6 Sources for Company Research

I find it useful to know as much as possible about any potential investment, especially if it may become a large position down the road. Why is Company X where it’s at today? Knowing their history, philosophy, and information about current/past management teams can help you solve that question. In turn, it will help when you estimate where they’ll be 10 years from now.

Sometimes I like to take the activist investor approach: For large long-term holdings, you’re ultimate goal should be to know the company better than the management team running it. Nine months ago, there was a story on activist investor Nelson Peltz in Fortune magazine. Commenting on his research methods, the author wrote: “Peltz prides himself on knowing businesses so intimately, from factory floor to supermarket shelf, that he can systematically break down any management’s rationale for mediocre results.”

Below are 6 useful sources for researching individual companies.

Continue reading “6 Sources for Company Research”

Idea: ValueVision Media

ValueVision Media (VVTV) – $5.58

ShopNBCAlthough I planned on writing up my entire thesis for VVTV, things got a little busy and I never ended up finishing it. Thankfully, someone over at Value Investors Club has done my job for me. Click here to see david101’s writeup on ValueVision (available via a 45-day delay).

I would also reiterate that under $6 per share this is a very “heads I win, tails I don’t lose much” type of investment. There is uncertainty surrounding a few different aspects of the investment (like cable distribution costs, the transition to digital, new internet ventures) but little to no downside based on hard assets and cash. If a few things go right ValueVision could be worth 2-3x its current price. In addition to the information provided in the above writeup, I’ll add a few of my thoughts below: Continue reading “Idea: ValueVision Media”

Faulty Sears Holdings Analysis

Fachidiot (German): An excessively narrow-minded technical expert. A man with a hammer.

Sears Holdings (SHLD) has recently been the subject of much discussion among the media and investor community. Below are a few quotes from an article in the Chicago Sun-Times discussing the thoughts of Gary Balter, a retail analyst at Credit Suisse.

…Sears could be a $188 stock if Lampert would sell valuable assets such as Sears Canada, Lands’ End, distribution centers, Sears’ headquarters in Hoffman Estates, and brands such as Craftsman and Kenmore.

Yes. And Berkshire Hathaway could be a $250,000 stock if Buffett would sell everything they own except the Acme Brick Company and Buffalo News. The brands mentioned above are very valuable, but they are critical to the success of Sears Holdings as a retailer. That’s right, Sears Holdings is a retailer. It seems as though this revelation has disappointed some investors over the past few weeks. Continue reading “Faulty Sears Holdings Analysis”

Quants, charts and trends, oh my!

Photo by saibotregeel

Tariq Ali writes a great post about the follies of our fellow investing clan. I disagree with a few of the specific points he brings up but think the overall message is right on.

It’s wrong to judge the quant and technical analysis firms without knowing exactly how they work. If an investor who was just starting out asked me what style I suggested, value investing would be my answer, hands down. It’s much easier to grasp, and anyone can do it—you don’t need a PhD or any extraordinary skills. But that doesn’t mean that the other forms of investing aren’t valid.

Some traders are just lucky. Some value investors are just lucky. Both styles have practitioners who are phenomenal at what they do, and who have proved it over time. Until you’ve practiced all of these forms of investing, it’s hard to judge which is more valid.

The Headcount

Using the number of employees at a firm to judge success is misleading. Again, I don’t know much about them, but many don’t just run a single fund. Citadel for example has a wide range of investment-related activities (much like investment banks like Goldman Sachs). Also, it’s hard to get an idea of exactly how many of those employees are the actual decision makers for the portfolio (what really matters).

Warren Buffett has 1.5 employees (himself plus half of a Munger) on the investing side, and manages over $100 billion. I’d say he has done just fine over the years. There are three clear advantages to having a limited headcount. One, it avoids group-think when making decisions. Two, there’s no need to worry about “one-employee disasters”, Amaranth Advisors and Brain Hunter. And three, more obviously, it lowers overhead for small firms.

Eddie Lampert has a few dozen employees. Mohnish Pabrai has 1.7 employees. Neither is the “correct” amount as it all depends on your investing style. From what I’ve heard, Pabrai does little to no scuttlebutt. Lampert sends his analysts out on research and fact gathering missions and is constantly analyzing mountains of data regarding his positions. Both investors have proven they are highly capable and successful. Continue reading “Quants, charts and trends, oh my!”

