permanent-watchlist

(formatting messed up with new blog template :( ... will fix over time)

My plan is to use this post to outline my investment strategy for the next year and beyond, and list ideas. This page will be continuously updated but stock-specific details will be out of date. You can access it from the menu at the top of my blog.

There will always be four sections: one dealing with my strategic plan; another listing a watchlist of securities I'm interested in; at the bottom, you will notes and thoughts about some of the stocks on the watchlist (the notes will become obsolete over time so don't blindly take anything I say without checking it yourself); and some quick notes on why I purchased something. Also keep in mind that some of the "contrarian" securities I look at (generally distressed firms) may involve very high risk.


Click one of the links below to quick-jump to section:
I. Investment Plan & Ideas
II. Watchlist
III. Thoughts on Specific Securities
IV. Quick Notes on Why I Bought Something


I. Investment Plan & Ideas

Last Update: September 26, 2016


I develop my investing plan based on my macro outlook and my investment outlook so you may want to check those out as well. The reason I don't consider myself a value investor is because I am influenced heavily by macroeconomic events.

Portfolio Allocation Goal

40% to 50%: Special situations (failed deals not counted in this)
20% to 25%: Core holdings
0%: High cash producing assets
0%: Legacy (to be liquidated)

25% to 75%: Cash (not counted in portfolio returns)



Potentially key investments in 2016:
Torstar (TMX: TS.B)
Navigator Gas (NVGS) or Seacor (CKH) or another
Resolute Forest Products (TSX: RFP)


[xP] = percent of portfolio to consider investing

Near-term Ideas

• Torstar (TMX: TS.B)
• Navigator Gas (NVGS)
• Seacor (CKH)
• Motors Liquidation Trust (MTLQU)

***********************************************************
*** Everything below is old and kept for historical reference only ***

My latest Macro Outlook I can be found here.

My Investment Outlook I with 2009 predictions can be found here.


Potentially key investments in 2011:
Mega Brands (MB.TO)
Bearish bet on China or commodities (construction related)
Nokia (NOK)
Dynegy (DYN) or Gen-On (GEN) bonds


[xP] = percent of portfolio to consider investing

Near-term Ideas

• WebMD (WBMD): stock has collapsed of late but probably for valid reasons... revenue is too low for current market cap... revenue of around $600M vs market cap of around $1B... buy with profit margin assumption around 10%, and P/E closer to 12 than to 20... not sure of moat and competitive position (hard to tell if these websites are flash in the pan)... if it works out, it could be a valuable business like TripAdvisor (from EXPE) but unlike that, this seems to have no user networking effects.
• Beam (BEAM): Formerly Fortune Brands (FO)... liquor spin-off... evaluate against Diageo...
• First Solar (FSLR): Risky but seems to have a decent balance sheet... low cost manufacturer? ... depends on subsidy schemes for installations
• Medco (MHS): risk arbitrage... deal attractive but part stock deal... some regulatory concern but not too sure... low margin but dominant business...
• Netflix (NFLX): Down a lot but that's because valuation so high. Not cheap... vulnerable to competitors and may not dominate online streaming....
• Bennett Environmental (TSX: BEV): net net... high cash... battle between fund and management over what to do with the cash... uncertain business with losses in the past... not sure what it's true earnings are... trading around $81M vs book value of around $77M (with $63M cash)...
• Dun and Bradstreet (DNB): interesting company... negative book value... P/FCF around 11; P/E around 12... low capex information-providing business with possibly a decent moat...
• Nokia (NOK): 10-year low on many metrics (market cap, P/E, P/FCF)... absolutely need to make sure that future products don't fail... consider if share price hits around $7 or mkt cap is around $28 billion... do a Du Pont analysis with reasonable scenarios of profit margin x asset turnover x financial leverage << does hit around 20% ROE if margin goes up to 6%, turnover is 1.33 and leverage is 2.5 (this includes Nokia Siemens...should do it without that)...
• GenOn Energy (GEN): merger of Mirant and RRI energy... independent power producer... distressed due to low natgas prices and low power demand... confusing financials so market may be ignoring it... figure out pro-forma statement after combination... likely has large NOLs (check)...
• Dynegy (DYN) shares or bonds: Distressed utility that is to be bought out by Blackstone Group... Carl Icahn and another sizeable owner against it. Bonds yielding around 13% with a 2027 one trading around 60% of par value...consider the one maturing in 2018 (5% cap gains per year + 13% yield potential)... company will post losses for years... consider bonds if they drop further... don't understand the business right now....need to figure out why company posting losses and whether it will turn around easily.. heavily dependent on natgas prices I think...chk out the Morningstar report on their expected returns for bondholders... Fitch ratings note about potential bond recoveries... electric power industry primer...
• Energy Future Holdings/TXU bonds: very risky but may work if buying below 60% of par value... consider TXU.LL CUSIP 292680AC9 (rated B by Fitch)... from what I recall, very weak covenent bonds with many of them having toggle pay-in-kind terms... article on attempt by company to renegotiate bond terms here.... another quick overview of the company's problems here... FINRA bond list here... EFH 2Q10 presentation has debt maturity on slide 13... slide 14 in this presentation has more details... details of interested bond contained in this exchange offer doc...
• EMMS, EMMSP: going-private tender offer being resisted by some activists... Jae Jun looked into it before... deal failed... money-losing business... dangerous...
• HRG (Harbinger shell): trading slightly below book and net cash (Aug 8 2010)... it appears this is being set up to hold shares of Spectrum Brands (SPB)... no NOLs I believe but potentially good investment team backing it... appears to be burning $2M per quarter (quite a lot)... study CLRS before doing anything with this...
• ZAP... SPAC run by Harbinger Capital... can buy around 20% below book value... no NOLs as far as I can tell so no hidden benefit...
• ZRBA: odd-lot tender offer (249 shares for $5.20)... no shareholder vote required...
• CDCO: liquidation... consider 44P @ $7.25
• SHLD or SHLD bonds: see how earnings come in over the year and then decide... consider buying bonds if they yield 30%+ and par value around 50%...
• Amazon (AMZN): consider buying if it drops to $30... P/E high but FCF is $1.5billion (20x @ $70)...
• MGIC: looks cheap... clean balance sheet... cash on hand... product seems to be gaining some traction... low valuation... geopolitical risk... fraud risk... currency risk... not sure if recent earnings are peak earnings...

