When I wrote last weekend about Cash America International (CSH – NYSE), the stock was trading at $41.76. On Friday, the stock closed at $48.08, a gain of 15%. In the post, I wrote that the shares had the potential to rise “15%-20% over the coming year.” I definitely didn’t think it would get the entire gain in one week. So what happened? Continue reading
I recently ran a screen for mid-cap companies that could best described as “value” plays. The goal was to find companies that weren’t broken, but for one reason or another had either lost their way or had been left behind by investors. Twelve names appeared on the list. I have done work on two of the names. I am currently long both. The first – Superior Energy Services (SPN – NYSE) is up over 7% since I got in less than 2 weeks ago. Given the run, I will save that topic for another time. The second, which is the subject of this article, is up just over 2% since I initiated my position. Over that period, the market is up approximately 1%.
Elevator pitch: recession resistant sector; focused on an underserved market; as consumers see lower take home pay as a result of higher payroll taxes, demand could rise as their spending habits will be slower to adjust; finally, the business should benefit from a rise in gold prices. The focus of this post has a number of additional positives. The company has grown book value per share each of the last five years at an average rate of 16% (Warren Buffett would be proud). Net revenues and EBITDA have grown an average of 14% and 16%, respectively, over the past five years. The opportunity lies within the depressed EBITDA margin which is 200 basis points below the 5 year average (as a result of several management missteps). If the company is able to get just half of the lost EBITDA margin back, the shares would rise by over 8% – without multiple expansion. The stock trades at a significant discount to the market multiples of comparable companies and sits 31% below the all time high reached in September 2011. It’s not all gumdrops and rainbows. Regulatory risk is an issue but seems largely priced in the shares. Interested? If so read on to find out why these shares have the potential to rise another 15%-20% over the coming year.
As the Staples commercial goes: “That was easy”. On my birthday, SuperValu (SVU) gave you – my valued readers/followers – a present. The gift came in the form of an agreement to sell its “banners” to an acquisition consortium lead by Cerberus. The deal consists of $100 million in cash and the assumption of $3.2 billion of debt. More importantly, for SVU shareholders, the transaction comes in the form of a $4.00 per share tender offer for 30% of the outstanding shares.
At the time of my bullish post, the shares traded at $2.68. At Friday’s close, the shares were trading at $3.53 – a nice return of 31.7%. If successfully completed, the total return since my post would equal 49%, an additional 13% higher than the current price. Similar to my post “Down So Long it Looks Up – Zipcar”, the announcement of the SVU transaction touted the fact that it the offer was a 50% premium to the 30 day average closing price. However, it failed to mention that SVU shares traded north of $7.00 one year ago (or that it was trading at $5.29 in July when it announced that it had hired bankers to perform a “strategic review”). So the question remains, is the offer high enough and what is a shareholder to do now?
Case closed. I first wrote about Zipcar (ZIP) on April 19, 2011 when the stock traded north of $26. Then I revisited the stock in July of 2011 when the stock was trading at $22.51 (after having touched $19.35). In the post, I stated that “While I would applaud the fact that the underwriters’ analysts came out of the gates with “Neutral” ratings. I don’t think they went far enough”. Today, almost 18 months later, this hit the wires: “Avis Budget Group to Acquire Zipcar for $12.25 Per Share in Cash”. The companies involved touted the deal for its “49% premium over the closing price on December 31, 2012”; however, the release failed to mention that ZIP went public less than two years earlier at a price of $18. By my math, that means the take-out price was 31.9% BELOW the IPO price. Not to mention, the stock had a bubblicious IPO stock pop and opened up at $30 – this means the average investor is down far more than 32%. If you shorted the stock when I first wrote about it, you gave back some of your gains with today’s pop, but you’re still up over 53% (I would hope you took gains long ago – pigs get slaughtered!). What happened? Continue reading
I’ve penned the first of what may be more articles on young gold mining company Pershing Gold (PGLC), a stock that while trading in the ~$0.40 range recently, could be trading at several times that in the next 1-3yrs.
You can read the full article at Seeking Alpha or on my Forbes column, “Fundamentally Speaking”
Please heed the disclosures attached to both, and as always:
CAVEAT EMPTOR
This post is about a company that has been all over the headlines lately. As I tweeted two weeks ago, I went “all-in” on SuperValue (NYSE: SVU) when the stock traded at $2.38 (my average cost is north of that figure). Why did I put all of my chips on the table? After “running the numbers,” I concluded that deal or no deal, SVU offers substantial upside.
