A Bit of Value

Long/short equity, deep value, value, growth at reasonable price
A Bit of Value
Long/short equity, deep value, value, growth at reasonable price
Contributor since: 2012
Amit,
Completely agree with you about the poor quality of earnings at Jarden. In fact there are a few more issues re their quality of earnings as discussed in this article from July (http://seekingalpha.co...)
Management seems to use the company as a legal piggy bank for their own benefit. I wouldn't be shocked if management announces another buyback with full year results (esp if results aren't a beat). This is one promotional management team that seems to spend an awful lot of time courting Wall Street rather than focusing on their core business.
Amit,
Completely agree with you about the poor quality of earnings at Jarden. In fact there are a few more issues re their quality of earnings as discussed in this article from July (http://seekingalpha.co...)
Management seems to use the company as a legal piggy bank for their own benefit. I wouldn't be shocked if management announces another buyback with full year results (esp if results aren't a beat). This is one promotional management team that seems to spend an awful lot of time courting Wall Street rather than focusing on their core business.
Amit,
Completely agree with you about the poor quality of earnings at Jarden. In fact there are a few more issues re their quality of earnings as discussed in this article from July (http://seekingalpha.co...)
Management seems to use the company as a legal piggy bank for their own benefit. I wouldn't be shocked if management announces another buyback with full year results (esp if results aren't a beat). This is one promotional management team that seems to spend an awful lot of time courting Wall Street rather than focusing on their core business.
I strongly suspect Santos is wrong on this.
IIRC - Berkowitz (well his staff) actually visited tax collector's offices across the country in 2008-2009 to come up with an estimate of the value of the real estate. I think the conclusion he came to then was that the tax assessments based value was something like $80-$90 a share. he has given this number a couple of times but certainly in the interview he did with OID where he said his portfolio was at "back the truck up valuations." (I think it may have been in March 09 - basically at the exact bottom but may be wrong - it was around then).
I highly doubt Sears has much real estate that is "over valued." But Sears real estate is a pain to figure out because of the 80/20 rule - 80% of the value probably comes from 20% of the locations. Without doing a ton of work - it is nearly impossible to know which locations are bringing all the value and hence decide on whether the real estate sales are the jewels being sold or just a combination of stuff.
Santos also seems to think the brands Sears owns have zero value (or insignificant) which is highly dubious. Kenmore, Lands End, Craftsman all are well known, well regarded brands and could easily be sold for billions. The notion that they are irrelevant to the value of the company is absurd.
I have no position in this stock currently.
I think the optics of the ASFI buyback are horrid. The company bought back shares above market price (iirc like 5-7% above mkt prices) from a major shareholder. I can think of a few shareholders who would want to sell their shares at 5-7% above market.
I completely agree with you that a buyback at ASFI is good as the company trades at a significant discount to book. Yes the company is actually even more undervalued since it has assets marked at zero still producing income.I don't disagree with you that buying back shares make sense.
I just think management should treat all shareholders equally. They didn't. The notion that the selling shareholder was altruistic and said hey here is 1/15 of this company for free is ridiculous. Market participants don't work that way.
Next time someone wants to sell shares - they can contact you and you can pay 7% above market. heck you can even comment on Seeking Alpha articles about how you got the shares for free.
" As you said, once you sell you shares in the buy back, you lose ownership of the shares you sold, whereas my percentage ownership of the company remains unchanged if I receive dividends."
But you can sell part of your shares keeping your percentage of the company the same. Its not necessary for you to sell all your holdings at a time.
I agree with you that increasing you EPS should not be a driver for a buyback - it should be because it's undervalued. That was the reason I mentioned Jarden as a poor reason for a buyback.
Thanks for the explanation Geodan.
Just so we are clear - Banks may set interest rates as part of their business but that's not what LIBOR is. My understanding of LIBOR (and please correct me if I am wrong) is that it is essentially the interest rate at which the Bank is borrowing or would borrow in the London Inter-Bank Market. The banks don't really "set" it. It is what it is. The bank can't say "oh ya we borrow at 1% but we wanted to set LIBOR at .5%." It has to report the report the rate at which it borrows in London just before 11:00 o'clock.
As far as emails go - I think there is little dispute that LIBOR was artificially manipulated. Diamond in his testimony agreed it was too. There is no way only one bank alone can do that given how it is calculated. The Barclays emails make for cringe-worthy reading. I don't think its a stretch to expect inter-bank emails given whistle-blower incentives and media reports of such whistle-blowers already existing.
If I am reading the complaint correctly (and I am not a lawyer or very experienced at reading the complaints) but Baltimore is suing saying they invested in LIBOR securities: "Defendants’ manipulation of LIBOR allowed them to pay unduly low interest rates to investors, including Baltimore Plaintiffs, on LIBOR-based financial instruments during the Class Period."
Also keep in mind this is just the start of the process. As more documents are revealed, these complaints will get amended and new ones will be fined. I suspect Bank's will argue they suffered too since they lent out money at LIBOR + x% too.
But in cases where they admit or are perceived of wrongdoing that defense wont sway judges and juries - see the Enron-related lawsuits, or even the mortgage related ones.
Chris Moreno has it right - just because banks low-balled rates, doesnt mean that they can't have hurt investors. Like he said if you owned a corporate rate bond - you lost out by artificially low rates.
