What are you buying today?

[Ross812]

ASPS

 

ASPS as well. I almost doubled my position today. Ex. OCN and Insurance kickbacks you still have ~50M in net income. This is 21x for a business growing at 25-35% yoy, a good value. Add to this any of the 100M+ of OCN related revenue (ex insurance kickbacks) and you are paying a sliding scale of 7-21x for company with a long runway of 25%+ growth in front of it.

 

What are the odds Erbey doesn't take ASPS private?  I would hate to load up just to see a take-under from management.

 

That's a tough question. What are the circumstances where it would make sense for Erbey to take ASPS private?

 

1- The reason Erbey has the OCN-ASPS setup he does is to maintain control of cash thrown off by servicing OCN's assets. About 40% of ASPS revenue does not come from OCN. So ASPS would survive if OCN were to close up shop. Erbey may use the money from an OCN runoff to buy ASPS shares at 20x non OCN net income. Certainly not a bad deal for him, but I believe he would go after another debt servicing co as it is his bread and butter, not software services. 

 

2- If OCN stays in business, ASPS will continue to run more or less as usual. ASPS buy back ~4M shares ($200M w/ leverage) at low price. This would bring Erbey's share 35%. He could take it private with PE money at this point. I'm not sure this is in Erbey's interest, it is much easier to control ASPS when you have a bunch of dumb money holding the majority of your firm rather than concentrating ownership with investment banks.

 

I view (1) as unlikely to happen. Why run a software company when he can buy back into a debt servicer? He could use the money generated by ASPS during an OCN runoff to repurchase shares along with leverage and increase his ownership to 35%+ and not have to answer to investment bankers and PE managers when running ASPS.

 

I think (2) could definitely happen. If this scenario plays out, surely the share price would recover somewhat and any buyout would likely be at a 20%+ premium.

 

To rephrase: I think ASPS minus OCN is not attractive to Erbey, and I think ASPS is too cheap if OCN stays in the picture.     

[Hawks]

RDC

[randomep]

Riken Keiki (TSE:7734)

[frommi]

Finished buying my japanese basket today. Bought 9628, 1782, 4624, 9776, 7292, 5965, 7399 and 7297 over the last 2 months and have now around 25% of my networth in this basket.

Again thanks west for your incredible research!

[Hawks]

phg - finally spinning off the lighting/automotive business. Healthcare business should do well. Southeastern (Longleaf) just increased their position.

[frommi]

Intralot and NWH.AX.

[PatientCheetah]

Average up on CBI

[WeiChiLoh]

SHLDW & BCOR.

[Lance]

IWM Jan 2016 $115 puts

 

Thanks,

Lance

[frommi]

OUTR and more NWH.AX, this is now down to 33% of tangible book. I can`t really believe how fast this has fallen.

[Arden]

OUTR as well.

 

frommi, where can I read about the japanese basket you metioned?

[frommi]

OUTR as well.

 

frommi, where can I read about the japanese basket you metioned?

 

west has posted a lot of these cheap gems in the Investment Idea section.

For example http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/7292-jp-murakami-corp/msg180197/#msg180197

[Lance]

Bought:  BP and OGZPY (Gazprom)

 

Shorted:  ADBE (Adobe) and RAX (Rackspace)

 

Thanks,

Lance

[BargainValueHunter]

Sold ERF and PWE puts...

[no_free_lunch]

Bought Softbank (SFTBY).  This is a combination SOTP / jockey play.  By my calcs, softbank is selling for about 10% less than it's AliBaba stake with remaining investments basically free.  Yes, it is more complicated because of tax issues but nevertheless the discount earlier this year was much smaller.  Alibaba is not cheap and sprint is getting it's butt kicked so I am relying very heavily on the NAV discount and/or Son's abilities to save the day. 

 

This is also my alternative to buying an ETF. :)

[shhughes1116]

Added to existing positions in EPD, USAC, and CLMT. 

 

1. In general, I view EPD as fairly protected against the recent collapse in oil prices (with respect to their focus on all hydrocarbons and their very high distribution coverage);

2. I think USAC has been unfairly pummeled by the market given that it derives 85% of their fees from placing their compression units with midstream natural gas projects (and 15% of their fees are associated with compression units on already-producing crude wells);

3.  CLMT is a specialty refiner that derives most of their EBITDA from Specialty products (lubricants, waxes, solvents).  They have a fairly small business (5%-10%) that sells drilling fluids...that will certainly be impacted, but I think a ~17% share price drop is a bit extreme.  More importantly, they are getting ready to ramp up their refinery in ND, and the lower oil/gas prices should encourage more driving, which will result in a higher demand for their specialty lubricants. 