Or Wall Street Doesn’t understand Washington
HousingWire and the Wall Street Journal both recently carried articles about the DeMarco Trade. The DeMarco trade is the idea where market participants believe Government Sponsored Enterprise (GSEs) guaranteed mortgage backed securities (MBS) will have a significant increase in prepayments as DeMarco is replaced in the first or second quarter of 2013 and the new Director of Federal Housing Finance Agency will allow immediate principal forgiveness for GSE MBS. The GSEs will cover the losses to investors in the form of immediate principal prepayment. If true then investors should be flocking to Principal Only (PO) or heavily discounted 06-08 vintage GSE MBS.
However, anyone who buys into this trade should 1) have their head examined and 2) learn how the government actually works. The DeMarco trade makes several assumptions which history and facts have proven false over time.
Assumption: The Obama administration anger over DeMarco’s refusal to agree to principal forgiveness makes him an early target for removal.
The Administration, like the GOP, didn’t trust Nat Silver’s statistics and worried how they were doing in the polls. Principal forgiveness seemed like a great idea to help out many struggling homeowners and an economic stimulus without adding to the federal debt thereby generating votes. Based on press at the time, Geithner was especially upset by DeMarco’s resistance to the idea. When DeMarco finally said no after months of delay (or “study as he called it), Treasury retaliated by changing the preferred stock agreement to sweep all of the GSE’s so that they will never leave conservatorship leaving only a path at some time in the future for receivership.
And unlike High School, politicians don’t stay angry when political bigger game is available to hunt.
Moreover, with the election over, President Obama has bigger appointments he needs to worry about including Secretaries of Defense, Treasury, State, Energy, and Commerce and a permanent chair of the SEC. The fiscal cliff negotiations will determine how many chips he has earned or lost to set up who he nominates for positions. For instance, the GOP helped to kill the Rice nomination for Secretary of State to, hopefully for them, to force Obama to nominate Kerry and thereby allow soon-to-be former GOP senator Scott Brown to reclaim his job.
DeMarco isn’t on his immediate todo list.
Assumption: GOP will roll over on FHFA Director nomination.
Senate GOP are licking their wounds after losing three of their colleagues in the election and are willing to fight to keep DeMarco in office because he helps their agenda (which could change and then they would scream for his removal). As I said Obama has bigger issues to fight than housing. Senator Shelby will very likely repeat his winning performance by blocking any Obama nominated candidate. Senator Shelby enjoys and earns political points at home being the thorn in the side of the Administration especially in his roll as Ranking Member of the Banking, Housing and Urban Affairs Committee.
For those with a sort memory, Obama nominated Joseph Smith, the head of North Carolina’s banking regulator who is widely respected by the industry. Senator Shelby (of Alabama) screamed Mr. Smith was too weak on banks and therefore held up his nomination. Mr. Smith withdrew his name for consideration in frustration. (As an interesting side note, “the weak” Mr. Smith was chosen by state Attorney Generals to administrate the five bank robo-signing settlement including the one from Alabama in February 2012)
Expect a bruising confirmation should a candidate be nominated.
Assumption: Obama will use a recess appointment to remove DeMarco
Recess appoints are temporary appoints that last only a year or so creating a bruising battle when the next nomination comes up. Recess appointments are also shut out from getting the position on a permanent basis. Recess political appointees also tend to have a tough time in front of the senate, which has far reaching subpoena powers. If they senate appointments were so easy, more appointees would be in place.
Secondly, GOP has figured out a procedural trick to keep congress open so the President can’t perform a recess appointment without extreme difficulty. The appointment of the Consumer Finance Protection Board director recess appoint was done with significant issues including a lawsuit questioning its legality. Don’t expect a FHFA recess appointment anytime soon.
Assumption: Obama will appoint him in the first quarter 2013
Not true! With the Mayan Apocalypse occurring 12/21/12, Obama won’t have time to appoint anyone.
Good luck with your trades.
As many of you know, I’ve been saying JOSB has several – if not many – orange/red flags in its SEC filings, advertisements, and stores. This past weekend, I decided to pop into the JOSB store in Hoboken, NJ (right across the Hudson River from Manhattan for those not familiar with the area) to see if I could glean any information before the storm hit.
Almost two years ago I wrote a post, Lessons From Dad, Part I. I’m not very good at this sort of thing, I’m not Josh Brown or James Altucher or the other folks who are, but this is happening, and I think many of you may be able to relate.
I wear my heart on my sleeve and a massive, massive chip on my shoulder. My father has overcome adversity the likes of which I cannot imagine, but that was largely explained in Part I. I’m writing this to try to focus on my mistakes in dealing with Dad (and Mom, and Sister, and…you get the idea, though there is a limit for sure), especially recently. If you follow me on twitter, you’ve hopefully ignored these things, but I categorically refuse to delete them nor any tweet that doesn’t have a ridiculous typo messing it all to bits.
