Martin J. Whitman – Value Investor

Martin Whitman, an incredible value investor and teacher, passed away at 93 years old (Business Wire). Below are a short compilation of links on the value investing legend. The shareholder letters are great. I learned a lot from Martin. You can more investment wisdom by other great investors archived here.

“The financial world is so complex and unpredictable that a fair amount of our analyses will prove to have been flawed…. A dirt-cheap price is an anchor to windward against misperceiving current situations, or being unable to make accurate forecasts.”

—Marty Whitman

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ECN Capital Preferred Shares Is Victim Of Collateral Damage

My latest article on Seeking Alpha is on the drop on value of ECN and its preferred shares on March 16th. It turns out that the drop in share prices has nothing to do with its fundamentals or any related bad news. Below is a short summary of the article. Full article at Seeking Alpha.


ECN Capital Preferred Shares Is Victim Of Collateral Damage

Reposted from Seeking Alpha
By Brian Langis

Summary

  • Both classes of preferred shares fell for unexplained reasons.
  • ECN preferred shares seem victim of collateral damage by the company’s association to Element Financial.
  • The recent selloff provides an interesting investing opportunity.
  • Both classes of preferred shares provide a yield of +7%. More upside once they reset.

 

ECN Capital (OTCPK:ECNCF) [TSX:ECN] is primarily traded on the Toronto Stock Exchange under the ticker ECN.

Note: Dollar amounts are in Canadian $ unless mentioned otherwise. USD-CAD 1.2839 Price of 1 USD in CAD as of March 23, 2018.

I just wanted to drop a short note on the ECN Capital (ECNCF, ECN.TO) preferred shares. Both classes of preferred shares have taken a hit on March 16, 2018. Why it happened is not exactly clear, and this article will dive into the possible causes. I’m not the first one to look at the unusual drop. KT Investments has his take on what happened to ECN Preferreds here. For a more in-depth analysis on ECN Capital, you can read my article here and the one by Montrealer.

In short, ECN is commercial finance company. ECN Capital operates in four verticals: Home Improvement Finance (Service Finance), Manufactured Housing Finance (Triad Financial Services), Rail Finance, and Aviation Finance. It is well managed and is led by Steve Hudson. Hudson’s focus on capital allocation has created value for shareholders, especially when he was the CEO of Element Fleet Management (OTC:ELEEF) (EFN.TO). Hudson eats his own cooking; he owns millions of shares of ECN. ECN is profitable and has plenty of assets to back the preferred shares.

The purpose of this article is to try to make sense of the drop of ECN Capital Preferred Shares Class A and C. ECN Capital Class A (ECN.PR.A) was trading above par back in November with a 52-week high of $26. It’s now down to $22.60. Class C was trading in the high $23 range for most of the year until recently. It’s now trading at $20.60 a share. ECN’s financials are fine, there wasn’t any bad news, and the rise in interest rates should benefit both classes of shares because of their fixed reset features. It’s worth pointing out that other fixed-resets preferred shares have been doing well. So what’s going on with the preferred?

First let’s look at the criteria of each class:

ECN Capital Class A – ECN.PR.A – Reset: Dec 30, 2021. (Issued November 2016) (Prospectus on SEDAR)

  • Shares Capital: 4,000,000 shares @ $25 for $100,000,000
  • 5 Yr Canada Gov Bond + 5.44%. Yield Floor: 6.50%
  • Price: $22.80
  • Current Yield: 7.17%
  • DBRS Rating: Pfd-3 (low)

ECN Capital Class C – ECN.PR.C – Reset June 30, 2022 (Issued May 2017) (Prospectus on SEDAR)

  • Share Capital: 4,000,000 shares @ $25 for $100,000,000
  • 5 Yr Canada Gov Bond + 5.19% Yield Floor: 6.25%
  • Price: $20.73
  • Current Yield: 7.51%
  • DBRS Rating: Pfd-3(low)

Both Class A and C took a tumble this month.

Charlie Munger At The 2018 Daily Journal Corporation AGM

It’s been a while since I posted anything on Seeking Alpha. I was due. The post is part of my California trip. More posts on the subject will come later. Here’s the part of my trip at that concerns Charlie Munger.

