New buy article out today...
Gotta say this one has kept my interest.
Fooleague Rich Duprey recently put out an article with an Alleghany mention:
If you recall, Alleghany made the watch list pretty early here for my portfolio as I brought it up in an update:
I'm still loving this insurance company and wouldn't be surprised at all to see it earn a spot in the portfolio sooner or later.
Jason (no position) [more]
One Stock For Your Thanksgiving Watchlist
Haemonetics (NYSE: HAE)
Blood management sounds like the title of a Stephen King novel. But in this case, it represents an investment opportunity; one that I have been keeping my eye on.
Haemonetics (NYSE: HAE) is actually in the business of blood management. The company develops and sells blood management solutions to hospitals, plasma centers, blood banks and biotechs. Face it: We need blood to live. And whether you are going in to donate blood or have a surgical procedure done, there is a good chance that Haemonetics may be involved in one way or another.
On the razor’s edge
Haemonetics' solutions come in the form of a razor-and-blade-style model. It sells equipment to hospitals and blood banks (the razor), then realizes recurring sales of the single-use consumable devices that go with the equipment (the blades). To top it off, it offers the software solutions to manage the whole process. And lest you think that hospitals can just buy the equipment and then skimp on cheaper disposables, it doesn’t work that way. The equipment only works with HAE disposables, so they don’t have to worry about cheap substitutes taking over.
If we look at the past couple of years we see that disposables have made up a considerable portion of the company’s sales. In fact, disposables made up almost 87% of revenues, equipment close to 8% and software solutions the rest. So with the one-and-done disposables, you get that recurring revenue stream which we love to see; one-time use, proprietary consumables that donor centers or hospitals have to keep in stock. I mean why have the equipment if you can’t use it?
Speaking of equipment, this is another area where the company shines. Haemonetics is getting more and more of its blood salvage systems like the CellSaver, CardioPAT, and OrthoPAT into hospitals. Blood salvage is a process whereby the patient's blood, specifically red blood cells, lost during and after surgery is cleaned and prepped for transfusion back into the patient. This is a growing alternative to traditional methods where patients normally depend on blood donors, and hospitals don't have to delay surgery because of a blood shortage.
The way I see it, the population is continuing to grow, and you can't stop Father Time. A growing and aging population is good for Haemonetics because it should keep boosting demand for its products. Companies like Stryker (NYSE: SYK) will supply this aging population with orthopedic implants such as knee and hip replacements, and Medtronic (NYSE: MDT) will take care of it with stents and pacemakers. All of these require surgery, and this is where Haemonetics' products will prosper. Its competitive advantage lies in its size and laser-like focus on one particular thing: blood.
And the company isn’t stopping here either. It has also licensed and is in the process of developing a laser blood typing system that management estimates could be an additional $1 billion market opportunity. This should add nicely to the top line and if they can keep EBIT margins in the historical 15%-16% range the stock should have some room to run. I think they can do this through scale and a continued focus on operating efficiencies. The balance sheet is in great shape with just about $100 million in net cash.
How much can this be worth?
When I first started looking at Haemonetics the stock was trading right around $55 and about 18 times free cash flow and a discounted cash flow analysis had the stock pegged as pretty fairly valued, if not even a little rich. Since then the stock has traded up to $58.50, more or less matching the S&P’s performance in that time. Over the past five years though the stock has outperformed the market substantially and I attribute this to the fact that health-care-related stocks tend to outperform in tougher economic times because they are not so discretionary. Today it’s trading closer to 22 times free cash flow which I think is still reasonable considering the market the company serves.
Who runs this show?
As with any investment, I like knowing a little about management and their goals. CEO Brian Concannon has been with the company for 18 years back to when it was owned by American Hospital Supply Corporation and subsequently spun off, and has held the CEO position since April 2009. Executive compensation looks to be reasonable and incentives are heavily weighted toward total revenue as well as operating income goals. I wish insiders held more than 0.5% of shares outstanding. It is always nice to see management owning a chunk of the company as it aligns their interests with shareholders. Unfortunately this is not the case with Haemonetics.
What are the risks?
This is a well run company in a very defined market and as technology progresses, Haemonetics will need to do the same or risk getting pushed out. It is also worth knowing that for the company’s fiscal year 2010 the Japanese Red Cross Society represented 14.3% of total revenues and has historically accounted for a significant portion along these lines. Any erosion in this relationship could certainly affect Haemonetics, though the relationship appears to be solid.
Will this ever be a buy?
The bottom line is that Haemonetics is a leader in its field with 60% market share in the global plasma market, 40% share in the platelet market and 75% of the automated red cell market. The company offers a great way to get some healthcare-type exposure to the portfolio without relying so much on the "what-ifs" of healthcare legislation. I am starting to think that this might be one of those companies that is always going to demand a bit of a premium. That said, the cheapskate in me wants to wait this one out for a bit longer and see if I can’t get a better price. [more]
OK, a preliminary look as these are pretty much the immediate disqualifiers for me, if there are issues with Tier 1 capital ratios then I just move on. The FDIC has some basic guidelines that can help along the way and they can differ a little bit depending on the bank's size. In the case of ABCB, here are the three pertinent ratios and their respective guidelines to meet the standard of "well capitalized" in parentheses:
This is Tier 1 capital to average assets - 12.01% (>=5%)
This is Tier 1 capital to risk weighted assets - 17.75% (>=6%)
Total Capital Ratio:
This is total capital to risk weighted assets - 19.01% (>=10%)
So these numbers are as of the end of 3Q2010 per the company's 10Q. If you look back to the same period a year ago, their ratios were, in the same order 8.69%; 11.28%; and 12.51%. So even then they were "well capitalized" and things seem to have gotten better.
