reliability of an Italian manufacturer.

 

That plus the established haute couture names, make for an interesting segment of the market.

 

Basically, there are 2 types of jewelers, those who sell branded (haute couture) merchandise with higher margins & slightly lower turns, and those who sell lesser brands & commoditized products at slightly lower margins & higher turns.

 

Branded jewelers tend to have higher spend on required coop adds in order to promote brands.

 

Commoditized jewelers will have more optionality with regards to participating in coop ads which become more requisite if they are members of buying groups and depending on the stroke of the brands they carry.

 

---

 

Disclaimer: My hiatus from the offshore industry, into wholsale jewelery, was an abysmal failure. I'd have difficulty selling air conditioners on the equator.

[Spekulatius]

FPE.MI - Italian artisan jewelry manufacturer. Got a buyout offer, but then the new majority owner decided not to go all the way due to COVID-19. The business will take a hit this year, but I think Italy will recover faster than thought. Seems very cheap for this great little business.

 

Hmm, another buyout another problem. Price for FOPE SPA seems a bit low at nary a premium. I own a few shares recently acquired at 8.4 Euros. It seems like aninvestor has acquired shares from the controlling family for 9.25 Euro and now wants to tender for shares from minority shareholder for the same price. I wonder if I should hold out for more. knowing this is Italy, I shouldn’t get my hopes too high I guess. This is a nice business I think - high end artisan jewelers sold in their own stores., worth 9x EV/EBIT? Where is Arnault?

width=600http://i.imgur.com/nemNQnJ.png]http://i.imgur.com/nemNQnJ.png[/img]

 

This is just anecdotal, but may add a little more color to anyone wanting to understand the industry.

 

I've been to VicenzaOro many times & if you want quality, Italy is a great place to go (bring a very large wallet with you though).

 

Hong Kong manufacturers (and Thai jewelers to a lesser extent) will copy just about anything & do a very good job of it, but will frequently use inferior quality gemstones (in particular, diamond melee). TBF they offer significantly lower prices, and something has to give, but even if you offer to pay a bit more for better melee, you'll be hard pressed to get the reliability of an Italian manufacturer.

 

That plus the established haute couture names, make for an interesting segment of the market.

 

Basically, there are 2 types of jewelers, those who sell branded (haute couture) merchandise with higher margins & slightly lower turns, and those who sell lesser brands & commoditized products at slightly lower margins & higher turns.

 

Branded jewelers tend to have higher spend on required coop adds in order to promote brands.

 

Commoditized jewelers will have more optionality with regards to participating in coop ads which become more requisite if they are members of buying groups and depending on the stroke of the brands they carry.

 

---

 

Disclaimer: My hiatus from the offshore industry, into wholsale jewelery, was an abysmal failure. I'd have difficulty selling air conditioners on the equator.

 

I think in this case, brand name, status attached to country of origin matter just as much a the quality of the merchandise. Northern Italy is well known for fine jewelers and Fope is a niche business with a global reach (85% of their revenues are foreign) that can exploit this, I think. Based on the price I paid 7 Euro and change), it trades at 7x EBIT. It’s too small for LVMH, but the new 59% owners have an investment banking background and saw value here. I hope they don‘t screw it up. I see a good chance they they follow up with a buyout when this COVID thing is over.

[kab60]

More Lion Rock Group in HK

[DooDiligence]

FPE.MI - Italian artisan jewelry manufacturer. Got a buyout offer, but then the new majority owner decided not to go all the way due to COVID-19. The business will take a hit this year, but I think Italy will recover faster than thought. Seems very cheap for this great little business.

 

Hmm, another buyout another problem. Price for FOPE SPA seems a bit low at nary a premium. I own a few shares recently acquired at 8.4 Euros. It seems like aninvestor has acquired shares from the controlling family for 9.25 Euro and now wants to tender for shares from minority shareholder for the same price. I wonder if I should hold out for more. knowing this is Italy, I shouldn’t get my hopes too high I guess. This is a nice business I think - high end artisan jewelers sold in their own stores., worth 9x EV/EBIT? Where is Arnault?

width=600http://i.imgur.com/nemNQnJ.png]http://i.imgur.com/nemNQnJ.png[/img]

 

This is just anecdotal, but may add a little more color to anyone wanting to understand the industry.

 

I've been to VicenzaOro many times & if you want quality, Italy is a great place to go (bring a very large wallet with you though).

 

Hong Kong manufacturers (and Thai jewelers to a lesser extent) will copy just about anything & do a very good job of it, but will frequently use inferior quality gemstones (in particular, diamond melee). TBF they offer significantly lower prices, and something has to give, but even if you offer to pay a bit more for better melee, you'll be hard pressed to get the reliability of an Italian manufacturer.

 

That plus the established haute couture names, make for an interesting segment of the market.

 

Basically, there are 2 types of jewelers, those who sell branded (haute couture) merchandise with higher margins & slightly lower turns, and those who sell lesser brands & commoditized products at slightly lower margins & higher turns.

 

Branded jewelers tend to have higher spend on required coop adds in order to promote brands.

 

Commoditized jewelers will have more optionality with regards to participating in coop ads which become more requisite if they are members of buying groups and depending on the stroke of the brands they carry.

 

---

 

Disclaimer: My hiatus from the offshore industry, into wholsale jewelery, was an abysmal failure. I'd have difficulty selling air conditioners on the equator.

 

I think in this case, brand name, status attached to country of origin matter just as much a the quality of the merchandise. Northern Italy is well known for fine jewelers and Fope is a niche business with a global reach (85% of their revenues are foreign) that can exploit this, I think. Based on the price I paid 7 Euro and change), it trades at 7x EBIT. It’s too small for LVMH, but the new 59% owners have an investment banking background and saw value here. I hope they do t screw it up. I see a good chance they they follow up with a buyout when this COVID thing is over.

 

I know this is a very different business than Fope & it's not intended as a comparison but Swatch bought Harry Winston around 2013. They don't break out the results in reports but they do say "Harry Winston will continue its dynamic growth trend in 2019". In recent reports they attribute slightly higher inventories to gold & gemstone purchases related to Harry Winston.

 

They own the swinging luxury watch brands Breguet, Blancpain, Glashutte, Jaquet Droz & the more pedestrian Omega. Their lesser brands include Tissot, Longines, Hamilton, Rado & of course, Swatch.

 

If you believe that the watch industry won't be decimated over time ;)  (I've never been able to get comfortable with this possibility) these guys product the vast majority of the worlds mechanical movements & escarpments. If you claim to be a luxury timepiece manufacturer & you don't produce everything down to the tiniest little spring & screw, you're not as cherished by aficionados.

 

Very clean balance sheet, possibly offset by high insider ownership which may or may not be aligned with the little people. The father built this company & the children could fritter it away.

 

Annual reports are front loaded with society page fluff & the actual numbers are buried in the back.

[LC]

bought a little livenation

[sleepydragon]

Bought a bit SLG

[sleepydragon]

MTB and Brkb

[Mephistopheles]

BRKB calls

[TrashIsCash]

SRL, GIGM, FRD (microcap net nets)