Now to the point, and why I hope you learn from my mistakes, and why I hope I learn from my mistakes; after all, it’d be pretty embarrassing to have the blog motto “those who fail to learn from history are doomed to repeat it” if I didn’t follow my own advice, no?
As I routinely warn investors, myopia is, for lack of a better phrase, a bitch, to put it as gently as possible. I’ve learned or been reminded recently that this applies to family relationships as well. This is not an unimportant distinction as it has many analogues to finance and our lives we so chose therein. My last post went into a bit of detail about what it is like when your family has nary a clue what you do all day besides stare at a screen (or several) all day. And heaven forbid you start your own firm, oye vey! My reaction since I did the latter has been to try to explain what I do to my family, to little, as far as I can tell avail.
But maybe I’m wrong. Maybe I haven’t explained it properly or accurately. Naturally I doubt this, but that is, I think, something endemic to alpha males particularly, and while I’m no Darwin, I don’t think you can deny heredity. I didn’t get (relatively) intellectually curious, scientifically oriented and become a decent musician by sheer luck (with the caveat that I’m not a Dr, again, I imagine this is also while I’m Steven Schwartzman’s height, too). I presume I also didn’t inherit my father’s – and I can’t spell this word to save my life despite being in the 98th% or something on my SAT verbal – sticktoitiveness – tenacity, stubbornness, and tendency to psychology repress many emotions. I’d talk about what I inherited from mom but that’s perhaps a post for another time. I love both of my parents, but as I approach 30 years, given my audience, Dad is now a better lesson, I think.
Dad taught me how to solder, about building electronic circuits, how to check mostly everything on a car, how to tie a necktie (although I’m better at it now, naturally), and so many other things. More importantly, he taught me not to be a total prick, even if avoiding so doing hurts me financially or otherwise; a rarity, I think, in a business that has rewarded so many so much for being exactly that. How some of those lessons happened is unimportant, but over the years, they happened, the most recent over the past month or so.
I was, I don’t know, bitter, that my father, while brilliant and perhaps the best Dentist in the U.S, never asked me, if memory serves correctly (it may not), for financial help (dare I say advice?) until it was too late. The details are, again, largely no one’s business outside the family, but bear with me.
You only get one mother and father. They brought you into the world and if you’re half lucky, your upbringing didn’t suck. I am still struggling with this, but I am pretty damn sure I would be endlessly depressed were one of my family members to cease to exist unexpectedly. Like if you have 100% of your money in 1 stock that turns into Enron, but so much worse. Inexplicably worse. 1,000,000 million million times worse, but infinitely worse than that.
Dad (and Mom) tried to explain all this sort of thing as I was growing up, but I have been known, particularly with family, to be difficult at times (see my heredity comment above). I’m still working it out or at least trying, imperfectly so, but the point is even if you’re a black-hearted asshole with an irrevocable trust fund, try to make it work with your family; they’re the only one you’ve got, and even if you’re a complete pragmatist, family stress due to stubbornness (etc) is going to make your professional life so much more difficult. Trust me. Been there, done that, and it is so horrible, just horrible; its not in your own best interest to be a bastard to them, however uncomfortable the dynamics can get.
As my Dad has said, I’ve a unique talent for shooting myself in the foot. Whether he is correct in his assessment matters not, his point is well made. While we may argue sometimes, he and my mother care about me, even if they have ways of expressing it that I don’t always understand or comprehend. I’ve spoken with a lot of people from various backgrounds, and this seems, in my experience, to be fairly universal, even if your parents are complete sociopaths (which mine are not, in case you’re still wondering).
I don’t know about you, but I never want to regret anything. Academically, professionally, personally, whatever. I certainly do not want to regret anything happening to a family that despite me being an ass sometimes, worked so hard to make me into a person they’d be proud of.
While some of my friends like Josh Brown (the first who came to mind – read his book, by the way!) are far better at this story-telling thing than I, well, sometimes things happen that compel you to give it a shot, so bear with me, please.
Stone Street Advisors LLC is the 5th project/company upon which I’ve embarked/started in the past decade or so (I might be missing a project or two but you get the idea). During this time I’ve held two real (“real” = traditional) internships at established firms and two real jobs at global banks. Read: I know what it’s like on both sides, so don’t bother trying to discredit the following argument so simply, I promise I’m not wasting your time.
Moving on…
Each one of my endeavors has been purely bootstrapped – no funding besides whatever I had in my checking account, and said adventures run the gamut from 2 web/e-commerce sites started while in college to spending the better part of 2 years on an investment banking type business for luxury assets (think mega yachts, jets, etc), to now, for the past year-ish, this; running a boutique investment research firm catering primarily to hedge funds and the like.
