Two Great Interviews with Smart Investors and Three Quick Pitches
September 07, 2010
– Comments (13) |
RELATED TICKERS: BGH.DL
, SPA
, AEPI
I came across two very interesting interviews today. The first is a Bloomberg summary of an interview that it conducted with Michael Burry. For those of you who aren't familiar with Mr. Burry, his story was told in the fantastic Michael Lewis book, The Big Short.
Yes, Burry correctly called the subprime implosion and made a bundle from doing so, but he is not just a one-trick pony like some of the people who took that ride. He was an extremely well-respected investor prior to that trade. Both The Big Short and the Bloomberg interview are worth a read:
Burry, Predictor of Mortgage Collapse, Bets on Farmland, Gold
The second interview is much, much longer. It is a nine-page Wall St. Transcript interview with T2's Whitney Tilson. I have not had an opportunity to take more than a quick look at it yet, but it looks excellent.
Investing in Undervalued Value Stocks - Wall St. Transcript Interview with Whitney Tilson
And now onto the "Quick Pitches"
The first is a merger arb play on a stock called
Long Buckeye GP Holdings (BGH)
"BPL is purchasing BGH for 0.705 in BPL stock.
BPL is currently at $61.88/share.
Multiply that times .705 and we get an approximate value of $43.63/share for BGH.
BGH closed today at $41.97. That represents an upside of a little over 4%, which should amount to an excellent annualized return depending upon when the deal closes.
Of course, merger arb plays like this don't translate all that well to CAPS because the market could rise between now and then, forcing me to lock in a loss for CAPS purposes on what would be a great real-world trade. I'll roll the CAPS dice and see what happens.
Buckeye Partners, L.P. and Buckeye GP Holdings L.P. Announce Merger Agreement"
Long Sparton Corp (SPA)
"Sparton's stock has come a long way since it was left for dead by investors and fell to less than two dollars per share in late 2009. If only I had purchased the stock then.
"If "ifs" and "buts" were candy and nuts, wouldn't it be a Merry Christmas?"
I didn't, but I still feel as though it is an attractive investment opportunity today. After the its previous management, and the whole Great Recession thing, ran the company into the ground they were ousted and new, much more effective management, lead by CEO Cary Wood, was brought in. The company has already taken a number of steps to improve the company, slashing costs and making its operations more efficient.
The mew management has wisely decided to focus its growth in its higher margin Defense and Medical products segments. While these two sectors have been pretty beaten up by Mr. Market lately, I think that in many instances this sell-off has been an overreaction and many good values are available.
The company recently completed its purchase of Delphi Medical Systems, which is expected to add $32 million in revenue to the company's medical product segment. If Sparton management can work the magic that is has pulled off on this company on its new acquisition, Delphi has the potential to be a big winner. If anyone is familiar with the company, it should be Sparton's current CEO. Cary Wood worked at Delphi Medical for nine years. If he didn't think that the company was fixable, he wouldn't have bought it.
Check out the following great articles for more information on this interesting turnaround:
Sparton: Delphi Medical Acquisition Should Be Highly Accretive
and
Sparton: An Undiscovered Turnaround"
Long AEP Industries (AEPI)
"This one's more of a follow-up to a stock that I believe I have mentioned here earlier:
AEP produces a commodity product known as plastic film.
While the company does not appear cheap at first glance, its numbers should improve as time passes.
It was hit by a double whammy of high oil prices in 2008 causing its input costs to soar and the Great Recession after that crushing demand for its products.
It's a testament to AEP's management that it survived this mess. As an added bonus it even was able to pick off the assets of a competitor, Atlantis Plastics, after the aforementioned headwinds forced it to file for bankruptcy. I love it when companies see competitors go bankrupt. It often leads to dramatic gains in revenue and profits for the survivors. It's even better when a company can purchase the assets of the competitor that is in BK on the cheap. AEP was able to grow its production capacity by 40% in one brilliant move.
Add to this shrewd acquisition an improvement in margins as a result of AEP closing its terrible European business.
The prices of the company's key inputs have fallen significantly lately. This and any continued synergies that can be squeezed out of the Atlantis acquisition should lead to a dramatic improvement in margins and profits in the second half of the year.
UPDATE:
We can now add the catalyst of an activist investor to the AEP mix. Last week JMB Capital reclassified its 9.5% investment in AEPI from “passive” investor to “active." AEP already seems to be headed in the right direction. It will be interesting to see what action, if any, JMB takes."
Deej
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