This week's Barron's had a great article in it called called "Barron’s AOSI Conference: 21 Picks From Investing Pros." It had a very similar feel to the bi-annual Barron's Roundtable, which I always love. Where a panel of investing experts (some more expert than others IMHO) present their thoughts on the market in general and even better some of their specific stock picks right now in a fairly rapid-fire format.
Here's a few interesting ideas that I liked from the piece.
First up is one of my favorite investing voices, Mario Gabelli. His investment style has a somewhat special situation apect to it, so he always has some interesting ideas. One that I liked from this article was his long thesis for the recent Hertz (HTX) spinoff Herc Holdings (HRI). From the article:
Whether Hillary Clinton or Donald Trump becomes president, there is going to be more infrastructure spending. This country has real problems—25% of our 600,000-plus bridges are in need of significant repair. Our roads are challenged, as are our airports. Equipment rental, Herc’s specialty, is a play on infrastructure investment. There are several public companies in the business. Herc has a about a 3% market share. The company was spun out of Hertz Global Holdings [HTZ]. It sells for $30, and there are 28 million shares outstanding.
Herc is an early-stage turnaround. The company’s Ebitda margin is 35%, compared with competitors’ 48%. Herc has to improve. The company has an economic tail wind, plus it is a fixer-upper. The stock has a shot at doubling. There are air pockets in the short term, with the cost of being public and Hertz-related legal issues.
Another idea that Gabelli has been touting for a while is Madison Square Garden (MSG). Keeping with the special situation and value theme, MSG is a former spinoff that appears to be cheap on a SOTP [Sum-of-the-parts] basis:
Madison Square Garden has been involved in a lot of financial engineering. It was spun out of Cablevision Systems. Madison Square Garden has 24 million shares outstanding. The stock is $165, and the market cap is around $4 billion. The company has about $1.5 billion of net cash, and you get the air rights over the Garden, which could be sold for $400 million to $600 million. There are ways to structure a deal to reduce the tax impact.
MSG also gives you exposure to e-sports and e-gaming. Plus, the company owns numerous entertainment venues in addition to the Garden. Throw in the New York Rangers hockey franchise, which is worth about $900 million, and you get the New York Knicks for free. They are probably worth more than $1 billion. Add up these assets, and the company is worth between $210 and $275 a share and growing...
I disagree with Gabelli that the involvement of the Dolan family is a plus for MSG, I personally view it as a major negative and one of the reasons why I don't actually own shares yet, but nonetheless this is an interesting situation to keep an eye on.
The next interesting idea that I found in the article was presented by another Roundtable vet, Oscar Schafer. It involves a former Special Purpose Acquisition Company (SPAC) that I've been following since inception. Much like other roll-up SPACs including Valeant (VRX) and Platform Specialty Products (PAH), Nomad Foods' (NOMD) stock was once a high flier that has come crashing back down to earth. While, Valeant is involved in drugs and Platform chemicals, Nomad is a European frozen food roll-up. Here's what Schafer has to say about the company:
You’re finding bargains among small-cap stocks. What is alluring about Nomad Foods [NOMD]?
Schafer: Nomad Foods distributes Iglo and BirdsEye frozen foods in Europe. The stock went public at $10 a share, rallied to $22, and then fell to single digits. Nomad is a platform company; it acquires companies in the packaged-foods arena to add to its platform. Hedge fund manager Bill Ackman, who also owns Valeant Pharmaceuticals International [VRX], is a big holder.
Problems at Valeant and other platform companies hurt Ackman and his followers. The company also had a few marketing hiccups. Nomad could earn $1.25 a share in the next several years. If it does so, the stock could trade closer to $20 than $12.
How does Nomad’s P/E multiple compare with the rest of the food group’s?
Nomad trades for 11 times next year’s estimated earnings. Pinnacle Foods [PF], in the U.S., is similarly sized, yet trades for 2.5 times the enterprise value of Nomad.
Here's a link to the article. It's definitely worth a read.
Barron’s AOSI Conference: 21 Picks From Investing Pros
The stock market looks too rich to our investment experts, but Sony, Microsoft, Whirlpool seem too cheap. [more]