As usual, a few of the best value investing links from the past two weeks:
Thesis Overview. When the Deepwater Horizon disaster occurred back in April of last year, the stock prices of BP and RIG were obviously hit very hard.
Other offshore drillers in the industry were affected as well, whether or not they had exposure to the GoM. It was a classic case of an extreme event that provided a buying opportunity for value investors.
Rational Walk does a great job of describing the evolution of his investment thesis in NE.
Since the buying opportunity back in May/June, the business has went through several major changes including a large acquisition and near-term industry headwinds that caused a re-examination of the thesis (and eventual sale).
Thesis Overview. One of the best blogs for reading about obscure stocks all over the globe, AdventuresInCapitalism does a good job of explaining his sale rationale for a small miner in Australia. The original investment thesis showcases some very detailed due diligence, and the thesis seems to have played out along the proposed lines.
However, the company announced a rights offering at only one penny, which would cause significant dilution for existing shareholders unless they participate.
Mining is a very tough business (both to operate and to invest).
Thesis Overview. Netflix has been one of the most popular stocks in our weekend values series, due to the fascinating amount of research and back and forth among management, long investors, and hedge fund managers.
Throughout the back and forth, the stock has kept rising, causing a painful situation for many of the shorts.
Whitney Tilson, the famous hedge fund manager, posted his rationale for closing out his short position. Overall, I think the entire saga shows the danger of valuation-based shorts.
Long Thesis. C-Com is a satellite broadband company trading on the Toronto Stock Exchange. The company went public in 2000 and has been profitable since 2005, earning very high returns on capital.
The company is trading around 25% higher than book value, with EV/EBITDA of 2.8x and EV/FCF of 4x, both extremely cheap. Even better, the stock has $0.17 in net cash on the balance sheet. Insiders own approx. 35% of shares outstanding.
However, as pointed out in the article, technology can change extremely quickly and obsolescence is a big risk. Investor relations are also less-than friendly.
Long Thesis. Macquarie is a holding company with a diverse set of operating businesses with high barriers to entry. The holding company is highly leveraged, but enjoys a FCF yield of 13%.
Part of the company’s covenant agreement limits the amount of cash flow that can be returned to shareholders. As operating results continue to improve, Macquarie will be able to pay out significantly more in dividends, potentially starting in the 1H of 2011.
Using a sum of parts valuation, the current share price reflects the valuation of only one of the operating businesses (IMTT), potentially throwing in the other 3 significant business units for free.
It is a complicated but well laid out thesis.
If you have links or suggestions to detailed analysis from other value investors, please drop me a line using the Contact Form.
I’m always open to ideas from other investors, especially for a thoughtful and well-researched investment articles.