Interesting Situations

This is a list of companies I believe could be undervalued and worth looking at, in order of when I found them.  Most will be companies at prices that entice me to read much more about the underlying businesses.  Once companies make this list, I would say the odds of me buying their stock goes from about 1/1,000 to about 1/8 or so.  I have included links to the companies I have purchased or written about.  I give credit to where I found them and have a “VL” next to companies I found through Value Line.

Found 5/1/2011

  • Pure Cycle- very interesting story, although I’m in no position to value the real estate & population shifts in Denver, CO. Will keep an eye on it & try to learn as events unfold, decided not to invest.
  • Metropolitan Health Networks – acquired at a significant premium to when I found it, which is a major disappointment considering the time I put into the research here

Found 4/30/2011

  • M&T Bank- BRK meeting Charlie Munger

Found 4/27/2011

  • Pulse Seismic- Jonathan Rothschild
  • Lojack- Jonathan Rothschild

Found 4/10/2011

  • Jeffries Group- LUK letter
  • Inmet Mining Corp.- LUK letter

Found 4/2/2011

  • Best Buy– Greg Herman; not cheap enough
  • Dell- various articles; held for awhile and sold. Subsequently bought by Michael Dell

Found 3/25/2011

  • Japan: was considering currency or stock investments, decided to pass
  • BP Castol KK
  • Tahai Kogyo
  • Sumitomo Densetsu
  • Kinki Sharyo
  • Nippon Synthetic Chem Industry

Found 3/1/2011

Found 2/22/2011

Found 2/20/2011

  • AbitibiBowater Inc, Fibrek, Mercer- Rijk

Found 2/14/2011

  • Crawford & Co– newly bought by Mark Schwarz, possible acquisition, trading around 5X cash flow; could be interesting

Found 2/11/2011

  • HKN Inc.- VL
  • Penn Virginia Corp.- VL
  • ContinuCare- Indiana University Club

Found 2/8/2011

Found 2/1/2011

  • Ambassador’s Int’l- VL
  • Benihana Inc.- VL
  • Innotrac Corp.- VL
  • J. Alexander’s- VL; I love their 2009 shareholder letter, but won’t buy stock. Great disclosure from management, but it sounds like the Obama Administration is trying to target companies with more than 50 employees (JAX has 2,800 vs. operating profits of about $6 MM) for buying health insurance coverage. Also, is more upscale than I’d like to see for a concept. Seems to do well in good times but is tied to cyclical demand. Their margins are pretty thin & it’s not consistent enough for me to take a concentrated bet. The expansion is also only 2-3 restaurants, at most, every year. Has 33 restaurants today.
  • New Frontier Media- VL
  • Pacer Int’l- VL
  • VSE Corp.- VL
  • Radioshack- IU Professor; I had call options on them pre-bankruptcy hoping for the real estate to be worth something, ultimately lost my small bet

Found 1/24/2011

  • Cybex Int’l– VL; current holding.
  • AeroCentury- VL; don’t waste your time on airlines. Rijk recommended looking into GLUX but it’s such a terrible industry.. just wanted this on my list because it may be interesting to watch from such low prices.
  • Pulse Data- Above Average Odds

Found 1/17/2011

  • Hercules Offshore- VL; very easy call for me to say not interested. Almost entirely jackup fleet & their earning power won’t likely return with all the cold stacked rigs. I’m not interested in turnarounds unless they’re very realistic, as with the case of Noble Corp.
  • Hornbeck Offshore- VL

Found 1/13/2011

  • Asta Funding- VL
  • Beasley Broadcast- VL
  • FirstCity Financial- VL
  • Global Cash Access- VL

Found 1/6/2011

  • Conn’s Inc.- VL
  • Alon USA- VL; issuing additional 10% of shares outstanding to one partnership at slight discount to market prices. Was going to originally sell preferred stock, now going for dilution of shareholders. Bleeding cash, 75% owned by an Israeli holding company. Will watch but won’t invest.
  • Barnwell Industries- VL
  • W&T Offshore- VL, really angry I didn’t read Issue 10 when it came out, totally missed the boat on this one at this point…

Found 12/21/2010

  • Overhill Farms- VL; unionized, 3 major customers make up about 70% of revenues, has issues with labor & being called racist; a few outstanding lawsuits that show how they treat their employees, not interested
  • Reliv International- VL; decreasing in revenues, earnings, and efficiency of distributors.  I’m seeing some concerning industry trends developing, as well as a lot of online anger towards Reliv.  Their MLM strategy annoys a lot of people and most of their distributors fail.  Not interested any more, although it is extremely cheap if it can remain constant or grow earnings.  With 40% inside ownership & insider buying, could be interesting to watch, but I don’t trust it.

