My Recent Picks and Charity Challenge Update
As we say hello to February, hooray spring will be here before we know it, I wanted to take a few minutes to review the performance of my CAPS portfolio in January. I know that one month is way too short a time period to have much meaning, but it's fun to look at anyhow plus I can provide an update on the quarterly charity challenge that I committed to.
Earlier this month I said that I would donate $0.25 for every CAPS point that I earn in Q1 to the charity(s) of my children's choosing. The starting point for the contest was 5,200 points. So where amy I at today... 5,677.51. Not bad. That's an increase of 477.51 points. At $0.25 per, that amounts to $119.38 for a charity. Quarterized (the made up version of annualized for one quarter) this would amount to $358.14. Not too shabby. Let's see if I can keep it going. I believe that I can. For the purpose of keeping track of how I'm doing in this game, I'll add here that I am now ranked 429 out of 75065, 99.43 percentile. I mention this not to gloat, but just to give myself a reference point for my next update to compare with.
OK, so what new picks did I make in January. Here's my new long positions in CAPS, I don't short stocks here, along with the quick pitches that I made:
Start Date: 1/31/13
Copart, Inc. (CPRT) - "Hmmmm, I would have liked to have purchased this one, prior to today's pop, but I still think that there's a lot of upside. Combine the involvement of one of my favorite activist investors, JANA Partners, with the potential to convert into a REIT and I like it."
Hess Corp. (HES) - "The activist investor Elliott Management is attempting to unlock value in HES by convincing it to sell or spinoff non-core assets."
PNC Financial Services (PNC) - "PNC is one of the cheaper big banks out there right now, plus it has a few potential catalysts that could unlock value going forward. First, many people don't realize that PNC owns a significant chunk of Blackrock (BLK), 21% to be exact. If one was to back the value if that semi-hidden asset out of PNC, it would only be trading at 8 times earnings right now, a discount to the multiples that its peers are currently trading at. Another potential catalyst is the strong possibility that PNC will be able to increase its dividend after the government finalizes the next round of stress tests at some point in the next couple of months. PNC is a Bran Rogers selection from the latest Barron's Roundtable."
Starz (STRZA) - "Starz is a Liberty Media spinoff and John Malone knows how to use tricks and trinkets to pump up share prices. There's a reason that he's made enough money to become the largest land owner in America. Artemis Capital via SumZero and CAPS' Megashort believe that Sratz is an attractive investment opportunity. I'm not buying it with real money, but I'm definitely following this spinoff in my CAPS special situation portfolio."
Calgon Carbon Corp. (CCC) - "Newest target of successful activist investor Starboard Value."
Xyratex Ltd. (XRTX) - "I'm adding XRTX to my CAPS portfolio to track the effectiveness of an activist investor that I have not followed in the past, Baker Street Capital Management. According to the great Barron's 13D column, Baker Street recently sent to the company stating that it should stop piddling investors' money away on worthless growth initiatives and circle the wagons around the company's profitable core business...OK I paraphrased a little there. Finding companies with profitably core businesses that are wasting money in their other divisions is a common practice amongst activists. Let's see how successful Baker Street is."
SunCoke Energy Partners (SXCP) - "Suncoke Energy Partners is yet another MLP IPO, As some of you may know, I had been tracking all of them under the theory that they outperform the general market as a whole. For the most part they have, but I've run out of space to pick them here in CAPS...200 spots goes fast :). SunCoke owns two fairly new facilities that it uses to make metallurgical coke for the steel industry. If you're bullish on the economy, like I am, SunCoke should do well. Throw in an 8%+ yield and we should have a recipe for investing success."