I think it is also worth noting that Ameris has been picking up a number of failed institutions recently:
Of course these are FDIC-assisted deals, which ultimately I think is a good thing in a number of ways.
So the funny part of this story is that my parents actually live down in Moultrie, GA where Ameris is based. I never really had thought of it before as it is just a small Georgia bank. I mean I had driven by branches, but so what, right? So I was looking through the company's management on its website and saw what appeared to be a familiar face. It turns out my suspicion was correct. I played golf with the executive VP & Director of Credit Admin, Jon Edwards down in Moultrie about a year and a half ago. I never put two-and-two together as I was working at Travelers Insurance at the time in Atlanta and would not have really been focusing on Ameris as a possible investment. But there you go...small world huh? Maybe I could get an interview with him sometime. Maybe him and the CEO Edwin Hortman. That would be pretty sweet.
I will say in regard to our round of golf together that I thought he was an enjoyable fellow to play golf with. Not that it means anything one way or another, but seeing as I have played golf for 34 years, it is a gauge of sorts for me.
My interest is growing...
First of all, here is a pretty cool site if you are looking into problem banks and anything related:
Lots of interesting articles and lists on there.
I've been looking into another small bank, this one would actually qualify for the portfolio as its market cap is greater than $200 million. It is Ameris Bancorp (NYSE: ABCB) based out of Moultrie, GA. I know, I know...Georgia has been more or less ground zero for banks. But ABCB has been taking on the deposits of failed institutions around that area, so I think there may be some real growth there if they can maintain. Being that they are so local to that area, it is not one where property valuations were ever sky-high to begin with, so they may not be so exposed to mortage issues and real poor loan quality. [more]
Netflix has some serious brand power:
Can it continue? Might be worth a discussion. How much does it mean?
Jason (no position) [more]
Well worth the read, this article talks about the higher standards banks are now imposing on FHA loans: [more]
Four for the watchlist Fools. Well, three really. One has kind of run away, but I'll be keeping my eye on all four!
Jason (no position) [more]
As an investor, one of the things I take very seriously is the quality of management. Because let’s face it, if management isn’t doing their job, it doesn’t matter what the company does. Poor management ultimately begets poor stock performance. It may not happen all at once. But trust me, eventually it happens.
That is why part of my investing process is focused on learning more about management and their role within the company. History, ownership and track record are a few examples of things I look for. And it isn’t easy. In fact, many times we need to prioritize what is most important to us when assessing management. But having a clear understanding of who is running the company and what their incentives are can really make the difference between success and failure.
On a personal note, I recently had the great pleasure of interviewing the CEO of Ford Motor Company, Alan Mulally. While I am not personally invested in the company, I did a bit of research beforehand so I didn’t look like a total fool (note the little ‘f’). Between my research and the interview I am convinced that Ford has a quality man behind the wheel. And if I ever do decide to buy shares of Ford, I can tell you that I’ll feel good about it as long as he’s there.
Of course we won’t always get the chance to actually interview a CEO. But nothing is stopping us from learning all we can. Hone your Google-fu to find out everything you possibly can. And hey, drop a line to investor relations. You never know when you may get lucky.
Jason Moser (TMFJMo)
Activision Blizzard (Nasdaq: ATVI) is back at it again. Call of Duty: Black Ops was released this week and the unofficial numbers have it as selling over 5.5 million copies in the first day alone and hitting $360 million in revenue. The company continues to break records with each and every killer release and I suspect that the impending release of World of Warcraft: Cataclysm should rattle a few consoles as well.
Welcome Alleghany Corporation (NYSE: Y) to the watch list! Alleghany is an insurer similar another Foolish favorite, Markel (NYSE: MKL), though I would consider them possibly a little more conservatively run. With a market cap of $2.7 billion, it fits right into that mid-cap space offering a lot of room for growth. While insurance has witnessed a soft market over the past few years, the winners coming out are the disciplined underwriters that offer their CIO (chief investment officer) all of that “free” money to invest in the form of float. And with investment interests in the form of real estate and energy exploration, this is a great way to invest in a company that is geared toward long-term growth and returning value to shareholders; two of my favorite things!
Jason owns shares of Markel
Straight from the Onion
The storm of the century: http://onion.com/djbj2y [more]
Here you go Fools, just a little more thought on my initial buy of Activision Blizzard: [more]
Well I have made the jump and can now tweet (as well as be tweeted): [more]
Pretty tough to create a nation of savers with these numbers: [more]
One of my favorite insurers reported earnings yesterday:
You read a lot about Markel all over our Foolish universe and it really is one of my favorite investments. I went to their annual meeting this year and really got a lot out of it. Seeing as it is so close by (Richmond), I will probably start making it an annual affair. I posted up my notes from the meeting here on the blog:
A snippet from CEO Alan Kirshner in the earnings release:
"The growth in book value has benefited from the increase in value of our investment portfolio and a return to underwriting profitability. Despite a competitive market, we believe these results demonstrate our ability and commitment to build long-term shareholder value during all market cycles."
This is another one of those "buy it and hold probably forever" type investments. I do own it personally and will continue to add a little here and there on dips. Probably won't see me recommending it for this portfolio as it is so well-known already and I want to throw some new ideas out there. That said, I think a solid insurer is an essential for any portfolio and there is another one I have in mind. Any ideas who it may be? I will give you a hint...it is NOT Berkshire Hathaway.
Jason (long MKL, BRK/B) [more]
Looks like they are going to start letting the healthier banks start upping their dividends: [more]
Swing on by the board and let's talk about banks: [more]
Here you go Fools: [more]
Don't know how many know about this as it is pretty much brand new and their wasn't a whole lot of publicity on it, but check it out: [more]