Ideas for the Future

• China short position: consider buying put options or buying inverse ETFs or outright shorting real-estate-oriented China stocks or ETFs... short selling is the cleanest and probably cheapest way of doing it... ideally, construction companies (including Hong Kong and foreign ones) are probably best bet... Chinese banks are also worth considering but govt may bail them out... there is a risk of money printing or devaluation (i.e. nominal prices will rise even if real prices crash)... foreign commodity companies are also worth considering but I think valuations aren't that high given their collapse in the recent bust... research early but wait for signals before doing anything (may take one to three years)...
• Live Nation (LYV): TicketMaster (TKTM): consider if merger with Live Nation (vote early next year) fails; or if merger goes through, consider in late 2010 or 2011 and see how the merger works out... Morningstar report says the merger destroys TKTM's value since LiveNation has lower margins, higher capex, etc (since it is more into event promotion, etc)...in contrast, TKTM has low capex and is almost a monopoly since it is purely a ticketing firm... risk is that customers will develop their own internal ticketing systems, as LiveNation is attempting to do, or new options (ebay, craigslist, etc) will become popular...
• Iridium (IRDM): Whitney Tilson idea (refer to last part of this presentation)... has warrants that can provide huge upside (speculative though)... looks cheap but don't like the business much... req high capex; max potential market size limited; historically not a good business (satellite communications); vulnerable to disruptive technologies... IPO late 2009 so limited information (might want to dig up what Motorola disclosed early in the decade to see how the business was back then)...
• Lexmark (LXK): distressed...contrarian (mostly hold/strong-sell; 17% shares sold short)...could be a very dangerous value trap...trades at trailing/forward P/E around 8... declining sales (value trap?) but good balance sheet and profitable (so far)...
• VIC.UN (TSX): manufactuers containers, roofs/etc for agricultural industry... P/E less than 8... steady (not peaking) income... need to consider what happens when it becomes a normal corporation... share count reducing but debt going up...
• EXPE: look up industry reports.. online strength... negative working capital (good)... look at after recession and travel goes down... summer or late 09 [don't like corporate governance]
• SWIR? cheap on p/bv basis and I think a net-net... but likely cyclical and not sure about future of wireless products
• ALSC: buy late 09 or 2010 or if I get confident with Ambac...interesting... exposed to Ambac, but insurance sub... very high upside but potential 100% loss... maybe buy later... assume pref shares only worth 20% or less...
• CLRS [missed opportunity --write it up] CLRS: consider late 09 or 2010...SPAC... has $86m cash ($4.95/share) + $226m NOL (starts expiring in 2009)...make sure to account for options and other future equity dilution (haven't looked into this yet)...might take years to do something... burns possibly 5%/yr while waiting... if I buy 25% below book value (say $4 or below), I can wait 5 years burning 5% of book value per year... ultimate return depends on what company is bought/merged and how it does...totally dependent on management...only put 10P into this unless management plans to buy a relatively decent company...refer to write-up linked from sahdow stocks...
• Brazilian bonds: 2010 or beyond...consider a strategy of rolling over Brazilian bonds... very risky... might get stuck with illiquid bonds... but interesting :)
• Japan: look at consumer and industrial products with strong brands... [Japanese corporations are not shareholder-friendly and this may not change for decades, if ever]
• Toyota Industries (TSE: 6201): Martin Whitman suggestion...indirect way of owning Toyota Motors... Japanese companies not shareholder-friendly and will never unload TM stake so discount may never close.
• real estate in developing countries: after a sell-off in emerging markets... still looks expensive right now...Marc Faber was bullish... so was Sam Zell... the demographics present a huge opportunity... I have to do research but places like India, Vietnam, etc, are good places IMO... this could be a super-long-term investment.
• agriculture: not sold on this right now but consider agricultural commodities if they or emerging markets correct... long-term play on developing country growth... Jim Rogers and Marc Faber are bullish... farmland, commodity ETFs/ETNs (maybe Rogers's one RCA), nitrogen/fertilizer companies, etc...
• industrial cyclicals: consider Black & Decker, Fanuc, Yaskawa Electric, Owens Corning, USG
• solid companies: not cheap yet but consider Diageo, 3M
• FTEK: consider if it drops 50% to say a P/E near 10... price of $5
• late 2009, 2010 or 2011: consider going long companies extremely sensitive to consumer discretionary spending... eg. EXPE, cruises (Royal Carribean, Carnival), casinos...
• credit card processors V & MA: consider in late 09 or 2010... prices still high and unattractive but likely will do well in the long run from Asian growth, etc... may never get to attractive prices...
• gold: short gold bullion (not gold stocks) if there is a speculative rally (say, to $1500): DZZ (2x inverse), DGZ (1x inverse)... but these ETFs/ETNs depend on the path taken so think about whether it's worth it... TSX also has HGD but I think it's risky given the C$ movement (better to take a bullish US$/bearish gold bet)
• KEYN: looks bad...on way to liquidation??...poor past history but seems to be an interesting niche market... contrarian and out of favour... chk and make sure cash burn won't be too bad... SeekingAlpha has one article on it... consider 10P initial investment and another 10P later in the year?
• (old note) Vietnam: hard to invest (possibly Vietnam fund on London (VOF))... beaten-down on all fronts: high inflation, declining currency, current account deficit... sounds like Argentina in 2002... ideally, invest in individual stocks (don't trust these fund management)... wireless communication companies, food producers, oil refiners, etc... high risk with potentially shady companies...