Harvard Bioscience, Inc. (HBIO) - "Harvard Bioscience is in the process of spinning off its money-losing HART division, leaving behind a manufacturer of scientific instruments trading for only three times earnings, yet growing at 15% to 20% per year. See Jim Royal's great article on the situation for more information: http://www.fool.com/investing/general/2013/01/18/im-putting-real-money-on-harvard-bioscience.aspx"
Nathan's Famous, Inc. (NATH)-"After talking about Hillshire Brands in this week's Barron's Roundtable, Mario Gabelli went on to talk about Nathan's Famous (NATH), man he has hot dogs on the brain right now...I wonder if he's trying to corner the mystery meat market. As an interesting side note at this point, I vaguely recall hearing that the founder of Nathan's was my father-in-law's cousin (I'm actually not kiding). That automatically makes me an expert on the company :). Gabelli likes how Nathan's has reduced its share count by 2 million shares to 4.2 million. He thinks that the stock does not curently reflect a solid deal that NATH made with Smithfield to market its products starting in 2014, making the stock appear more expensive that it will ultimately be. Again, this idea is interesting and sort of a special situation in that there seems to be a coming revenue stream that is not showing up in the company's numbers yet. That's pretty neat, but probably not enough to motivate me to put real money down. This is probably a pure CAPS play just to follow how well Gabelli's idea turns out."
Stag Industrial, Inc. (STAG) - "This one is not quite as "special" as my normal special situation picks, but I think that it will continue to significantly outperform the market. Besides, what canister say...I'm a sucker for yield. Stag is the fastest growing company in the solid Industrial REIT sector, yet is also pays the highest dividend. That doesn't make much sense and will not continue if Stag continues to perform the way it has. According to REIT expert Brad Thomas, Stag has moderate leverage and sector-best metrics. This trade is a bet that Mr. market will eventually recognize this quality and award STAG with a higher multiple. We are paid a yield of nearly 6% to wait for this to happen."
Hillshire Brands Company (HSH)-"vMario Gabelli's first recommendation of the 2013 Barron's Roundtable is Hillshire Brands (HSH). What I like about this stock: - It's a spinoff (from Sara Lee), of course. - It's a potential takeover target, as many spunoff companies ultimately are. Per Gabelli "Three or four companies were looking to buy Hillshire from Sara Lee before it was spun off. - HSH is using its solid cash flow to rapidly pay down its $694 million in debt. - Gabelli's Bottom Line, "The stock trades for $29 and change, and could be $35 to $50 a share two years out...It will be bought by someone. Meanwhile, management is doing a terrific job of getting back to basics." - "The sausage market is growing by about 5% a year in the U.S." I really don't care about this statistic, but I found it funny for some reason :) I doubt that I am going to put real money behind this idea, but I do believe that it will out-perform the S&P 500 going forward and I will add it to my CAPS portfolio."
CyrusOne (CONE) - "Yes, CyrusOne appears to be fairly expensive to me. However, it is both a spinoff and a REIT conversion, types of stocks that have significantly outperformed the S&P lately and historically. While the Grahm investor in me wants to value future growth at zero, there's no denying that the data center sector has some major tailwinds behind it right now and likely for some time to come. The special situations combined with a hot sector make this one a CAPS buy. As I mentioned, I think that it's a little rich for real money though. time will tell."
CBS Corp. (CBS) - "I like CBS' plan to spin off its outdoor advertising division into a REIT."
