I mentioned John Malone recently because I just watched an interview he did. Then I noticed Whopper Investments recommended Cable Cowboy which is a book about John Malone and TCI. And now, I see from Asif Suria’s “Insider Weekends” that on December 18th John Malone bought $56 million of Liberty Media (LMCA) stock.…Read more
Some readers emailed me about the fact that a company from my list of 15 Japanese net-nets I put out in a 2011 report is going private. The company is Noda Screen. It is up 124% in the last year. But only 32% since my “Buy Japan” post in March of 2011. Another company from the net-net list, Sanjo Machine Works, was taken private about a year ago.
For details on how Japanese net-nets performed from early 2011 through early 2012 see the post “How About Those Japanese Net-Nets” at Oddball Stocks.…Read more
A lot of value bloggers have a problem with the management of Urbana. I don’t. But I do have a problem with the price of the portfolio that will be left after this merger. If you look at the stocks that make up the bulk of Urbana’s portfolio – which will be CBOE (CBOE) and some amount of Intercontinental Exchange (ICE) – these are pricey stocks.
Still, Urbana’s discount to net asset value was recently about 50%. It is a stock worth watching because the discount to NAV is often big and the portfolio is easy to understand. But the underlying assets are not something I’m interested in.
My favorite holding companies to invest in are situations where I like the underlying assets and think they are reasonably priced and then I get a discount to NAV. At Urbana, I think the discount to NAV is the only attraction.
But if you want to invest in securities exchanges, Urbana is the place to start.…Read more
Two people I know have brought up the same stock idea to me: QLogic (QLGC). Someone I email back and forth with brought it up as an example of a company that has been a constant buyer of its own shares. And now The Graham Disciple has written about QLogic. His focus is on the balance sheet.…Read more
Warren Buffett’s Berkshire Hathaway (BRK.B) put out a press release announcing it bought back over $1.2 billion of its own stock. Berkshire also announced it will pay up to 120% of book value for its stock. Previously, Berkshire had been willing to pay 110% of book value.…Read more
Value and Opportunity has an excellent post on holding company discounts. The key point of the post is the division of holding companies into 3 types: value adding, value neutral, and value destroying.
Excellent point. I would take it a step further. The issue with the discount that should or shouldn’t be applied to holding companies is capital allocation. Capital allocation has a huge influence on long term returns in a stock.
But not just holding company stocks. All stocks. A company that buys back stock when it’s cheap deserves to trade at a premium to other stocks. A company that issues stock when it’s cheap deserves to trade at a discount.
I recently looked at a list of good, cheap U.K. businesses. I passed on most of them. Not because they were too expensive. Most were cheaper than similar quality U.S. companies. I passed on the U.K. companies because they tended to issue shares over the last 10 years.
Some of these U.K. share issuers traded around enterprise values of 6 times EBITDA for much of the last decade. Interest rates were not high during the last 10 years. Issuing stock at 6 times EBITDA is criminal. I don’t care what you were acquiring. You can’t make money doing it by issuing such cheap currency.
Capital allocation at non-holding companies is critical. And often overlooked. Because it’s complicated. Take Western Union (WU). Western Union made several acquisitions over the last few years. They overpaid.
That’s the bad news. The good news is that Western Union never stopped buying back its stock. And when they needed money – they borrowed. They didn’t issue stock.
Let’s take a look at CEC Entertainment (CEC). This is Chuck E. Cheese. The stock has returned 8% a year over the last 15 years – versus 4% for the S&P 500. That’s impressive for 2 reasons. For most of the last 15 years, Chuck E. Cheese’s operations have been getting worse – not better. Margins have dropped virtually every year for the last decade. And the stock is cheap right now. EV/EBITDA is about 5. It’s hard for any stock that cheap to show good past returns – an incredibly low end point is incredibly hard to overcome.
I doubt anyone is applauding CEC’s board. But they should be. It would’ve been very easy to deliver returns of zero percent a year over the last 15 years.
Operating income peaked 8 years ago. Earnings per share kept rising for the next 7 years. Shares outstanding decreased 57% over the last 10 years. Those are Teledyne like number.
Some might argue the return on those buybacks has been poor. And they would have been better off paying out dividends. Maybe. But let’s consider another alternative – the one most companies actually take. CEC could’ve invested that cash – not in buybacks or dividends – but in expanding the business.
Investors make an arbitrary distinction between operating companies and holding companies. They …Read more
Everybody is narrow minded in their own way. I’m no different. And this blog suffers for it. But we each have our own style. And it wouldn’t do much good for me to write about stocks that don’t fit that style.
So, today I thought I’d point you to some other bloggers talking about two stocks that wouldn’t appear on this blog – but might just match your style.
Both pairs of posts are worth reading.…Read more