II. Watchlist
Distressed Megabrands (TSX: MB; MB.NT; MB.WT) Chesapeake (CHK) bonds/conv prefs Eastman Kodak (EK) Owens Corning (OC or warrants PK: OCWAZ) Sears Holdings (SHLD; SBCKO) Torstar (TSX: TS.B) Menu Foods Income Fund (TSX: MEW.UN) Lexmark (LXK) Iceland Ossur (ICL/COP) Marel (MARL) Solid Long-term Companies Diageo (DEO) 3M (MMM) Talisman (TSX: TLM) Secondary Companies Liquor Stores Income Fund (TSE: LIQ) Live Nation (LYV) TicketMater (TKTM) Tech Expedia (EXPE) Foundry (FDRY) Globaltrans (LSE: GLTR) Amazon (AMZN) Keynote Systems (KEYN) Magic Software (MGIC) Insituform Technologies (INSU) Nokia (NOK) Cyclicals Lindsay Manufacturing (LNN) Japan Seiko Holdings (TSE: 8580) Toyota Industries (6201) Nomura Research Institute (4307) Nomura real estate Seiko Holdings (8050; watches) Yaskawa Electric (6506; factory robots) East Japan Railway Makita (6586; cordless power tools) China [potential short] Claymore/AlphaShares China Real Estate (TAO) [potential short] Claymore/AlphaShares China Small Cap (HAO) [short; but not a good one] UltraShort FTSE/Xinhua China 25 (FXP) [consider shorting] Direxion China Bull 3x Shares ETF (CZM) [consider shorting] Va Eck Market Vectors China ETF (PEK) -- derivatives tracking A shares [short] INDXX China Infrastructure Fund (CHXX) [dangerous, avoid; use it to study] Direxion China Bear 3x Shares ETF (CZI) Emerging Markets Special Situations Alliance Semiconductor (PK: ALSC) [liquidation] Harbinger Group (HRG) [shell company trading slightly below cash] Convertible bonds to consider: Coueur d'Alene (CDE.GJ / CUSIP: 192108AQ1) Midway (MWY.GB / CUSIP: 598148AB0) AMD (AMD.GG / CUSIP: 007903AL1) Novagold (NVGD.GA / CUSIP: 66987EAA5) Evergreen Solar (ESLR.GE / CUSIP: 30033RAC2) Sandisk (SNDK.GC / CUSIP: 80004CAC5) Convertible Preferred shares: Bunge (PK-OTC Grey Market: BGEPF) ... consider if it drops below $50 Freeport McMoran (PK-OTC Grey Market: FCXGL) ... consider if below $400 III. Thoughts on Specific Securities IMPORTANT: A lot of what listed below is written over many months and years and some of it will be obsolete so you need to double-check everything. [+] positive item [-] negative item MB (TSX) + distressed and trading for almost nothing re-capitalized company, possibly ignored by market/mutual funds/etc - might go bankrupt by June (2009) re-capitalized with huge share dilution in early 2010 - even if it recovers, very high debt and equityholders may not see much + strong brand and only major competitor to Lego for the younger kids + has good support from retailers and others (refer to ROB magazine article) - not sure if management are capable and can be trusted not to make another big mistake + Fairfax has sizeable position + stock trading above equity issue price + consider the exchange-traded warrants, notes, etc (MB.WT; MB.NT; MB.N; MB.R) toy reference of some analyst MGIC + clean balance sheet, with cash greater than total liabilities + trading below book + profitable lately with positive FCF - not sure if peak earnings - posted losses a few years ago = Contra the Heard article EXPE + high free cash flow - historical earnings look low (mainly because of acquisitions) - culture of doing over-priced acquisitions - margins declining... not sure if company can maintain them + very strong brand... surveys place it usually at #1 in category + owns #2 Chinese OTA... but it's a money loser - insiders arrogant and questionable - threat from aggregators, large web firms like Microsoft/Yahoo/etc + potential for growth even though OTAs dominate booking + potential for network effect + owns Travel Advisor which is dependent on advertising than booking - potentially big negative macro trend of declining consumer spending on travel CALM + cheap at P/E around 5...but not sure if earnings peak - historically trades around p/e of 5 - fluctuating, often negative, earnings - decent cash flow but not sure if 08 numbers are peak gold = ETNs: http://www.dbfunds.db.com/notes/gold/index.aspx Toyota Industries (6201) [+] Whitman has liked it for 10+ years [-] cross-shareholdings means it rises and dies with Toyota [+] hard to value so likely misunderstood [+] cheap on look-through earnings of 6 (Whitman's 2Q08 report) [+] down 40% from peak (still not extremely cheap though) [-] very cyclical... autos are classic cyclicals industries... might want to consider after economic recession priced in not sure if Yen strengthening hurts... but will help me [+] Fortune's most admired auto parts company check out: The Wall Street Journal Eastern Edition, March 25, 2008 v0 i0 pC7(1) "A bet on Toyota Industries might be safe play on Toyota Motor".(Company overview) by Jamie Miyazaki Black & Decker (BDK) = not to be confused with the consumer products of the same name... doesn't own consumer products [-] not sure why book value dropped in 2006 and in other years even though income was positive [+] very good ROE historically... 