Synovus Finl Corp. (SNV) - "Question: When is owing the government a ton of money a good thing? Answer: When you pay it off. Bank aren't usually my thing in investing, unless we're talking about a special situation like a mutual conversion, but Synovus Financial (SNV) is an interesting situation with several near-term catalysts that could cause its stock to continue to outperform. According to a recent Wall Street Transcript interview with Matthew Schultheis from an investment bank called Boenning & Scattergood, a month or so ago SNV sold off a huge chunk of underperforming loans. Why does this matter? Unloading these bad loans will theoretically enable SNV to unlock some of its large loan loss reserves, or at least keep them from having to add as much to them going forward. Furthermore, Synovus is likely going to pay off its TARP loans in the near future...it currently owes the government more than any other bank in the country. Unloading these bad loans and paying off the government would in theory make it likely that SNV will be able to reverse the "deferred tax allocation" that it has on the books. This is all accounting stuff (probably why I stay away from banks), but according to what I've learned on this subject this is a very good thing. It is a sign of a healthy bank and bank stocks usually increase significantly when it happens. The Company's CEO believes that this reversal will happen some time in the first half of 2013. Schultheis believes that these events would lead to an additional BILLION dollars in additional after-tax income for the bank. This naturally would lead to a significant increase in SNV's tangible book value...which might increase from its current $1.6 billion to as much as $2.3 to $2.6 billion by June. That's a big increase, we're looking at $2.88 per share versus a current share price of $2.44. A move like that would likely drive SNV's stock higher. Add to this the fact that the economy and housing are improving and good things should be in store for the bank. As a potential takeover target, any acquisition would be made at a premium to this already increasing book value. I am only adding Synovus as a CAPS pick for now because I am not personally familiar enough yet with the bank accounting nuances to say that this is exactly how things are going to play out here, but this situation certainly looks very interesting. I plan on looking into it more closely when I have time. "
Tesoro Corp. (TSO) - "Refiners in general have been on quite a run lately, benefitting from the massive spread between Brent and WTI. As a west coast refiner, Tesoro hasn't benefitted much from that trend. I am somewhat familiar with the sector from my current holding, PSX. One of the best investors of our generation, Dan Loeb, recently initiated a position in TSO. Loeb believes that the company's shares could double. At less than three times EBITDA, Tesoro has hidden assets in pipelines, and management that's starting to make more shareholder friendly moves. It's acquisition on BP's Carson refinery looks super cheap. Whether on its own,mor spurred by Loeb, if TSO's management continues plowing money into buy backs or dividends this undervalued stock should rise."
SemGroup (SEMG) - "Semgroup's plans to initiate a dividend in Q2 could serve as a catalyst to drive its stock higher."
Ambassadors Group (EPAX) - "I've been aware of Ambassadors Group for a long time, but was never interested in buying it...until now. Behavioral Investors recently did a great write-up on Ambassadors Group for SA that talks about how activist investors are unlocking value at the company by cutting expenses and attempting to sell non-core assets, including its headquarters building and a website. That's right up my alley. Despite its stock being crushed, EPAX remains a profitable company with no debt and a ton of cash on the books."
Remy International (REMY) - "This one was was just brought to my attention by a friend here in CAPS, CROIC. It's Remy International (REMY), an auto parts manufacturer of mostly starters and alternators for OEMs and the aftermarket. The company also makes electric engines and locomotive parts. This former division of General Motors went independent, but was eventually forced to file for bankruptcy five years ago. It reemerged from BK a couple of years ago but just listed itself on the NASDAQ in mid-December. To bring things full circle, it is currently majority owned one of my former holdings Fidelity National Financial (FNF). I just went over REMY's most recent earnings presentation. The year-over-year drop in revenue that it experienced is somewhat troubling, but if the numbers on Yahoo! Finance are right, then his is one cheap company: Trailing P/E: 4.01 Price/Sales: .51 Price/Book: .56 Enterprise Value/EBITDA: 3.5 I'm not ready to buy Remy in real life yet, but I am definitely going to follow it here in CAPS."
Sandstorm Metals and Energy (STTYF) - "Here's an interesting one. You don't see very many stocks that are fifty cents per share that are ratable here in CAPS. Sandstorm's business model is to provide financing to small natural resource companies, things like natural gas and metals in exchange for the rights to purchase a percentage if their future production at below market rates. I would call this special situation a jockey play. Sandstorm Metals and Energy's CEO Nolan Watson has already had successful stints at Silver Wheaton and Sandstorm Gold. This is a bet that he can do it again. STTYF already trades at a cheap multiple of cash flow and it will likely get cheaper as other deals come online. I've seen this idea several places over the past year, but the inspiration for this pick was a write-up by Roumell Asset Management."
Whew, that's a lot of picks. You can't say that I don't look around a lot. I had wanted to talk about some of them in greater deapth, but I'm out of time. That's for another day.
Thanks for reading everyone. Have a great evening.