Video of Jim Ryan, analyst at Morningstar Inc., interviewed by Bloomberg’s Pimm Fox. Talks about bond insurers MBIA (MBI), Ambac (ABK) and mortgage insurers Radian Group (RDN), PMI Group (PMI).
video of interview
Disclosure (“none” means no position): Long ABK, PMI, RDN
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Here is the top ten as voted by readers at Value investing News
Using the new Google Insights for Search tool, I examine the global patterns and trends of online investors searching for information on value investing since 2004. The article includes maps of the distribution of value investing globally and in the United States. It also includes a list of the top related search terms and the fastest rising searches for value investing.
Steak N Shake reported Q3 numbers, their first under Sardar Biglari. A look at the numbers and how SNS might be simply valued.
I recently spoke with Cal-Maine Foods CFO Tim Dawson, and here are the notes from our conversation.
A funny graphic depicting the thoughts running through the average investor’s head during a market dip. Make sure it doesn’t describe your thought process!
National Retail Properties is a dividend achiever as well as a component of the S&P 1500 index. It has been increasing its dividends for the past 18 consecutive years. From 1998 up until June 30 2008 this dividend growth stock has delivered an annual average total return of 9.60 % to its shareholders.
Air Products and Chemicals Inc. produces industrial gases and specialty and intermediate chemicals and also has interests in environmental and energy-related businesses. Linked here is a detailed stock analysis and commentary.
A little look at what might have happened with Pinnacle Airlines and why Mohnish Pabrai might be selling his position.
Ever since I started analyzing stocks on my blog, I have been gathering information about several stocks in my data folders. I wanted to check what was the relationship between the ten year dividend growth rate and the ten year total return of the stocks that I previously covered on my blog.
Bruce Berkowitz must be disappointed that the current Olympic Games program doesn’t include professional money management in the competition. If it did, the veteran stock picker’s neck would be weighted down with gold right now.
The latest Berkshire Hathaway 13F was just filed. It appears Warren Buffett increased his position in IngersollRand, SanofiAventis and added a new position in NRG Energy. It also appears the holdings in AnheuserBusch were reduced.
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Remember that word? Switchgrass? It was touted as being able to fuel massive amounts of ethanol production because it can be planted just about anywhere, has short growing seasons, is not a food source and requires almost no fertilizer. Well, we may be getting closer…
Biomass Magazine reports
“Cambridge, Mass.-based Metabolix Inc. (MBLX) has created a variety of switchgrass that produces significant amounts of polyhydroxyalkanolate (PHA) bioplastics in leaf tissues. The company incorporated multiple genes into the switchgrass genome resulting in a new functional multi-gene pathway in switchgrass. Metabolix recently completed greenhouse trials showing that economically significant amounts of PHA and biomass could be produced by its new varieties.
“Metabolix has been developing technology to produce PHA polymer in switchgrass for over 7 years,” said Dr. Oliver Peoples, chief scientific officer for Metabolix. “This result validates the prospect for economic production of PHA polymer in switchgrass, and demonstrates for the first time an important tool for enhancing switchgrass for value-added performance as a bioenergy crop.”
Switchgrass has been identified by the U.S. DOE and USDA as a prime feedstock for producing next generation biofuels and bioproducts. The 2007 Energy Independence and Security Act mandated 16 billion gallons of ethanol must be produced by biomass crops, such as switchgrass, by the year 2022.”
Metabolix, Inc. is a biotechnology company that develops and focuses to commercialize alternatives to petrochemical-based plastics, chemicals and energy. Its first platform, which will be commercialized through a joint venture with Archer Daniels Midland Company (ADM), is a large-scale microbial fermentation system for producing a family of naturally occurring polymers known as polyhydroxyalkanoates, which was branded under the name Mirel.