The article is available on Seeking Alpha. They have exclusive rights. Here’s a preview:


Charlie Munger At The 2018 Daily Journal Corporation AGM

Reposted from Seeking Alpha
From Brian Langis

Summary

  • Charlie Munger did a two-hour Q&A. He answered questions on a variety of topics.
  • DJCO is a cult stock. It’s not in an attractive business, but the company has gained a following with Munger as its Chairman.
  • In 2009, DJCO invested its excess cash in a portfolio of securities that has gained in value. This portfolio of securities and dividend provides a cushion to DJCO.
  • DJCO is not a mini Berkshire Hathaway.

*I was in LA for the DJCO AGM. If you are reading this article for an advance analysis on DJCO, you won’t really find it. This article is about the AGM and Charlie Munger.

I recently attended the annual shareholder meeting of Daily Journal Corp. (DJCO) in Los Angeles. I am not a shareholder in DJCO, and I don’t plan to be one anytime soon. But I wouldn’t overlook the company either. I will explain later. So, why attend? The main reason for attending a DJCO AGM is not for its results or the company itself, but for the opportunity to hear Charlie Munger’s wisdom in his Q&A segment, who is the chairman of DJCO. Also, part of the reason for attending is the DJCO meeting reveals itself as a community gathering of fun, fellowship, and learning. There are dinners, lunches, and social gatherings related to investing. It’s great to see familiar faces and to meet new people. Ideas are generated and exchanged. You learn a lot. Attending these investment events is a way for me to regenerate myself. It’s like adding wood to a fire. It fuels the core of why I do this for a living. I can’t wait to get back to my desk. Value investing is a lone wolf business. You spend a lot of time in your bubble. Sometimes, you can drift, so it’s good to re-center yourself. Like the Berkshire Hathaway (BRK.A) AGM, the DJCO one offers a great experience for any serious investors on a much smaller scale. Continue reading “Charlie Munger At The 2018 Daily Journal Corporation AGM”

Investment Collection Additions

I added a few links to the Investment Collection segment. Here are some new links:

 

The Investment Collection

I want to introduce a new section to the blog: The Investment Collection. It’s simply a collection of links and resources that I found interesting. I will try to update it when I have time. Why am I doing this? First, I wanted to gather some of the most important investment material under one roof. Second, somehow stuff gets lost on the Internet. The resources are not simply about investing. It is about becoming a better human being. Learning from the success and failure of others is the fastest way to get smarter and wiser without a lot of pain.

The best thing a human being can do is help another human being know more. – Charlie Munger, Berkshire Hathaway Annual Meeting, 2010

Elon’s Email to SpaceX Employees Regarding Taking The Company Public

Elon’s email to SpaceX employees regarding taking the company public (excerpted from Ashlee Vance’s biography)


From: Elon Musk
Date: June 7, 2013, 12:43:06 AM PDT
To: All <All@spacex.com>
Subject: Going Public

Per my recent comments, I am increasingly concerned about SpaceX going public before the Mars transport system is in place. Creating the technology needed to establish life on Mars is and always has been the fundamental goal of SpaceX. If being a public company diminishes that likelihood, then we should not do so until Mars is secure. This is something that I am open to reconsidering, but, given my experiences with Tesla and SolarCity, I am hesitant to foist being public on SpaceX, especially given the long term nature of our mission.

Continue reading “Elon’s Email to SpaceX Employees Regarding Taking The Company Public”

Complete Set of The Barron’s Roundtable Notes and Articles

I finally got all the notes completed. I just wanted to post a summary. There it is.

Henry Ellenbogen – Article, Notes

Mario Gabelli – Article, Notes

Jeffrey Gundlach – Article, Notes

Abby Joseph Cohen – Article, Notes

William Priest – Article, Notes

Scott Black – ArticleNotes

Meryl Witmer – ArticleNotes

Oscar Scharfer – ArticleNotes

Paul Wick – ArticleNotes

Magazine:

Part 1: Barron’s 2018 Round Table Part 1: Bright Outlook for Stocks

Part 2: Intro: Barron’s Roundtable: A Bevy of Bargains (formatting a little weird but you just need to scroll down).

Barron’s 2018 Roundtable Notes: Meryl Witmer’s Stock Picks

Meryl Witmer

Eagle Capital Partners

For all the Barron’s 2018 Roundtable articles and notes click here.

Notes:

CarMax (KMX) $70.74 ($71.04 when published). Target $82 to $93.

