The US equity markets are showing signs of pressure. I don’t really watch CNBC, but I happened to turn it on this morning to hear the following advice (paraphrased):
Investors shouldn’t worry about the current weakness in the equity markets. In a few weeks, if we get a significant pullback, investors should think about selling.
Really? Buy high and sell low? Our rejoinder is that investors should always have cash on hand to allow them to buy on a pullback. In addition, we always look for stocks that are cheap in the first place, usually with some sort of catalyst to drive price higher irrespective of the broad market, so that market movements are solely responsible as the source of investment return.
To that end, we’ve been scouring the market, looking for temporary pricing inefficiencies and cheap stocks.
For a list of our recent research, check out our recent “alpha rich” ideas at Seeking Alpha.
Accor Group, an undervalued hotel operator going through significant business model transformation.
Lend Lease, a recent collapse in equity price is leaving Lend Lease in bargain territory.
Loral Space & Communications, a potential liquidation is a near term catalyst to align price to value.
ViaSat, explosive growth is leading to huge margin expansion in its satellite services segment.
Eutelsat, a recent price decline is offering an attractive entry point.
Intelsat, a massive deleveraging of its balance sheet signifies upside for the equity.
And finally, a fun idea for the snow enthusiasts.
Vail Resorts, interesting growth catalysts, but price does not indicate a bargain at current levels.
Value investing is difficult business. First, the discerning investor has to find undervalued securities, then compare their holdings against thousands of other securities. Because it makes sense to hold only the most undervalued securities. That means the discerning investor always has to be looking for new opportunities. If a security in the portfolio is selling at a 25% discount and a portfolio manager finds another trading at a 50% discount, the logical conclusion is to sell the higher priced security in favor of the more deeply discounted security. To make matters more difficult though, the portfolio manager must discern whether there is something to drive price higher, closer to intrinsic value, known in investing parlance as a catalyst.
While we think Reading International is undervalued by a wide margin, we aren’t sure there will be a correction in the price anytime soon considering management has voting control of the business. So while there are valuable land assets and a cash generative theater business at Reading, we are passing for now.
To read more, check out our contribution exclusive to the pages of Seeking Alpha, here.
The Father of Valuation says Facebook is a sell now. He called the bottom in September 2012, maybe he will call the top too.
Indievestr’s would rather not play the Facebook game. Too much drama, too many analysts and retail investors watching Zuck’s every move. We’ll stick to more under followed names. Like DREAM, Vivendi, and Dundee, thank you very much.
Oaktree Capital (OAK) is an alternate asset manager, focused on distressed debt investing. It is led by one of the shrewdest investors of our time, Howard Marks. His letters to shareholders should be considered required reading for folks interested in the capital markets.
We recently profiled Oaktree in an article exclusive to the pages of Seeking Alpha. Valued at $1.6 billion, the business model is highly scaleable based on its ability to be an “asset gatherer” since Oaktree is paid management fees based on the level of assets under management (“AUM”). It also receives incentive fees for performance above certain benchmarks, typically 8% as described in its 10-K.
The capital structure is a bit opaque: management holds considerable units which can be converted to Class A units. If, or when, that operation is undertaken, shareholders will be diluted. But if AUM gathering keeps growing at its steady pace, Oaktree may well be a bargain. Or if we get an economic crisis, which is when Oaktree’s investment strategies perform best.
Dreamworks is a small, animated movie production studio with over 25 feature film releases including the popular Shrek and Madagascar franchises. The share price has languished since its IPO in 2004, meanwhile the value of its content library continues to grow. Investors are now figuring it out: shares were up over 8% today after the company reported better than expected earnings yesterday.
While we think Dreamworks is still undervalued, we have trouble buying shares after such a parabolic move. We just hope we don’t kick ourselves if the shares don’t pull back in order for us to pick up a position.
With Dreamworks light weight licensing model and content rich library, we think the operating model could become similar to that of Disney (DIS). A lot of upside for content creators as smart people figure out how to monetize it in the digital world.
For more information, check out our article exclusive to the pages of Seeking Alpha here.
We recently profiled our analysis of DREAM Unlimited, a recent spin off from Dundee Corp. There isn’t much public data out there on Dream, other than digging through all Dundee Corp’s annual and quarterly reports. That makes DREAM fertile ground for bargain hunting. Valued at some $875 million, we think it’s worth something closer to $1.5 billion, conservatively.
Today, CEO Michael Cooper and company held their first ever conference call as a standalone public company to report Q2 results. As expected, there wasn’t much interest from the investment community because no one really knows about this spin off yet. They will soon enough. And we think they will bid up the price closer to our approximation of value once investors see the earnings power embedded in DREAM’s operating model.
To read more, see our first ever article at Seeking Alpha selected as “Alpha Rich” here.
We are long shares of DREAM Unlimited, a recently spun off unit from Dundee Corporation. The shares are trading for only about 8 times last twelve months earnings. That is far too low in our opinion. The best comparable we can find in the market is Brookfield Asset Management which trades around 20 times earnings.
There appears to be significant upside in DREAM.
While the advertising market continues to slump in Spain and Portugal, there are some signs of stabilization and continued growth in Latin America. In fact, Grupo Prisa recorded 4% revenue growth in H2 2013 like-for-like.
With significant cost control and a debt restructuring on the horizon, we think Grupo Prisa will increase significantly in the near future.
2012 Annual Report: Black Earth Farming.
Black Earth Farming is our latest investment idea. Cheap, under followed and set up to benefit from economic and population growth. Plus investors get leverage to hard assets: land. Fertile, farm land.