The Company’s second technology platform, which is in an early stage, is a biomass biorefinery system using plant crops to co-produce both bioplastics and bioenergy. The Company is focused on developing entire production systems from gene to end. To exploit its first technology platform, the Company is working with ADM to build the Commercial Manufacturing Facility in Clinton, Iowa. This is also the home of ADM’s new ethanol expansion. Coincidence?
ADM currently hold 5.4% of Metabolix’s outstanding shares.
The news here is that switchgrass is becoming commercially viable. It will be a dirt cheap input for bioplastics and eventually biofuels.
Disclosure (“none” means no position):Long ADM, none
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Headed back to New Hampshire next week. Last years trip was a profitable one in that it enabled me to avoid making a mistake in buying Harley Davidson (HOG) shares back then.
I was considering a purchase of HOG shares when I stopped into a huge dealership in Laconia, NH last August. It is either Laconia or Meredith, I’m not sure where the border actually lies…
I wrote after that trip:
“One thing immediately struck me. Evey single bike in the store, almost 100 had the same tag on it “Priced Below MSRP”.
I casually asked a salesperson, “What is going on, why is everything on sale”? He replied “can’t move ’em and the new models are coming out”. HMMMM
When I asked why he though they were not selling he replied that most people had been upgrading the last few years with two things, house money (home equity) or Harley financing which is now getting harder to get and much more expensive. He said that because of this people are either sticking with the bikes they have much longer and those who are buying, are buying cheaper, lower margin bikes. For instance, a bike that was selling for $10,000 last year was being offered below $8,000 yesterday. Both of these are very bad for Harley.
When I asked what would happen if he can’t move the old models when the new ones come out, he said that they will just cut back the new model orders. Even worse for Harley.
Earlier this year when shares were at $70 I recommended waiting until they reached the mid $50’s to buy. Based on my weekend visit, they may go lower still. This is a great company that makes a one of a kind product, but, people are not buying it now and that will hurt. I think we may see share prices in the $40’s before the year is out.
Be patient and you may get a fantastic buy, later… “
So I waited…and waited until January and picked up shares at $37.96 which, unless they drop again is at levels not seen since 2003. They sit at $42 and change now for a 13% return (including dividends).
The story here is not a savvy pick but a mistake avoided by doing a little extra homework and asking a few questions of folks and the middle of the situation. Had I purchased shares then I would be sitting on a 20% loss.
Harley Davidson is still a one of a kind company with a one of a kind product. They are growing almost 20% internationally and are diversifying into the sport bike market. There isn’t anything not to like.
I will visit the dealership again next week. My hope is bikes are moving and are not marked down. If that is true then my decision is whether to buy more now. If they aren’t moving and are significantly discounted, we may see another dip in shares. In that instance, I may pick up more later. Selling shares after getting them at purchase price I got is not in the cards for a very long time…….
Disclosure (“none” means no position):Long HOG
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Fairhomes’s (FAIRX) Bruce Berkowtz gave an interview to Forbes. Here are the relevant passages for us…
Link to full article below:
Forbes.com: This has been an obviously volatile, frustrating market for investors. How do you see the market behaving for the rest of 2008 and into 2009?
Berkowitz: There are two ways you can invest: You can try to predict or you can react. We react. We look for stressed situations and buy if appropriate.
I hope that the market stays weak and tough and that it doesn’t go up much. In the last eight years the market has done nothing, and we are up 300%. This is our kind of environment.
Some companies have been destroyed, such as Sears (SHLD), which is a big position of ours. It is a huge opportunity. It is so cheap. Everyone thinks that Sears will be worthless; meanwhile, the store generates $50 billion in revenue, significant free cash flow and has tremendous assets. So the fear, or the prediction of the death of the consumer, has allowed us to react and buy a retailer like this one.
(My Note: Now, Big Pharma just scares me but not Bruce:)
Forbes.com: One of your top picks is drug giant Pfizer (PFE). How come?
Berkowitz: $17 billion of free cash, which turns out to be over $2 per share of free cash for a triple-A quality company. This is the largest pharmaceutical company in the world trading under $20 per share.