Each and every time I’ve started a new project/company (even while in school and/or gainfully employed otherwise), the vast majority of people I know think I’m insane and should just focus on my job/studies or get/stick with a real job (I really hate that term, if its not entirely apparent yet). While its amazing, in hindsight, just to get a regular paycheck & benefits or just being a normal student, some people – apparently myself included – aren’t cut out for being content doing it that way. No complaints, just fact of the matter.
Given that I’ve had real jobs, and apparently fake ones (like running a startup, the enterprises that drive the very economic development so desperately needed in this country, apparently doesn’t count as a real job?), I think I have a fairly decent perspective here, especially since I started at such a young age (18), and my start-ups have never really been in ‘hot’ sectors where venture capitalists and angel investors line up to throw money at you the more nonsensical your firm’s name sounds (Note to self: come up with ridiculous sounding tech company with no chance of profitability but a massive “untapped” market).
When I was an investment banking intern at an unfortunately now defunct bank, my job was well defined, to the point where I sincerely hope I don’t need to explain it, and the hours were as expected. When I interned in corporate development at a storied Bell Labs spinoff, I worked 40-50ish hours/week on corporate strategy and all sorts of other things, but my job was still relatively well defined. After graduation, as a junior investment banker, I did whatever the hell my bosses told me and worked as many hours as it took to get it done on time, but the job is still relatively well defined (Meeting at 9am, invariably get an assignment due before that the next day, attempt to master Excel models until 3am…). After that, when I worked in operations at a global brokerage, my job was painfully well defined, as were the hours. The shrink I saw then said I shouldn’t talk more about it (not really, but it was a traumatic time and I don’t care to discuss it further, besides to say that it was the polar opposite hours/responsibility of what I do now).
When I started Stone Street Advisors, I knew my job should be to identify investment opportunities that presented great risk adjusted return potential, and sharing that with clients or the investing public while between clients.
If you missed it, the operative word in the preceding sentence is “should.”
While no startup zen master, this was not my first rodeo, so-to-speak, as I mentioned earlier. It was (and is), however, my most risky and ambitious, with the utmost serious consequences for the remainder of my career in finance. For those yet to grasp the point: If I screw this up, I could be working the night shift at McDonalds the rest of my life, or worse. Capiche?
So, while I would love to spend all of my time as an investment analyst, because I own & draw my livelihood from the company, I’ve had to do everything myself (with some exceptions thus far). What is “everything,” you ask? Well:
- My primary analyst job, AND (in no particular order):
- Editorial/publishing
- Sales/marketing
- Media relations
- Client prospecting
- Bookeeping
- Website management/development
- Corporate strategy
- Treasury/capital management
- HR (even small firms have several of these issues)
- Legal (lots of it, lawyers are expensive so you try to do all you can yourself)
- Tax (same)
- IT (you think corporate IT is bad? Try doing it all yourself!)
…I could keep going but those are the main hats I wear, the main jobs I do on a regular basis. I’m not complaining; I chose this path voluntarily, and, if I pull it off, I should – if we’re going to keep up with industry parlance – earn good risk adjusted returns, if not better, as the company grows to scale (which it is, for those wondering).
I don’t screw around on the internet all day (although I did sometimes during one former “real job,” imagine that), no more so than the pioneers of computer software (some of you may call them hackers) just stared at their screens and listened to loud music. Every entrepreneur who starts a company without a trust fund/rich family friends/a hot tech idea should be able to relate, I hope, just as I hope those of you who’ve only held “real” jobs understand that calling Dell directly is infinitely worse than calling internal IT, and doing your own compliance is far, far harder & time-consuming than dealing with corporate, etc, etc. (For business founders, there is a BIG difference between biting off more than you can chew, ever, than starting a company that can scale, but that’s a longer conversation.)
Trust me, I’ve been on both sides. Starting this company & doing it all (mostly) alone is almost a Sisyphean task compared to the support you get with a real job. I’m not up all Saturday night/Sunday morning during prime NFL season (one of my only respites) writing/publishing/editing over 1,000 words because I want to do it now, but rather because this is when I have the time. I’m sure many of you also work on weekends, too, so you know what I mean, I think, although besides friends in law/accounting/consulting/finance/medicine, I don’t know many who have a 50+ page report with their weekend drink(s) of choice, but such is the life we choose.
Case in point, whenever people ask me why I don’t have a “real” job or even more infuriatingly, tell me to get one, I want to say, as politely as possible, in the words of Guns & Roses (warning: explicit lyrics):