 

I have been picking over the carnage in upstream companies, but so far I've avoided putting any money to work in that area.  Maybe I am being overly cautious, but I don't think the bottom is in for those companies yet.  Moreover, if experiences from the late 80's are any indication, it is likely that there will be a fairly long window in which to pick up beaten-down upstream companies before the crude cycle turns up. 

[wachtwoord]

I bough HAL, BBL and more SLB.

[PatientCheetah]

Do you have more opinion on USAC? How are you weighting it in your portfolio (avg, under, or over)? Thanks!

 

Added to existing positions in EPD, USAC, and CLMT. 

 

1. In general, I view EPD as fairly protected against the recent collapse in oil prices (with respect to their focus on all hydrocarbons and their very high distribution coverage);

2. I think USAC has been unfairly pummeled by the market given that it derives 85% of their fees from placing their compression units with midstream natural gas projects (and 15% of their fees are associated with compression units on already-producing crude wells);

3.  CLMT is a specialty refiner that derives most of their EBITDA from Specialty products (lubricants, waxes, solvents).  They have a fairly small business (5%-10%) that sells drilling fluids...that will certainly be impacted, but I think a ~17% share price drop is a bit extreme.  More importantly, they are getting ready to ramp up their refinery in ND, and the lower oil/gas prices should encourage more driving, which will result in a higher demand for their specialty lubricants. 

 

I have been picking over the carnage in upstream companies, but so far I've avoided putting any money to work in that area.  Maybe I am being overly cautious, but I don't think the bottom is in for those companies yet.  Moreover, if experiences from the late 80's are any indication, it is likely that there will be a fairly long window in which to pick up beaten-down upstream companies before the crude cycle turns up.

[shhughes1116]

It is just under 6% of my portfolio.  I generally carry about 20-30 positions, so it is currently weighted a bit on the higher end than normal. 

 

I guess here is the 10-cent version of my thesis:

1.  85% of revenue is fee-based and generated from compression equipment installed in natural gas midstream applications.  This is pretty sticky, and the company states this in their most recent filings.  Think of it this way, you can't move natural gas through a gathering system or through a large natural gas trunk line (i.e. WMB's Transco pipeline) without compression.  These systems are long lasting, and they need compression for the life of the pipeline.   

2.  15% of revenue is fee-based and generated from gas-lift applications for crude wells.  After a well is drilled and completed, the crude output declines over time.  Producers employ secondary techniques (i.e. gas-lift) and tertiary techniques (water flooding) to improve the output of a well.  Assuming oil prices remain low for an extended period of time, the drilling of new wells will likely slow.  However, producers will desire to maintain/enhance output from existing wells by using secondary and tertiary recovery techniques.  Thus I suspect the use of compression units for gas-lift applications in crude wells will not collapse. 

3.  Their recent quarter was the first where they achieved a 1.0x distribution coverage.  During the previous quarters, the distribution coverage has been under 1.0x, but the controlling shareholders agreed to participate in the DRIP program rather than take distributions. 

4.  Their cash flow during the recent quarter was a substantial improvement from the previous quarter.  However it underestimates their true earning power because a substantial amount of new compression equipment had not been deployed for the entire quarter.

5.  They are ordering ~200k in new compression equipment for 2015, all for midstream applications.  The drop in crude should not impact new natural gas pipelines current under construction, thus the market will likely be able to absorb the new compression units. 

6.  Large, addressable market.  Compression can be provided by the producer or midstream operator.  However, many choose to outsource this work, so there is a large market with more opportunity to expand if desired.     

7.  Although USAC could operate profitably by itself, I suspect it would make a good acquisition target for one of the major oil service companies.     

[shhughes1116]

Do you have more opinion on USAC? How are you weighting it in your portfolio (avg, under, or over)? Thanks!

 

In full disclosure, I should also note that my weighting may be a bit misleading.  For reasons I won't expand upon, I am unable to invest in companies that derive more than 10% of their revenues from food, drugs, biologics, medical devices, or tobacco.  Therefore my weighting in oil, oil services, and pipeline companies is likely to be higher than others may find prudent. 

[shhughes1116]

For more information about compression, including a good overview of USAC's primary competitor. 

 

http://finance.yahoo.com/news/overview-natural-gas-compression-companies-181903522.html

 

 

[PatientCheetah]

For more information about compression, including a good overview of USAC's primary competitor. 

 

http://finance.yahoo.com/news/overview-natural-gas-compression-companies-181903522.html

shhughes1116 thank you so much for the additional insights!

[Hawks]

XOM and SU

[no_free_lunch]

Verizon.  With a 4.5% dividend yield, I don't even need the stock to do anything other than match inflation and I will do okay.  Seems like a good defensive bet.  Thanks to everyone who commented on the Verizon board.

[Lance]

SBRCY (Sberbank)

 

Thanks,

Lance