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Allstarportfolio: Here is my pitch on AOI, just closed my AMD pick

September 10, 2009 – Comments (1) | RELATED TICKERS: AOI

Pitch: AOI 

This company is a tobacco leaf merchant, which sells its produce to the largest and most famous tobacco companies.

You can directly realize that this company is hugely undervalued by looking at their financial ratios. p/e, p/b and ev/ebitda are all very attractive. 

I have personally bought in RL at 3.92 and intend to hold for a long time. 5y

It is important to understand the macro enviroment we are living in. Let me say that tobacco is first a recession proof industry, so even if they have a high debt load it is easily servicable, because revenues are going to be always there.

Another important caveat is the weakness in the dollar and the expected inflation in the future. Buying this company will offer great rewards exatcly due to the high debt and everyone will keep on smoking whatever the inflation rate. Making this company actually a steal. So buying this company is like buying silver at 4$ levered 10 times. How much money do you suppose you will make? My answer is a lot.

Let us say that 10 years from now all their debt is devalued away and their sales are still the same. This would be akin to buying the company at a p/e ratio of less than 1, because their interest payments are greater than their market cap.