More big-time investor are taking stakes in Borders (BGP)
Baupost Group, a hedge fund run by deep value investor Seth Klarman, showed a 8.22% stake in (4,971,600 shares) as of the quarter ended 3/31/08. The firm did not show holdings in Borders at the quarter ended 12/31/07.
Baupost Group manages $7+ billion and has returned approximately 20% annually since its inception. Klarman was in the first group of inductees to Alpha magazine’s Hedge Fund Hall of Fame.
Klarman is the author of “Margin of Safety”, one of the hardest finance books to track down today. Published in 1991, it is now out of print, and sells on Amazon and Ebay for over $1000. It is even one of the most-stolen library books, making it very difficult to find a copy to read.
I was sent a copy of Pat Dorsey’s “Little Book That Builds Wealth” for a review. Loved it.
Dorsey spend the bulk of the book talking about moats. What are they, how to spot them and what do fake ones look like.
Perhaps the most valuable lesson a potential shareholder can learn is what is a business moat and why does it matter.
Dorsey says: “Durable companies- that is, companies that have strong competitive advantages- are more valuable than companies that are at risk from going from hero to zero in a matter of months because they never had much of an advantage over their competition…… Companies with moats are more valuable than those without.”
He goes on the tell readers how to identify a and more importantly, how to recognize an advantage that is not enduring but temporary giving potential investors a “false sense of a moat”. He give great examples from the dot.com era as evidence of what seemed at the time like an enduring advantage but proved fleeting in the end, leaving shareholders crushed.
Chapters 8 and 9 are the key ones and they talk about “eroding moats” in businesses and how to actually find a business with a moat. In both chapters he gives concrete examples to illustrate what he is talking about.
There are other chapters such as valuation tools, what does management really matter, and when to sell. for me though, all of those chapter are secondary to the identification of a moat in a business. Without that, the other lesson and tools seem to me to be secondary as those calculations, if based on a flawed initial premise mean nothing.
The book is worth reading more than once if for no other reason the lessons in it are so important, it behooves investor to really understand them.
I was sent a copy of Pat Dorsey’s “Little Book That Builds Wealth” for a review. Loved it.
Dorsey spend the bulk of the book talking about moats. What are they, how to spot them and what do fake ones look like.
Perhaps the most valuable lesson a potential shareholder can learn is what is a business moat and why does it matter.
Dorsey says: “Durable companies- that is, companies that have strong competitive advantages- are more valuable than companies that are at risk from going from hero to zero in a matter of months because they never had much of an advantage over their competition…… Companies with moats are more valuable than those without.”
He goes on the tell readers how to identify a and more importantly, how to recognize an advantage that is not enduring but temporary giving potential investors a “false sense of a moat”. He give great examples from the dot.com era as evidence of what seemed at the time like an enduring advantage but proved fleeting in the end, leaving shareholders crushed.
Chapters 8 and 9 are the key ones and they talk about “eroding moats” in businesses and how to actually find a business with a moat. In both chapters he gives concrete examples to illustrate what he is talking about.
There are other chapters such as valuation tools, what does management really matter, and when to sell. for me though, all of those chapter are secondary to the identification of a moat in a business. Without that, the other lesson and tools seem to me to be secondary as those calculations, if based on a flawed initial premise mean nothing.
The book is worth reading more than once if for no other reason the lessons in it are so important, it behooves investor to really understand them.
So, Sears (SHLD) released its 10-Q today and there is nothing really that was not disclosed yesterday save 1 item.
On page 7, there is a $23 million “investment in equity securities” classified as “Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. “
from the annual report, as of Feb. 2 “We purchased 5.3 million shares of common stock of Restoration Hardware, Inc. (“Restoration”), a specialty retailer of hardware, bathware, furniture, lighting, textiles, accessories and gifts during 2007. Our investment of $30 million represents an ownership interest of 13.67% of Restoration’s total outstanding shares.”
Based on Restoration’s (RSTO) share price on 5/2, the date of the valuation on the 10-Q Sear’s still holds its Restoration stake.
It also appears that Sears may end up being able to take their buyout proposal directly to shareholders and the current buyout is being contested in court
Disclosure (“none” means no position):Long SHLD, None
FRIDAY’S PICKS Jeff Macke recommends getting long J. Crew (JCG) $46.91
Guy Adami prefers Tesoro (TSO) $23.26
Karen Finerman likes Citigroup (C0 $22.04
Pete Najarian thinks Chesapeake Energy (CHK) $52.31 is a buy.