Let me make sure we all understand what I mean by free cash: It’s the amount of money that is possible to pull out of the business without hurting the franchise. Ten years ago, everybody loved Pfizer. It was trading between 40 and 50 times earnings. Today, it’s under 10 times earnings and nobody wants it.
Forbes.com: How come?
Berkowitz: Because they are all worried about Lipitor and the new president. Lipitor doesn’t come off patent for another three years, and the company is dramatically changing. There is a new CEO with a wonderful strategy.
You will see Pfizer, in my opinion, do a lot more joint ventures. I think they will become almost like Exxon Mobil, which is really a merchant bank that has the distribution, size and cash to partner up with a lot of people around the world. Pfizer will do that. People just don’t realize the number of joint ventures they have and the power of their distribution channel.
Also, the pharmaceutical companies in the past have been quite stodgy and lazy in not pursuing generics. They have given the generics away. I don’t think we will as much now. We will see Pfizer become a larger generic manufacturer. As their drugs go off patent, you will see them compete more with the generics too.
Forbes.com: You also like Mohawk Industries (MHK), which manufactures flooring products.
Berkowitz: It’s run by a great guy. [The CEO is Jeff Lorberbaum]. They are well diversified between hardwood floors, tiles, carpets. They have made a good push in Europe. What is amazing is that, for a difficult period of time, Mohawk is still generating a tremendous amount of free cash. So, you have a great manager that knows how to react when times get tough. He will come out of this with a great balance sheet, still making money during this entire period, and will be stronger and better than ever.
Forbes.com: The stock is down about 20% in the past year. One worry here is that customers will move to cheaper, lower quality products.
Berkowitz: Does it concern me? Yes. Does it make sense that people will do that? Yes. Business is not a smooth process. It’s bumpy. You have to expect these periods. The price of the stock, in my opinion, already reflects that. You know, the greatest company in the world at too high a price is nothing more than a speculation. Another company, whose prospects are looking a bit negative for the next year or two, at the right price, is a great investment.
Forbes.com: But you do like AmeriCredit (ACF), a specialty finance company that provides credit to buyers of new and used autos. (My note: Leucadia (LUK) owns 20% of Americredit.)
Berkowitz: They got caught up in the shutting down of the securitization market, which is a tough business. At the end of the day, if you are dependent on securitizations and nobody can securitize for you anymore, it can be a death blow. But with AmeriCredit, they did it the right way. They give loans to people that need cars to get to work. They do the loans based upon the income of the person, not the collateral value of the car. They do their own work as to whether or not the person can afford the car. They don’t want to sell the car to someone who can’t afford it, unlike a dealer that just wants to sell the car, get the commission and thank you very much. So they do the work and the management is smart.
They are still making a few pennies and have good cash coming in the door. They will be a survivor. So good management, good strategy, the class act in the industry and the stock has been crushed. We started buying.
Forbes.com: You’re not afraid of wading into some of the scarier sectors of the market. The fund carved out a stake in the St. Joe Co. (JOE), the largest land owner in Florida. What do you like about this company?
Berkowitz: Something good usually happens when you can buy a debt-free company that has 300,000 acres of land within 10 miles of the Gulf of Mexico, with hundreds of miles of land that touch the Gulf or the bay or rivers or coastal waterways.
There is an international airport being built right in the middle of St. Joe that opens up in May 2010. What is amazing is that billions of dollars of infrastructure are going in, compliments of the state of Florida. This is the last big play that is open for the migration of people from up north and from other areas. Also, there has never been an easy way to access the beaches. It was never easy to get to. This airport will make a difference. Then there will be commercial business.
There is a new CEO. He’s great and gets it. Once that airport opens up, that will be the catalyst. You know, we’re buying beachfront for $12,000 a square foot. The pricing is depressed, but the value of the land is quite good.
Forbes.com: What is the area like?
