As usual, a few of the best value investing links from the past two weeks:
Long. Domino’s is an established brand name that is opening up 250-300 stores per year, mostly overseas. The international segment is expected to grow 10% next year compared to 2.6% for the domestic business.
Since the international business has much higher gross margins, this growth should provide a boost to operating profits.
The business is very leveraged, so the additional free cash flow can be used to pay down debt, lowering interest expense, which therefore increases free cash flow even further – a virtuous cycle.
The author’s excel models show a potential upside of 30%.
Long. Equal Energy is a Canadian oil and gas exploration company that is turning around with the help of new management. The company current trades with a FCF yield of 25%, with a cash flow stream that is expected to grow significantly over the next 3-5 years.
The company used to be a Canadian income trust and recently converted to a normal corporation focused on longer-term value, a possible catalyst for value investors as income investors flee.
Long. The CVS drugstore chain is one of the dominant players (along with Walgreens) in a business that is unlikely to go away anytime soon. The company trades at 12x 2011 EPS, yet has a strong industry tailwinds due to the growth in generic medicine and increase in the population age.
The author also highlights the possibility of ‘free call option’ coming due in 2014, with an uptick in the number of people with prescription drug coverage (due to the new health reform law), which would provide a significant boost to CVS.
Warren Buffett released his 2010 letter to Berkshire Hathaway shareholders.
Required reading for any serious value investor, Buffett provides an estimate of Berkshire’s normalized earnings power – $17b pre-tax or $12b after-tax.
He also sees a ‘normal’ economic climate as somewhat better than 2010 but weaker than 2005 or 2006.
To quote Buffett:
“We are not natively smarter than we were when our country was founded nor do we work harder. Butlook around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and1941, America’s best days lie ahead.”
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.