THURSDAY’S RESULTS Guy Adami recommends Celgene (CELG) $58.53 CLOSE $60.555 GAIN
Karen Finerman prefers WellPoint (WLP) $55.48 CLOSE $56.55 GAIN
Pete Najarian suggests Amylin (AMLN) $30.98 CLOSE $32.38 GAIN
Jeff Macke thinks Yahoo (YHOO) $27.16 is a sell. CLOSE $27.07 GAIN
2008 Records: Brian Schaeffer= 0-1 Carter Worth= 1-1 Jon Najarian= 4-3 Jeff Macke= 41-34-1 Tim Seymore= 17-14 Guy Adami= 43-36 Pete Najarian= 39-37 Karen Finerman= 38-31-1 Joe Terrenova= 1-3
2007 Results (Since 6/21): Guy Adami= 58-46 = 56% Jeff Macke= 60-40 = 60% Pete Najarian= 49-41 = 54%
I finally get to change the disclosure at the end of this now daily post. In a just released SEC filing Sears’ (SHLD) Chairman Eddie Lampert upped his AutoNation (AN) stake to 71.245 million shares or 39.9% of the total.
Combined with my purchase of AutoNation shares today, Lampert and I effectively have control of, well, 39.9% and change (small change) of the company giving us a controlling interest in the nations largest auto retailer….
Target’s (TGT) CFO said earlier this week the company could potentially pay a higher dividend, following an increase to the payout last year. “I clearly think that there’s room to increase the dividend,” Chief Financial Officer Doug Scovanner said at a conference broadcast on the Internet. But he added: “I do not believe that we are likely to fundamentally alter the dividend yield in any abrupt kind of way.”
Last June, Target increased its quarterly dividend by 2 cents per share to 14 cents per common share for a current yield of 1%.
Target has been using excess cash to buy back shares as part of a $10 billion share repurchase plan announced in November after agitation from Bill Ackman. It has said it expects to complete half or more of the stock buyback program by the end of the year.
Why is even talking about a dividend that yield 1%? It is out there now. Because you were ambiguous about it, people will want it increased and will be upset when you do not deliver. Why create an issue over a 56 cent annual payout? Now, admittedly this is not a onerous as a earnings “guarantee” but the fact that hew did not dismiss it, and actually gave it credibility will give it life.
If that is not in the plans, just say so. Dismiss it, put it to bed, and move one. Do not let it linger for people to run with.
Anything short of doubling the dividend keeps it insignificant for shareholders, ignore it. To be honest, they would probably do better by shareholders by scrapping the stupid thing and using the same cash to repurchase shares. I mean 1%?
Think about it. Target will spend about $460 million this year on dividends. At current prices they could use that to repurchase 8.2 million shares of 1% of the outstanding total. I would argue doing that each year would benefit shareholder more than a 1% yield will. Now, as they continue to repurchase the shares, that same money would by incrementally more of the outstanding number on a percentage basis.
There is a reasons that investors like Ackman, Lampert and Berkshire’s (BRK.a) Buffett never talk about 1% yields when talking about investing. There are better uses for the cash.
Target’s (TGT) CFO said earlier this week the company could potentially pay a higher dividend, following an increase to the payout last year. “I clearly think that there’s room to increase the dividend,” Chief Financial Officer Doug Scovanner said at a conference broadcast on the Internet. But he added: “I do not believe that we are likely to fundamentally alter the dividend yield in any abrupt kind of way.”
Last June, Target increased its quarterly dividend by 2 cents per share to 14 cents per common share for a current yield of 1%.
Target has been using excess cash to buy back shares as part of a $10 billion share repurchase plan announced in November after agitation from Bill Ackman. It has said it expects to complete half or more of the stock buyback program by the end of the year.
Why is even talking about a dividend that yield 1%? It is out there now. Because you were ambiguous about it, people will want it increased and will be upset when you do not deliver. Why create an issue over a 56 cent annual payout? Now, admittedly this is not a onerous as a earnings “guarantee” but the fact that hew did not dismiss it, and actually gave it credibility will give it life.
If that is not in the plans, just say so. Dismiss it, put it to bed, and move one. Do not let it linger for people to run with.
Anything short of doubling the dividend keeps it insignificant for shareholders, ignore it. To be honest, they would probably do better by shareholders by scrapping the stupid thing and using the same cash to repurchase shares. I mean 1%?