Berkowitz: It’s a beautiful part of the world. People don’t understand. The biodiversity is amazing. These are some of the best beaches in the United States. You want an idea of St. Joe? Look at Hilton Head before it was developed.
Disclosure (“none” means no position):Long SHLD, none
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Borders (BGP) website has not received very much attention in the MSM and think that will change very soon.
Compete.com has a post over at Seeking Alpha that illustrates it in detail but I think just two of their graphs (below) show the story.
Let’s look at Borders.com traffic since the launch:
From an average of 250,000 visits a day to just under 800,000. Now, visits mean nothing if they are not converted to sales. Let’s look:
Borders only went live in June so the early results are nothing short of spectacular. Borders has said the site will be profitable this year and one has to really wonder the magnitude of that profit.
To have the site traffic and conversions surging both in a anemic economy and during the summer season should excite shareholders (it does me at least). Can we think maybe that the reason Barnes & Noble (BKS) decided not to bid for the company was that the price being talked about was in fact too high for them? Could it be that the price was high because management (and Bill Ackman at Pershing) are seeing the early results from the web traffic and are ratcheting up their expectations for the company’s performance and hence any offer they want from a prospective buyer??
This would explain the “financing” problem Barnes & Noble allegedly used for backing off. At fist glance it did not make sense, but maybe, just maybe Borders performance this quarter has pushed the price higher than most expect..
We’ll find out next week…….
Disclosure (“none” means no position):Long BGP
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Vlado tipped me this morning to an interview with “Black Swan” author Nassim Nicholas Taleb
I am currently working my way through the book now and I tell you, once you read it, you will not look at the world the same way again.
Disclosure (“none” means no position):
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Value, Value, Uh Value, and finally Value
– Merkel makes great points
– It never died
– Dremen
– Time will tell
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Bill Ackman doubled down on a few bets this quarter
Pershing Square and Bill Ackman made some changes:
Increased Wendy’s (WEN) from 7 million to 13 million shares
Increase Puts on MBIA (MBI) from 65k shares to 870k shares (more short)
Initiated a stake in Dr. Pepper (DPS) now holding 21 million shares
Sears Holdings (SHLD), Borders (BGP) and Barnes & Noble (BKS) stakes remained unchanged.
Disclosure (“none” means no position):None
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Pershing Square and Bill Ackman just filed a 13D/A in Target (TGT)
Applicable Portion:
This Amendment No. 3 to Schedule 13D (this “Amendment No. 3”) amends and supplements the statement on Schedule 13D, filed on July 16, 2007 (the “Original Schedule 13D”), as amended by Amendment No. 1 (“Amendment No. 1”), filed on December 24, 2007, and Amendment No. 2, filed on January 16, 2008 (“Amendment No. 2”, and the Original Schedule 13D as amended and supplemented by Amendment No. 1 and Amendment No. 2, the “Schedule 13D”), by (i) Pershing Square Capital Management, L.P., a Delaware limited partnership (“Pershing Square”), (ii) PS Management GP, LLC, a Delaware limited liability company, (iii) Pershing Square GP, LLC, a Delaware limited liability company, (iv) Pershing Square Holdings GP, LLC, a Delaware limited liability company, and (v) William A. Ackman, a citizen of the United States of America (collectively, the “Reporting Persons”), relating to the common stock, par value $0.0833 per share (the “Common Stock”), of Target Corporation, a Minnesota corporation (the “Issuer”). Unless otherwise defined herein, terms defined in the Original Schedule 13D shall have such defined meanings in this Amendment No. 3. The principal executive offices of the Issuer are located at: 1000 Nicollet Mall, Minneapolis, Minnesota 55403.
As of August 14, 2008, as reflected in this Amendment No. 3, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 73,942,108 shares of Common Stock (approximately 9.50% of the outstanding shares of Common Stock), which include shares subject to certain stock-settled total return equity swaps and certain stock-settled American-style call options. The Reporting Persons also have economic exposure to approximately 26,704,413 notional shares of Common Stock under certain cash settled call options (“Options”), bringing their total economic exposure to 100,646,521 shares of Common Stock (approximately 12.93% of the outstanding shares of Common Stock).