25%+ in 2000's & 15% for 15 years [+] weak US$ should help company compete, although I Think the comapny is moving some factories to Mexico (not sure) [-] debt to equity is kind of high at around 1.. around 1.5 in the last 5 years [+] stock price back at 2004 levels [+] div yield of 2.5% now (but may get cut) [+] trailing P/E: 9; forward P/E: 12 with a P/E of 12 (8.3% earnings yield) and 2.5% dividend, we are looking at around 11% return = consider buying if price drops to around $60 (10% drop) Seiko (8050) [+] looks cheap... P/E = 8; P/B=0.9; ROE=12% [-] not sure if it's cyclical... will earnings drop with weakening US & Japanese economies...and move away from consumption goods [-] high debt is a risk [+] back to 2003 levels [+] somewhat dominant brand... [-] fake watches [-] consumer may not be loyal to mid-end/low-end watches [-] relatively mature industry in Japan but growing worldwide weak at the higher end... trying to target mid-end... strong in low-end price point [-] weakening US and Japanese economies may hurt business = compare against Citizen (7762) and Movado (MOV) = industry growing at 4% CAGR 2001-2010: http://mediaserver.prweb.com/pdfdownload/745374/pr.pdf = japanese watch market: citizen (58.4%), Seiko (37.4%), Ricoh Elemex (1.3%) (http://www.allon.info/japan-market-share.html) Kenneth Cole Productions (KCP) = like other retailers, down 50%... but its sales and profits are down significantly as well [+] historically strong ROE (10%+) [+] decade low on P/B, P/S but not P/E [-] high P/E... earnings need to triple before P/E is reasonable [+] founder owns majority of the company [-] dual-voting structure with founder having 90% of voting rights with 50% of shares [-] no moat... easily to decline substantially [+] will see some positive growth if consumers shift to more dressy look [+] Brandes owns it... but Brandes small cap doesn't have a good track record... = consider buying if price drops 30% so that P/B=1 (right now around 1.3) Sears (SHLD) [+] run by Eddie Lampert, who has a good history in investing but not sure about controlling firms... respect him for his ordeal with kidnapping and the comeback [+] stock down 40%+ but this doesn't mean it's cheap since it likely ran up on speculation on real-estate sales [+] undervalued real estate... listed at book but worht a lot more... given the downcycle in commercial real estate, can't unlock them any time soon (but maybe in 5 years) [-] not sure if Lampert is good at running a chain [-] old-school... not trendy or popular... store brand not strong... [+] merchandise brands, however, seem strong (Kenmore (mfg by Whirlpool), Craftsman tools, Land's End, etc) [-] high forward P/E (20+) but it may be due to depressed earnings = consider buying if it hits price to book value of 1 (it's around 1.2 right now)...say around $75 = consider picking it up in 2Q 2008 Ambac (ABK) [+] beaten-down [+] looks like a high-quality company with lower risk than the market perceives [-] earnings growth seems to be declining/low [-] may need to raise capital to maintain AAA rating if losses mount [+] historically low P/E & P/BV [+] will benefit from rising credit spreads--this is what I expect [-] vulnerable to greater losses if CDOs worsen [+] pretty good ROE for the industry (which has low debt)... 14% historically... will decline near-term due to losses but should rebound [-] no catalyst to prop shares in the near term... [-] low growth industry... but depends on what materializes... will probably return 15% per year (14% return + 1% yield)... [-] unlikely to recover 50% loss... P/E multiple unlikely to go back to 20's for years... = consider as a super-long-term holding = those mark-to-market losses don't impact the company (accounting only)... market may be overreacting... quote conclusion part of Fitch report on company site... [+] book value per share is $50's... adjusted book value (not sure what this is) is in the $80's!!! looks like a steal... Canadian ABCP Crisis (DG.UN; GII.UN) DG.UN is worth considering but GII.UN is extremely risky (supposed value is like $0.7(!!!) while the stock price is $1+) this is a bet on the crisis being resolved with the Montreal plan think about what actually happens when the deal goes through... if ABCP is converted to long term bonds with a haircut, does DG.UN lose value? If so, how much will it lose?... Doesn't DG.UN actually own the underlying mortgage assets, CDOs, etc? Wouldn't it make money on that? can make a HUGE killing if I'm right; or lose... but is the downside limited? think of what actually happened... do these conduits simply act as financiers? who owns the actual MBSes? how much of the stock price drop is due to the ABCP crisis, and how much is due to deteriorating MBS/CDO/etc? need to act by end of October I think... since a deal may be signed by then... DG.UN has low interest payment payout but the plan is to make money off capital gains... GII.UN has higher interest payments and has way more capital gains potential if the NAV is understated significantly... maybe wait until October NAV numbers are published to see whether NAV is going up or down... [+] As of Sept 30, 2007, NAV per share is $7.61 while share price on Oct 19th is 3.14... even if there is a 50% loss due to ABCP agreement, price still below NAV... but this doesn't discount for increased CDO/MBS/etc defaults [-] very thinly traded... $20k daily volume... not sure if secondary market will dissapear in a few years plot chart of NAV vs price for the last 12 months [-] the unknown risk is that we don't know how leveraged the underlying CDS are. GII.UN must have high leverage since its value plummetted below $1 very quickly. But if