Found 12/08/2010

  • Seabright Holdings- Rijk; decided insurance isn’t for me until I can buy one for myself.

Found 11/24/2010

  • Lexmark- LonelyValue wrote up an article, will take a look
  • Surmodics- VL- was selling at a good price, possible takeover shot up shares 27% before I took a look; no longer attractive.  I feel my valuation technique keeps identifying buyout targets!

Found 11/12/2010

  • Sandridge Energy- Rijk- check this article
  • Fairfax Financial- used to own, sold for better opportunities

Found 11/6/2010

  • Hallmark Financial Services– Rijk; Made my purchase on 11/29/10 at $8.84/share and subsequently sold because I was wrong on 1/14/11.
  • Trubion CVR’s- Rijk; not interested, requires taking merger arb position & I do not want to invest like this yet…

Found 10/17/2010

  • NASB Financial- VL; Is it so much to ask for a very simple savings & loans bank that doesn’t touch mortgages or MBS’s?  I can’t trust mortgages on any balance sheets.. not interested.

Found 10/15/2010

Found 10/13/2010

  • ITT Educational Services- Greg Herman; similar to Corinthian Colleges.  I believe the whole industry is headed for huge regulatory overhaul & should not be gambled on.  You’re not investing when there’s a high chance of your company losing 50+% of earning power because of the government, it’s much more of a speculative bet.

Found 10/8/2010

  • Corinthian Colleges- Greg Herman; This company is headed for failure.  Governmental regulations, coupled with a recently departed CFO and a shareholder lawsuit should give you a quick idea.  Beyond that, I’m not going to say because it is pretty complex, involving their business model and outright fraud.  I wrote a report on them and decided not to share it.  It contains a large amount of industry knowledge on for-profit colleges that I painstakingly accumulated over the last week.  It took most of my free time this whole week, so you can imagine why I am not sharing.  Stay far away from this company.  As a side note, Greg only found it- he didn’t invest.  It was an interesting situation for him as well, not an actual investment.  Statistically, it is undervalued, but the future will bring pain for its shareholders.

Found on 10/7/2010

  • Kendle Intl Inc- VL
  • LHC Group- VL

Found on 9/12/2010

Found on 9/10/2010:

  • Genco Shipping- VL; this is at a great price by my normal valuation standards.  The problem is with the industry, not the individual company.  Their competitors are all taking on extreme amounts of debt & diluting shareholders to gain an edge with newer ships and larger fleets.  The only hope of competing is to keep up with them with dilution and I could see Genco falling into this mindset (even with the heavy inside ownership).  I’m interested to see how this turns out, but I can’t put my money into this one.  This is the best house in a bad neighborhood.  “I’d rather hold out than cop out”- Greg Herman
  • Jack in the Box- VL; This is a company that has a great subsidiary- Qdoba.  This up and coming restaurant caught my eye and I was interested in how quickly they are growing.  This company also has a large number of Jack in the Box restaurants out West.  They are actively expanding their Qdoba’s and slowly switching their Jack in the Box model from a company-owned set of stores into franchised stores.  This will do well over time, and although I like the growth of Qdoba, the Jack in the Box stores are nothing impressive.  I would define it as a “2nd class business”.  At its current price, you would likely do well with this company, but not well enough to deserve investment from me.  If it fell further, I would be interested.  I don’t want to justify buying Jack in the Box by only focusing on the good part- Qdoba.  The JACK stores are not too great and the company as a whole would not be worth investing in.  I expect them to continue on their path and have expected returns around 12-15% per annum if the market is at all rational in assessing this company and there are no serious pitfalls in their expansion.

Found Summer 2010:

  • Noble Corp– from Greg Herman
  • The Buckle Inc– VL
  • Gilead Sciences- VL
  • Sanofi-Aventis- VL; I was interested around $55 B.  It has moved out my price range recently of where I would do further research.  As a Buffett purchase, I was very curious.  It will be interesting to see where this company goes.
  • True Religion Apparel- VL; is at a very cool turning point, switching from wholesale over more toward the less-profitable retail model & opening many stores.  Unfortunately, fashion is ever-shifting and with $300+ jeans, I am not sure whether it is durable enough to invest.  Has fantastic growth possibilities however.
  • Gymboree- VL; A pretty profitable operation, but I didn’t think it was low enough to invest.  Buckle was at a better price-to-value and is growing faster; I decided on BKE instead, however Gymboree was bought out by a PE firm for a 90% premium to the price I was researching it at… oh well.
  • Wal-Mart Stores- VL; a previous holding, one of my favorite businesses

One Response to Interesting Situations

  1. Dad says:

    I found your report on operating leverage pedantic. Just kidding. Nice job.

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