Disclosure (“none” means no position):None
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Martin Whitman’s Third Avenue Value (TAVFX) has filed it’s 13-F
Disclosure (“none” means no position):Long TAVFX
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Here is what Sears Holdings (SHLF) Chairman has:
AutoNation (AN)= 72 million shares
AutoZone (AZO)= 23 million shares
Sears (SHLD)= 65.6 million shares
Citi (C)= 19 million shares
Home Depot (HD)= 19.5 million shares
Centex (CTX)= 608k shares
KB Home (KB)= 358k shares
SLM Corp (SLM)= 6 million shares
Full Filing
Disclosure (“none” means no position):Long SHLD, AN,C, none
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Ok, so Netflix (NFLX) has had an issue that stopped it from shipping DVD’s for a day. Am I the only one who is not sure why this is such a big deal? I mean, if your day can be ruined because your Netflix DVD will show up tomorrow instead of today, you may need to do a “priority check”.
Here is the jist of the problem.
And more on it:
CNBC ran with it for 5 minutes but I think enough is enough.
The really odd thing is that this could end up being a boon for the company. what does Netflix want to do? Push folks into the video-on-demand box. I am sure that they will offer people some discount for those affected by the mailing snafu and if they are smart, perhaps offer folks a small incentive to change their service to the online one, “so they do not have to worry about this again”.
Just idea of how to “fall in sh#% and come up smelling like a rose”
Disclosure (“none” means no position):None
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The Wal-Mart (WMT) earnings calls are usually non-events because there is no Q&A and they do not break-our detailed results for international operation. Here is some good news and some disappointing news.
– Consolidated gross margin was up 32 basis points for the second quarter, due primarily to the improvements Wal-Mart U.S. made in inventory management and merchandising flow. Inventory is one of five financial metrics that support efforts to improve free cash flow. The goal is for inventory to increase at half of the rate of our sales growth. Consolidated inventories were up 3.5% against a year-to-date sales increase of 10.4%, a good performance again driven primarily by Wal-Mart U.S.
– Return on investment from continuing operations for the trailing 12 months ended July 31, 2008 is 19.3%
– Capex, was approximately $5 billion for the first half of fiscal 2009, down from approximately $7 billion in the same period last year. As was said in mid June, they are forecasting capital spending for fiscal 2009 to be between $13 and $14 billion. This is down from our original projection of $13.5 to $15.2 billion for the total year.
– Repurchased approximately $845 million of stock, which represented approximately 14.7 million shares. Under the current $15 billion share repurchase facility, they have spent approximately $8.7 billion.
The share repurchase news is particularly disappointing after the record free cash flow results. As a shareholder, if Wal-Mart is decreasing capex, has no plans to significantly raised the dividend, then, why are they sitting on excess cash? One would think that they would expect share price appreciation over the next year and if that is so then buying more shares back now would seem to be the prudent thing to do.
They still have $6 billion under the current authorization and waiting to return that money to shareholders until later in this year or next year will be done with increasingly less impact than if it had been done last quarter.
That does somewhat sully what would have been a sterling report..
Disclosure (“none” means no position):Lomh WMT
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There was even more activity than the recent SEC Filing in Sears Holdings (SHLD) disclosed.
We all know Berkowitz went from 8.9 million to 12.3 million shares of Sears Holdings. What was not disclosed was that he added $75 call options and $60 call options, most likely when shares dipped last month.
Berkowitz bought $75 call options on 41,100 shares and the $60 calls on 358,000 shares. If exercised (along with the 354,000 shares already spoken for in the $80 calls) , Berkowitz would then own over 13 million shares.
There is going to be a short squeeze in this stock the likes of that have not been seen in a long time.
Disclosure (“none” means no position):
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