one is bullish and thinks the NAV is severely understanded the leverage can help strategy: long-term (at least 4 yr) buy & hold... expect the NAV to recover over the years... [+] GII.UN would have massive payout if it actually pays what it typically would... $0.0687/month (while stock price is around $1.5)= 50% annual yield... but this may be marked down due to ABCP deal.. but it still looks like a massive potential Priszm Income Fund (QSR.UN) runs 400+ KFC, Taco Bell, John Long Silver, Pizza Hut outlets in Canada (a number of them are to be sold off or shut down)... franchisee of Yum brands in the US make sure that Priszm is a better investment than Yum brands... look at corporate structure and what the licensing fee is [+] could be a perfect 'low risk, highly uncertain' business... this may be a great investment recession or not [+] beaten down... almost totally out of favour.. down around 50% this year [+] looks like management plan to sell off or shut down underperforming stores is a good strategy [+] should do ok even if the economy slows down [-] taxable dividends.. but probably ok to hold outside RRSP since it's a trust.. need to decide whether to hold inside RRSP [-] struggling with negative same-store-sales growth [-] majority owned by JOhn Bitove... check to make sure no ulterior motive [+] majority ownership means that the CEO's wealth goes down with the company [+] I think this looks good... brands are strong... #1 in their respective categories and unlikely to lose their position any time soon... ask Leanne, Vanessa, etc what their impressions are of KFC, Pizza Hut, etc look at financials of Yum to see how Priszm may do... won't be identical but should give an idea of sales potential [+] during the good times, around 5% true yield and another 5% return of capital... [+] trading below book value, although not sure how reliable that is... lease commitments may be hard to get out of.. not sure about brand intagibles... [+] unlike other restaurant royalty trusts, Priszm has greater flexibility to increase profitability (or lose money as well ;) )... --- Anything below here are really old notes --- Guest-Tek (GTK.TO) [-] Extremely risky.. or... is this a low risk, highly uncertain business? what's the risk of tech obsolecence or high capex req to replace tech? [-] questionable management... horrible capital allocation decisions... insiders own the stock but they seem to be making big mistakes not sure what is happening and everything depends on accounting restatements... taking months to restate (what's going on?) [+] trading P/BV less than 0.5 (but adjusting for goodwill and intangibles takes p/bv to just 0.9)... with Graham's net-net positive... if cash flow burn (assuming loss for this year and future) isn't too bad, then the company is really cheap... but it may not recover any time soon [+] market position seems dominant, although this is a small niche market [+] management and insiders (incl MP Tech) own 60%+ of shares; MP Technologies owns around 50% of shares... but this also means MPT can do whathever they want with the company. But looking at MPT's Japan website, I think they are genuinely interested in Guest-Tek (makes up a big chunk of their value & goals are similar).. [-] BUT MPT stock (TSE: 3734) is down 90%+ in the last few years (current mkt cap of MPT is around $25m and trading with a p/b of 0.3 (depending on date))... clearly because of the Guest-Tek flounder... could show management problems as well... look at everything after accounting restatements... see if cash on books is good... if book value is still good... consider cash burn in the last 2 quarters... note that there is a lot of intangibles and goodwill (after deducing this, p/bv is just 0.90) [-] management credibility questioned due to multiple accounting restatements... and continuous delays (small company but still)... [+] low debt [+] if market share not lost, good business with recurring revenue... I think this company can stay in business for a long time if they don't lose mkt share and can generate positive cash flow. This is an industry service that will last for a long time, although the underlying technologies (like IPTV will come and go)... [+] new Video-on-demand tech should help position Guest-Tek for the future calc NPV using 15% disc rate, 8% FCF growth, $1.5m FCF If everything looks good after restatements (make sure cash burn is low), consider taking a big position (say $20k) Lonrho (LSE: LONR) Invests in Africa... a unique company for sure... how many Africa-oriented companies are there (other than pure miners) Diversified with holdings in mining, hotels, infrastructure, etc... its industry is listed as hotels but it is diversified worth considering after a big correction in emerging markets, while African outlook looks positive very sensitive to commodities, directly as well as indirectly (with shipping companies, etc) Owens Corning (OC) or its warrants (OCWAZ.PK) [+] Seems undervalued due to housing concern, zero Wall Street coverage, past asbestos litigation Potentially an awesome long-term value pick (note that I can buy this over the next few years) Consider buying warrants and holding them for a long time (expires 7 years from now with strike of $45.25) Consider buying a lot of shares (say $25k