5 Interesting 13F Buys

On the 45th day of every quarter, fund managers and institutions must file their 13Fs. For anyone managing over $100 million in assets, this list of holdings (for the past quarter) gets published on the SEC’s website. Another great resource for monitoring the portfolio’s of super-investors is GuruFocus.

Below is a list of 5 stocks that were added in the last quarter to the portfolio’s that I watch. These are either potentially interesting investments or just companies to keep an eye on.

1. The Children’s Place Retail Stores (::yahoo(“PLCE”)::) — Okumus Capital, Carl Icahn, David Einhorn — Operates 1,193 children’s stores under the Children’s Place and Disney Store names. Down recently because of lower sales forecasts, an internal investigation into policy violations, and problems with their Disney license. Put itself up for sale last month, with the former CEO (who resigned in September) as a potential buyer. Children’s Place has a cheap looking EV/EBIT ratio of 5.6x.

2. CarMax (::yahoo(“KMX”)::) — Warren Buffett — Berkshire’s buy sent the shares up over 7% today. CarMax is a great company that’s down from its recent all-time high. Growing quickly over the past few years, CarMax looks relatively undervalued.

3. Stamps.com (::yahoo(“STMP”)::) — Mohnish Pabrai — An interesting company with high barriers to entry and return on invested capital. Some downside protection with the large cash balance. If you’re confident that management will continue to grow the customer base, STMP could have a lot of potential.

4. The Home Depot (::yahoo(“HD”)::) — Eddie Lampert — Lampert is usually very concentrated, holding no more than 5-7 stocks. So any of his major purchases are worth a look. Home Depot has been beat down lately for a number of reasons. Determining how much the housing downturn will affect earnings is one of the key aspects of this investment. HD is a good company that needs some work, but could be a very successful investment in the long-term.

5. Macy’s Inc. (::yahoo(“M “)::) — Carl Icahn, Fine Capital, Okumus Capital, Snow Capital — Formerly Federated Department Stores, Macy’s has 850 stores under the Macy’s and Bloomingdale’s names. Has been running into problems ever since acquiring May Department Stores in 2005. Down 35% in the last six months. Authorized a huge $4 billion share buyback in April. Macy’s doesn’t look too cheap based on current earnings, but has potential as a turnaround.

Disclosure: I don’t own any stocks mentioned in this post.

HSN: A Future Bargain?

There have been a lot of articles and blog posts recently regarding the split-up of IAC/InterActiveCorp (IACI). Basically, IAC is an internet/retail/media conglomerate that has been trading at a discount because of its complexity. Last Monday, Barry Diller announced that IAC will be splitting up into 5 separately traded public companies. I won’t go into too much detail as it has been discussed more thoroughly elsewhere. (A few good descriptions can be found here and here).

The two divisions that I’m most interested in as businesses are HSN and Ticketmaster. Below I go over HSN in more detail. Out of all five, I think that (depending on timing) HSN, Interval and LendingTree will have the most downside pressure once spun off.

I don’t know much about LendingTree. But with what’s going on in the housing and mortgage sectors right now, investors will probably dump it in favor of IAC’s more desirable properties. Namely Ticketmaster and the IAC internet properties.

Home Shopping Network


The Home Shopping Network (HSN) is the largest division of IAC in terms of sales. Out of the businesses that IAC currently owns, HSN was also the first to be acquired by Barry Diller. It sells a variety of products over the air, 24 hours a day, in over 89 million homes across the world. HSN has a 30% share of the home shopping market, with QVC(owned by John Malone/Liberty Media) and ShopNBC accounting for the other 60% and 10%, respectively.

Continue reading “HSN: A Future Bargain?”

PetroChina: A Look Back

Warren Buffett first began purchasing shares of PetroChina (PTR) sometime in 2002 (because it was on a foreign exchange, we don’t know the exact date), and filed his first 13G on April 30, 2003. The following is a short case study of Berkshire Hathaway’s investment—from when the first purchase was made five years ago to when the entire stake was sold over the past month. For disclosure, oil companies like PetroChina are not in my circle of competence, so in this study I’ll stick to the very basic themes of the investment and simplified calculations of intrinsic value.

