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A broken growth stock that pays you to wait for activists to turn things around

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January 10, 2013 – Comments (3) | RELATED TICKERS: EPAX

Here's another interesting stock that's right up TMF's alley...a former pick of one of the services, Ambassadors Group (EPAX).  There was an interesting SA article on it the other day.  As an aside, i know that many people criticize it, much of the criticism is warranted, but cruising through Seeking Alpha is a great way for me personally to find investment ideas.  I'm all about the story with investments.  if a stock has interesting special situation-esque angle that can unlock value, I'm interested.  I use SA to find interesting stories and then dig into the numbers myself rather than relying on the author of the article to do so.  Trust but verify.  This works really well for me because I like to keep things simple in investing.  If a stock's balance sheet is in good shape, it's cheap by some metrics and even better it pays a dividend that it can easily cover I don't worry about all of the rocket science, calculating DCF out 10 years based upon variables that no one on Earth could possibly know.  As the saying goes, garbage in, garbage out.  All of those fancy calculations don't mean a hill of beans if the assumptions are wrong.

Any how, back to EPAX.  I was never wild about the stock when it was owned by TMF, but almost everything is a buy at the right price.  Activist investors are now involved in this completely broken growth stock.  They are slashing costs and trying to sell non-core assets, such as Ambassadors' headquarters building and another non-core ebusiness that I have to do more research on.  

Another potential catalyst would be the revamping if the Company's marketing.  There appears to be some nepotism in the marketing department.  If sales don't improve, the activist's new board members will likely push for a change there.  

There's a lot to like here.  Despite all of its issues, mainly declining sales, EPAX remains profitable.  Furthermore, Ambassadors is returning money to shareholders in bunches with massive buybacks and a 5%+ dividend.  I'm not wild about the student travel business, but at this price I'm getting paid to wait for activists to turn around this company with a solid balance sheet.

Given the fact that this is a former TMF pick there has to be people out there in CAPS who are familiar withAmbassadors Group.  I would love to hear your thoughts on the company.  If we continue to work together, finding and researching ideas I have absolutely no doubt that we will crush the market.

Please forgive how brief this particular write-up is...I'm writing it from my son's hospital room on my iPad.  Technology is amazing.  I am thrilled to report that he has successful surgery to remove his tonsils and adenoids.  Whew.   I love that little guy.

How Activist Insiders Are Unpacking Hidden Value At Ambassadors Group

 http://seekingalpha.com/article/1094431-how-activist-insiders-are-unpacking-hidden-value-at-ambassadors-group?source=yahoo

Thanks for reading everyone.  Have a great day!

Deej 

3 Comments – Post Your Own

#1) On January 10, 2013 at 11:13 AM, ElCid16 (94.16) wrote:

"If a stock's balance sheet is in good shape, it's cheap by some metrics and even better it pays a dividend that it can easily cover I don't worry about all of the rocket science"

well said. 

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#2) On January 10, 2013 at 3:58 PM, ryanalexanderson (< 20) wrote:

Hi Deej, 

Would you be at all concerned about EPAX in an environment where student debts and delinquencies are at all-time highs? I know you're more of a micro- than macro- guy (thankfully, for all of us who follow you!)

http://www.zerohedge.com/news/2012-11-27/scariest-chart-quarter-student-debt-bubble-officially-pops-90-day-delinquency-rate-g

(If you are going to link Seeking Alpha, I'll one-up you and link Zero hedge, in the criticism department!)

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#3) On January 10, 2013 at 7:57 PM, TMFDeej (99.41) wrote:

Good point, Ryan.  I did think about that some.  Student debt and the high cost of going to college are definitely serious problems right now...as someone with two little ones who is saving for college I'm well aware of it ;).  

The high level of student debt might be contributing to the decline in EPAX's sales, though I think that it was more a reflection of the weak economy.  Hopefully a continued economic recovery would be enough to offset any student debt issues.   Thar's the advantage of buying a beaten down company is that its priced as a mess rather than priced for perfection like a trendy stock would be.  EPAX probably just has to improve a little to be a successful investment.

Its definitely an issue to think about though.  Thanks for the comment.

See you around.

Deej 

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