worth) or moderate # of warrants ($15k=3000)... I like this as a long term pick [-] Big risk is that warrants expire worthless if OC is taken over at a price below the strike price! [-] I'm bearish on housing so it could take 2 years (say 2009) before this company starts growing again [+] solid long-term record, and this business is not going to dissapear (although housing slowdown will cool it) [-] huge risk: OC might only have around 5% EPS growth per year and the warrants may come nowhere near their strike price [-] ROE looks very low (5%ish)... not sure if this is temporary in 07 or not... such low ROE is not a great business (Buffett's key metric)... check against USG to see if that also has a low ROE (since Buffett and other value investors like USG, if that has a similar ROE then OC may be ok)... warrants seem to have low leverage and trades similarly to the stock (are they worth it with the illquidity?) look up old OC Value Line (or S&P or Morningstar or some other) report in the library... I think the old symbol is OWC... check chart in the 90's... check earnings/sales/book value growth in the past... the goal here is to determine if it can grow 10% per year, as needed for the warrants to be in the money in 6 years... consider its performance in the 90 recession and 2000 recession [+] moving more into composites (almost 60% 08 sales--check number), which should provide better longer-term growth, albeit at the risk of a global slowdown... since housing is likely worse than any global slowdown, this is a positive given the greater-than-anticipated housing problems, management estimates, although conservative, may miss consensus... wait until the Nov 7 earnings call to see? ... in report, show OC sales chart from JPM conf... [-] seems to have posted a couple of negative earnings years (early 90's and 98?)... not as stable as I thought... [-] warrants will dilute shares by 20% Pulte Homes 7.375% Senior Notes due 6/1/2046 (HMA) consider if trading 60% of par ($15)... maybe in late 07 or early 08 when mortgages reset and homebuilding priced negatively... at 60% of par, we will have yield of 12.2% + 40% capital gainst potential current yield of around 9% with 20% capital gains potential evaluate default and bankruptcy risk if buying not correlated with broad markets buying the stock is another option that may be attractive... also not sure if this is good idea if OC is also purchased bond may get downgraded by Moody's (it's on credit watch with possible downgrade potential since Aug 22 2007)... right now trading just above non-investment-grade level so a downgrade will put Moody's rating below investment grade and possibly cause selling by funds... buy at that time if interested Abitibi (A.TO) Buy when it's close to it's prior low of C$2.6 (if lucky); or somewhere near C$2.8...but make sure it is rebounding and not freefalling Ideally want it to break out above $3.30ish but cheapre to buy at the low around $2.8 than at $3.30 will keep dropping if C$ keeps rising... watch to make sure C$ is starting a downtrend buy when Full Stochastics cross and ADX looks good key contrarian stock for me in 07 [-] potential value trap... declining secular trend... the hope obviously is that this will be a survivor that takes market share from rest [+] newspaper and papers will still be around for a long time. There may be a decline but if profitability can be improved (merger should help) then you can make money [+] C$ likely near a peak. If commodities correct during an economic slowdown, C$ is more likely to come down than up. Sure, it can go up a bit more but not much IMO [-] BOW is trading above book value while ABY is below it, so a merged company is not as cheap as ABY alone is [+] If C$ stays high as now (2Q07), buying ABY instead of BOW is cheaper. The deal favours ABY if C$ stays high since ABY is more vulnerable due to more Canadian operations [+] merger will make it the 3rd largest newsprint producer, and 8th largest in the world. So unlikely that these companies will go bankrupt (but this doesn't mean that you can't see massive share price losses over time) [-] management is getting a big payoff for the merger (something like $40m to management) [-] industry fundamentals are weak: no pricing power, too much capacity, unions in some companies, etc must absolutely make sure that balance sheet is good enough to withstand the downturn... make sure that the company can make its debt payments and won't need liquidity injections (from more debt or equity) the main thesis is that this will be a survivor in a declining industry... the downside risk is that this will go bankrupt, but if balance sheet is good then this is unlikely (or I can sell out long before it happens) [+] massive leverage... small changes in profitability has massive end-result.... this is also what makes it very risky from a balance sheet point of view... Canfor (CFP.TO) contrarian forestry pick..dlt. but don't like it because of housing slowdown big downside is that 75% of sales come from lumber, which will likely do poorly as US housing slows down... so I don't like it consider late 2007, after US economy slows and housing is priced into stock Tembec (TBC.TO) extremely risky contrarian forestry pick... highly vulnerable to US housing high debt levels (around 60% debt/equity).. could cause big problems... financially weak and can go bankrupt price-to-book is around 0.2, one of the lowest in Canada for any company... market cap keeps dropping (now around $100m) if C$ doesn't weaken, company will struggle... consider if housing hits a bottom or company seems to recover... very risky otherwise much safer to go with Abitibi, which can survive, while this may not... Great Canadian Gaming (GCD.TO) gambling.. maybe a play on slowdown Hasn't done well in the last few years and can drop even more.. but might be near the bottom oversold right now (jan 07) so wait for it to dip a bit in the daily chart and then see... not really sure fundamentals are good for htis company... casinos don't seem that great Brown Forman (BF-B) Not really sure whether to invest in this... what's keeping me interested is that this may do well during an economic slowdown Probably worth it as a long term hold Horrible technicals.. not sure if it's in the beginning of a big decline Walmart (WMT) Not sure if it's worth it... secular retailing problems Buy around $43 or $44 .. not sure what's a good price Overstock (OSTK) [+] contrarian... trades at 50% of sales... Prem Wesa of Fairfax Financial--supposedly a value investor--owns a position... also Chou funds (value guy from Canada)... [+] CEO negativity, horrible profits, etc priced in IMO... [+] potential for massive short-covering rally... something like 30%(?) of stock is short Consider buying if the economy slows... the stock can drop 50% more to $10-$15 I think... see if capital expenditures and other costs are coming down (YES), while sales (NO) and profits increase (sales are declining now it seems) only buy if sales increase... this company will only survive if sales increase and pay off the infrastructure, tech, and marketing costs... its model is to be a large provider of low-cost items [+] CEO looks amazing (philosophy Phd, fluent in Mandarin, fighting spirit, etc)... successful in past by buying up distressed assets (exactly what I like; very Buffet-like).. those calling him looney probably have ulterior motives... just need good profitability and watch stock skyrocket... [-] CEO is very bullish and optimistic at all times... kind of good for entrepreneurial spirit but hard to read the reality [-] lawsuits distracting and expensive... talk about failed delivery... but shorting ok supposedly has around $100m in cash at 2007 year-end compare against early Amazon... R&D/capex and how it changed over time... [+] has strong brand recognition according to surveys... national retailer... OSTK chart in presentation... look to see if Lehman has report... so this isn't like BIDZ or other retailers with weak brand recognition [-] still financially weak and can easily burn cash if something goes wrong [-] economic slowdown impact is uncertain... might actually do well (like Wal-mart) and after tech bust ... but most of its sales are consumer discretionary... refer to value and cigar butt investing blog write-up [-] stronger competitors (Amazon, Ebay, Walmart, etc) can crush this company... but Amazon likely won't compete (closeout stuff cannibalizes their full-price items eg. used book store vs full-price book store; factory outlet vs brand name store)... but Ebay is a huge threat... market cap of $300m but if profit margin hits 3% on sales of $700m, then P/E is 14 mostly 3rd party sellers but Overstock provides an overarching brand and single point customer experience... better than Amazon's strategy for 3rd party sellers where customers can tell it is a particular seller [-] sales have been declining in the last few years... if this doesn't rebound, it will be disastrous [-] debt/equity of almost 3... company can easily go bankrupt if sales/economic problems.. it has $100m in cash vs $75m debt but it needs to be careful not to waste the cash Bill Miller's rationale for buying Amazon: http://news.morningstar.com/articlenet/article.aspx?id=835&t1=1208102959 ... M* skeptical view: http://news.morningstar.com/articlenet/article.aspx?id=835&t1=1208102959 Menu Foods Income Fund (TSX: MEW.UN) contrarian... dropped 50%+ due to pet food recall... down 70% from IPO... [-] very risky and can go bankrupt... received more emergency funding from banks and other lenders... who knows what the terms of those loans are? could take a while to dig out of those interest payments (depends on what that financing was) [-] lost major customers: 10% of sales (P&G), 7% (2 more big customers) [+] management has handled crisis before in 2005 [+] growth industry it looks like (not sure)... more pet owners; more pampering; etc :) [-] huge uncertainty... supposedly 98 lawsuits have been filed against the company... not sure what the costs of these will be... no one, including management, seems to know... what's the actual damage? $1000/pet + stress/anguish/etc? [+] trading below book value it looks like (need to check statements)... p/sales also looks low... [-] cash flow could be a huge problem [-] has been destroying book value/share for years: http://www.stockhouse.ca/comp_info_financials.asp?Symbol=MEW.UN&table=LIST&view=financials&sh=kr Takefuji (TAKAF.PK, JP: 8564) beaten-down due to consumer finance problems in Japan... govt legislated lower interest that can be