    • It trades for around $70 a share, and there are 184 million shares, for an equity capitalization of about $13 billion.
    • It also has about $1 billion of corporate debt outstanding.
    • The company has several income streams that emanate from the sale of used cars. It sells cars to consumers, providing financing on some. It sells extended warranties, which get extremely high marks from buyers, and it also has an amazing wholesale auction business that sold about 400,000 cars in the past year to used-car dealers.
    • The source of the auction cars is the company’s direct purchase of cars. CarMax will buy a car from any seller—not just people who come in to buy a car—and sell the older ones wholesale at the auctions. The younger ones tend to go to the CarMax retail customers. The average age of cars sold to retail is four years. At the auctions, it is about 10 years.
    • CarMax’s proprietary data analytics give it a competitive advantage in both buying and pricing cars.
    • Its average annual gross profit on a used car has stayed within a $25 range annually over the past seven years. In the wholesale-auction business, it has stayed within a $75 range.
    • CarMax makes a couple thousand dollars on the cars
    • No-haggle policy; you don’t have to wonder if you could have gotten a better deal.
    • It does best when used-car prices are going down, since it passes through the savings to the consumer and does so faster than competitors.
    • Catalysts: Near-term, there is a big increase in cars coming off lease, and that will enable CarMax to buy them at lower prices.
    • The company also has room to expand: The current store base is about 190, growing by about 15 stores a year. Continue reading “Barron’s 2018 Roundtable Notes: Meryl Witmer’s Stock Picks”

Barron’s 2018 Roundtable Notes: Scott Black’s Stock Picks

Scott Black

Delphi Management

For all the Barron’s 2018 Roundtable articles and notes click here.

Notes:

Lam Research (LRCX) $212.69 ($196.40 when published)

  • It is a powerhouse in semiconductor capital equipment, and its products are used primarily in front-end wafer processing, which is becoming a $50 billion business
  • Lam has a 56%-57% market share in wafer etch, and about a 40% share in vapor deposition. It wants to gain another four percentage points in both through 2019.
  • We estimate that Lam will have $10.3 billion of revenue in fiscal 2018, up 28% year over year, and $3.065 billion in profit before taxes. With a 14% tax rate, after-tax income will total $2.6 billion. Divide by 182 million shares, fully diluted, and you get $14.48 a share in earnings.
  • Doing a similar calculation for fiscal 2019 gets you earnings per share of $15.45. Splitting the difference, the company will earn about $15 a share for calendar 2018.
  • There is no stock-based compensation to consider, so that’s a clean number.
  • Lam has $22 a share in net cash. Exclude that and the stock sells for 11.6 times earnings.
  • 71% of cash is trapped overseas, and it isn’t clear that it is going to come back here.
  • Return on book value could top 30% in calendar 2018. Free cash is equal to net income. Breaking down the business, 66% of revenue comes from memory and the rest from logic and foundry.
  • What is driving demand is smaller line widths and multipatterning, along with the Internet of Things and cloud. Lam has the wind at its back.
  • It generates 86% of its revenue in Asia, and its chief customers include Micron Technology [MU], Samsung Electronics [005930.Korea], and Taiwan Semiconductor Manufacturing [TSM].
  • The stock is overlooked becasue They retain a notion from 1995 to 2000 that semiconductor-equipment manufacturing is wildly cyclical and a bad business. In fact, the chip industry has become much less volatile.

Continue reading “Barron’s 2018 Roundtable Notes: Scott Black’s Stock Picks”

Barron’s 2018 Roundtable Notes: William Priest’s Stock Picks

William Priest
Epoch Investment Partners

For all the Barron’s 2018 Roundtable articles and notes click here.

Notes:

Starbucks (SBUX) $61.46 ($59.61 when published). Target $70.

  • The stock has done nothing since 2015. Comparable-store sales have decelerated significantly since then, from 6% or 7% to maybe 3%.
  • Current guidance looks achievable. The company is forecasting same-store sales gains of 3% to 5%, high-single digit revenue growth, and earnings-per-share growth of 12% or more in the next three years.
  • The rate of earnings growth is down from 15%-20%, but the company will be returning roughly $15 billion to shareholders from 2018 through 2020 through stock buybacks and dividends. They will be front-end loaded.
  • The current yield is 2%.
  • Starbucks has been streamlining expenses. Examples include the closing of its Teavana retail stores; refranchising of Germany, Taiwan, and Singapore; the sale of Tazo to Unilever; the elimination of the Starbucks e-commerce operation; and the consolidation of China.
  • Continue reading “Barron’s 2018 Roundtable Notes: William Priest’s Stock Picks”