By the time Buffett finished buying in 2003, Berkshire’s total cost for the 2.3 billion shares was $488 million. This gives the investment an average cost per share of about $21 for the ADSS (for the rest of the post, all figures will be in US$ and refer to the PTR shares traded on the NYSE). On October 18, Buffett sat down with Liz Clayman for an interview on the Fox Business Network where she asked him about his investment in PetroChina. In addition to confirming they had sold the entire stake, Buffett mentioned that at the time of purchase he read through the annual report and pegged PetroChina’s intrinsic value at around $100 billion.

PetroChinaPetroChina was established in 1999 as the publicly traded arm of China National Petroleum Corporation (CNPC), the largest producer of oil in China. PetroChina is vertically integrated where it explores, refines, and sells oil and natural gas. Because of the company’s duopoly in China with Sinopec, PetroChina is the most profitable company in Asia. Continue reading “PetroChina: A Look Back”

The Forbes 8 Value Investor Index

Warren BuffettAfter looking over the recently released Forbes 400 list (the richest 400 people in America), I noticed the list has included more and more individuals in the “Finance/Investments” category. The growth in assets managed by Hedge Funds and Private Equity companies has been a major cause of this increase. In the Forbes 400 magazine, it shows a graphic representation of each category since the first list in 1982 (25 years ago). In 2007, Finance and Investments had the largest number of members in the list. Below I list which categories have grown or shrunk over the years:

Higher: Service, Finance/Investments, Technology, Retail

Lower: Food, Oil, Media/Communications, Real Estate, Manufacturing, Other Continue reading “The Forbes 8 Value Investor Index”

The Blow-Up Artist

For anyone who has read the book Fooled by Randomness by Nassim Nicholas Taleb, the name Victor Niederhoffer may sound familiar (if you haven’t read the book, check out this article by Malcolm Gladwell). “The Blow-Up Artist”, a great article in The New Yorker, discusses Niederhoffer’s most recent financial troubles. Although Niederhoffer and Nassim Taleb are friends, after the events of the last two months I believe that Taleb has the last laugh.

Victor Niederhoffer is a well-known hedge fund manager who got his start managing a trading firm in the 1980s. From 1982-1990, he partnered with George Soros and ran the Fixed Income and Forex divisions of Soros’ firm. Niederhoffer has published two books: The Education of a Speculator (1996) and Practical Speculation (2003). Since 2001 he has run Manchester Trading LLC, which manages three small funds with total assets under management of about $350 million at the end of June. Manchester’s main fund had returned 50% annualized through the end of 2006, earning it a prize for best performance by a Commodity Trading Adviser.

Despite the level of respect for him in the trading world, Niederhoffer is most well known for the blow-up of his hedge fund in 1997. After the Asian financial crisis and a 7% one-day drop in the Dow, Niederhoffer Investments lost a majority of its capital and was forced to close down. These losses wiped out virtually all of the gains the fund achieved racking up 35% annualized returns since inception. Continue reading “The Blow-Up Artist”

Investment Idea: MAIR

MAIR Holdings (MAIR) – $5.17

MAIR is a very low risk / high uncertainty opportunity that has identifiable catalysts to unlock value in a reasonable amount of time. MAIR is a holding company that at the moment owns a very small regional airline (Big Sky Airlines) but is a majority cash and investments. It previously owned Mesaba Airlines, which went bankrupt in 2005, and was subsequently sold to Northwest Airlines (NWA) in April of this year. The current valuation numbers are below: ($Millions)

Cash & investments 61.44
Receivable from Mesaba 13.50
Payable to Northwest (shares) (11.07)
Restricted cash (see below) 13.11
Total 76.98 ($5.13 per share)

I look at this value as the downside, assuming management doesn’t do something stupid with the cash. There are two activist investors (owning over 14% of the company) pushing MAIR to distribute excess cash and sell Big Sky, so I’m hoping this helps things out a bit. The restricted cash account is collateral for a plane hangar MAIR guaranteed to Mesaba bondholders. As long as MAIR finds a sublessor for the hangar by March 2008, the $13mm will be released. Continue reading “Investment Idea: MAIR”