charged... Takefuji chiefly provides unsecured, un-guaranteed and small cot loans... basically consumer loan company for sub-prime loans... [+] some companies are exiting or will go bankrupt (I think a branch of Citi decided to close 70+ branches)... Takefuji may remain as a strong survivor long history... [+] econ news are improving.. refer to charts on unemployment rate, bankruptcies, etc on Takefuji's website... could be biased info (selection bias) but still key econ metrics [-] potentially declining margins and profitability due to new rules (lower max interest rates, etc)... Takefuji may permanently trade at a lower market cap in the future if consumer loans are a bad place to be... Sanyo Electric (JP: 6764) struggling... not sure if it will survive or recover... research and buy if its products will recover (may not) [-] tough competition from cheaper competitors in SKorea and China [+] down 66% from recent peak [+] contrarian: lowest rated analyst opinion on Nikkei225 on July 11 07 according to Bloomberg: http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=9205:JP&sid=abHQKQ2hnL0M might want to wait for price-to-book to drop (use the world value investing screener to check) Japan Airlines (JP: 9205) this sector is very cyclical and risky so not sure if I'm getting in at the wrong time, although this company hasn't done too well largest airline... used to be govt owned (consider the low-cost private StarFlyer if it becomes public) All Nippon Airways (JP: 9202) is the 2nd largest airline company in Japan and competitor find out what RPK,ASK, Load Factors are for Air France, Southwest Airlines, Air Canada, some Asian airline (eg. Singapore airline) etc [+] contrarian: out of favour lowly rated by analysts (check link under Sanyo)  IV. Quick Notes on Why I Bought Something Only started writing this stuff in 2007 or thereabouts so doesn't capture earlier stuff... MRH * beaten down and trading at P/E of 14 and forward P/E of 6 (if earnings dissapoint and P/E ends up being high, consider selling) * might weather through ;) an economic slowdown...insurance typically does well during any economic slowdown * book value growing at 10% per year * quite stable, assuming no major weather catastrophes * if insurance premiums stay high and MRH can expand its business, stock can go back to its past price (say $25+) * long-term hold... good potential (15%+ consistent growth) if you it doesn't go bankrupt... TFSM * bought on Microsoft takeover rumour.. already ran up 20%+ in one day but taking a risk * plan is to sell if nothing happens within 2 months, unless I decide it's a good hold (could be, since online advertising is a good area) RESULT: got bought out by WPP for $11.75--below my purchase price :( S&P/TSX 60 short (XGD.TO) * feeling was that US economy was going to slow, and consequently the Canadian one * mkt ran up on commodities and C$ appreciation, so it should decline if the US economy cools * returns of something like 30% in the last 3 years, which is very high so bound to come down (but I could be wrong and it may not decline and instead have returns of 5% or something) RESULT: took a long time and looked like I was going to suffer losses but then the market crashed and produced 10% return (below original expectation) TLT * was expecting the US economy to slow, and hence the Federal Reserve to cut rates in late 07 * yield of around 5% is attractive relative to the market * unless rates break out, I can hold it while earning the interest...will be a portfolio drag but won't lose money RESULT: thesis was sort of correct but the huge decline in US$ against C$ killed it... ended with positive US$ return but negative in C$ terms :( Takefuji (8564) * beaten-down but strong in the sector... play off the recovering Japanese economy and stronger Yen... * yield of around 5% is attractive relative to the market DFC * this is more of a gamble since I don't understand the business * survivor that should pick up market share while others go bankrupt RESULT: complete failure... sold slightly before bankruptcy HMY * potential recovery off gold... recovering Rand/US$... * potential turn-around... RESULT: sold very quickly at break-even after turning bearish on gold... wasn't happy that gold was correlated with the market... ABK * good long-term historical profits * very low valuation.. p/b 0.6 or lower... trailing p/e=3; normalized p/e = 5 * very high risk... with huge liability if subprime default rate keeps increasing BCE * Risk arbitrage * big spread due to financing concerns * somewhat safe to own even if deal fails RESULT: M&A failed... still holding it JLN * Arbitrage * odd-lot tender offer RESULT: successful... tiny position... PSD * Risk arbitrage * felt big spread was due to credit crisis and hedge fund blow-ups * somewhat safe to own even if deal fails RESULT: successful... saved my portfolio in 2008... MATH * potential liquidation * might finish within 6 months * almost close to the end... only 2 or 3 employees left... RESULT: Felt management may not liquidate so sold out early for a large gain CDCO * liquidation * should complete within 2 years… hopefully 1 year * Buffett has played this liquidation since the beginning CDCOR * liquidation * felt Rights had slightly greater upside and might be paid out quicker