Think about it. Target will spend about $460 million this year on dividends. At current prices they could use that to repurchase 8.2 million shares of 1% of the outstanding total. I would argue doing that each year would benefit shareholder more than a 1% yield will. Now, as they continue to repurchase the shares, that same money would by incrementally more of the outstanding number on a percentage basis.
There is a reasons that investors like Ackman, Lampert and Berkshire’s (BRK.a) Buffett never talk about 1% yields when talking about investing. There are better uses for the cash.
Not only did we not contract in Q1 like most had thought we would, we actually grew at a faster rate than we had previously been reported.
Gross domestic product rose at a seasonally adjusted 0.9% annual rate January through March, the Commerce Department said in the second estimate of first-quarter GDP. A month ago, Commerce said GDP increased 0.6% in the first quarter.
The best news? Inventories fell in the first quarter instead of rising as reported a month ago. Stockpiles of all goods shrank by $14.4 billion. In the original first-quarter GDP report, Commerce had said inventories January through March rose, up $1.8 billion; that estimate meant a GDP boost of 0.81 percentage point. While the revision led to a smaller GDP boost, it was a positive in a way, indicating businesses weren’t sitting on a backlog that could grow in the second quarter, swamp their shelves, and reduce GDP in that April-June period.
Short answer? Lean inventories mean that businesses and consumers are aligned in their purchases and large scale layoffs that would really hurt the economy aren’t likely to happen.
Evidence of this can be found today in the jobs report showing that the 4 week moving average for jobless claims actually fell by 2,000. It is going to be real hard to have a recession is unemployment does not rise substantially.
After watching value investors dive into the market, time to join them.
Almost exactly a month ago I took a look at AutoNation (AN) and at the time said “I think one could wait until summer to pick up shares at and not pay too much more than today.” Shares sat at $15.96 then a today sit at $15.80.
Having just cashed out of our oil (USO) position there are funds laying around for investment. Being hesitant to put more into the retail sector currently, the retail auto sector does look very appealing. When you have investors like Lampert, Berkshire’s (BRK.A) Buffett, Leucadia (LUK) and Wilbur Ross entering the sector, it pays to monitor them.
Why AutoNation then? Back in March CEO Mike Jackson did an interview and here is the jist of it:
Forecasts this year call for about 15.5 million cars to be sold. Now, interesting tidbit. On CNBC, CEO and Chairman Mike Jackson was speaking of running his (or any) business. In the interview he said he runs his business for “a 1,000 year flood”. He then said that if auto sales dropped to 10 million units, “a depression” he called it, his business would be “cash flow neutral”. That is his basis for decision making.
As a potential investor, this is fantastic news. It simply means that the business will still produce cash even in an almost devastating economic climate. Wonderful…
A positive cash company in the current economic climate makes for tremendous flexibility competitors will not have. Jackson can reduce debt, repurchase shares or expand. In fact, Jackson has reduced share count by 30% the last two years. The repurchases have allowed EPS to stay flat at $1.44 despite the downturn in the auto industry during that time frame.
In the past two years, U.S. auto retail sales have declined 12 percent, Jackson said in early February and he said that economic downturns run in cycles of 30 to 40 months, and the market is currently 24 months into the downswing.
AutoNation’s markets in California and Florida, who account for half of new vehicle sales drove down earnings last year. The two states account for 20 percent of industry-wide new vehicle sales.
When things get better, investors ought to see an amplified increase on the other end due to the repurchases. Hold flat in down times and explode up in good ones, very nice.
The demand for auto related items can be found in recent news from auto parts retailers like AutoZone (AZO) and Advanced Auto Parts (AAP) who both reported increased earnings in the latest quarter. The things is, people have to have cars, the demand will always be there and Jackson has built a business that can capitalize on all demand scenarios.
Trading at 9 times earnings AutoNation will be a winner when demand for auto’s returns. That, it turns out may be sooner than we think. $4 a gallon gas is already changing people behavior and there just may be a rush to trade in that SUV for something much more affordable on gas. Whether it happens now or year from now, AutoNation currently trades at a multiple that assumes it just may never happen, that is wrong..
What Jackson said today on CNBC clinched it for me:
The guy has his business set to profit no mater what happens. Electric cars? Ok. Hybrids? Sure. SUV? Got ’em. People must have a vehicle and Jackson is there to provide whatever they need from whoever produces it. With his scale it come very close to a toll bridge business. He provides people a necessity that they must replenish fairly often at considerable expense…
Disclosure (“none” means no position):Long AN, none