Grovsje - I think the argument is that Banks colluded and lied to keep low rates low. I am fairly sure that's not allowed, hence the admissions of wrongdoing and fines that BCS paid,
Banks in the US are going to face some pretty extensive litigation risk for the near future. The housing relate mess is just beginning to end but now LIBOR has reared its head. Banks aren't catching a break these days.. though i guess 0% interest in borrowing from the Fed is a pretty big one..
http://seekingalpha.co...
MrNomad - Apologies but I don't really day trade so its hard for me to present trading opportunities. I trust other readers may be able to provide insight.
In the short - I would guess that bank stock prices will suffer as investors start thinking about this risk and figuring out how much exposure there is. It seems high right now but may be the banks will present more clarity on their earnings calls. In q1 they generally said its for the lawyers to comment but this is a two year old issue. Which I think few if any retail investors considered.
If there is a law fund that's public buy that one cause there is going to be a ton of billable hrs though.. (j/k)
2009 was a nice time to get into this stock. Being patient with it has paid off nicely so far. Glad you enjoyed reading it.
thank you for reading. Glad you found the article helpful.
Price performance would be nice but getting 10% to wait isn't too bad in this interest rate environment.
iirc, Lewis was not pressured to complete the Countrywide deal - he jumped at the chance. I could be wrong though.
On Merrill, after agreeing to the merger, he wanted to get out of it under the material change clause. But the way the contracts were written the Fed and Paulson said they would not endorse BAC's interpretation of there being a material adverse change. It has also been rumored that Paulson basically said it would reflect poorly on management's ability to run a bank if it tried to get out of the deal.
Got to agree with you here green_valley. I think while the news is big and it looks increasingly likely that the global $8.5b settlement will go through clearing out one batch of litigation - there are still other overhangs on BAC stock. The MBIA litigation for example - while most people expect there to be some transfer of money from BoA to MBI no one knows exactly how much that will be so that remains.
More than that, as a large financial institution BAC remains somewhat unknowable for outside investors. There always remains a risk of a trading / risk management blow-up or new litigation coming in. Look at JPM - 3 months ago who would have thought that it would have poor risk-management and Dimon's halo would be gone?
I dont expect a sharp increase this week but do think that as BAC clears out the overhangs one-by-one the stock will keep moving up over the next few years (not days, years).
I can't tell if you are being serious or sarcastic with your comment.
DC is one of (if not the) top real estate markets in the country. One of the few large cities with a growing population, low unemployment and increasing incomes.
Mosaic is a property being developed by EDENS. EDENS is a well managed private REIT. The company is very well known in the Institutional Real Estate world with a quality investment team led by Jodie McLean. They actually are very experienced developers of retail-anchored properties in the Boston - Washington corridor.
These guys don't rent space out just at the drop of a hat. There is extensive due diligence done of credit risk and potential fit of an establishment within their development. I would say that they thought it made sense to have an Angelika center in this is a very good sign about the prospects of this Angelika location (as long as management didn't do something stupid in the lease agreement).
Additionally, I believe there used to be a NAI owned cinema on this same tract before EDENS bought it.
lol. this is very true.
The risk of BAC's countrywide lawsuits getting a lot worse have been considerably reduced (http://seekingalpha.co...). It seems like the WSJ article was written during the week and they didn't bother updating it after the ruling on Thursday, which really started being understood and getting attention Friday after hysteria over the ACA ended.
Yes MrWittyOne is correct.
The Judge hearing the original case is also the judge who is ruling on the global settlement. The appeal was heard by the appellate court. The fact that the Judge's ruling was upheld, strongly suggests that her opinion that MBS investors wont be able to sue Countrywide will carry the day. She made that ruling based on the fact that BNY Mellon had acted on Walnut Place's complaint's so Walnut Place couldn't sue Countrywide.
Thus, given that she is disagreeing with one of the big objections to the settlement here, it is unlikely that she will accept this same objection in the settlement case.
MSF - why do you think SHLD is a baby Berkshire? I know that was the original plan when he did the merger but other than small tech acquisitions has Eddie really deployed Sears Capital on anything other than buybacks?
Yes ESL Investments has done well and bought / sold AN, AutoZone and a few others but none of that has been to the benefit of Sears shareholders.
Politics really has no place in your investment portfolio. Its hard enough finding good companies to invest in without adding a politics filter.
Back to the article, the author is being harsh on Ford here. Yes International operations have been below expectations and are challenging but the US business has been doing ok. With avg car life in the US at all time highs (~11-12 years), we are poised for a big bounce-back in new car sales soon. Ford's US business remains strong and is set to reap those rewards. Additionally, a lot of the international challenges have to do with expansions and setting up operations, there is no reason to believe Ford cannot eventually get these sorted. I am not sure why you think the stock is poised to drop significantly given much of the international problems are already known and priced in. Everyone knows they will have to close plants, heck they said as much. Will an announcement of particular plants being closed really make that much of a difference?
No position.
thanks Andrew.
Thanks Andrew. glad you thought the article was good. Not sure too many people know this company as well as you do. would love to hear your thoughts when you have more time.
re the S,G&A - I think you are right, I probably did over-estimate those here.
Had a quick question for you regarding the real-estate - while I have done some checking it seems extremely hard to be able to get any kind of good estimate on overall value of their holdings. Do you have a view that you would be willing to share on how much all of their real estate would be worth? I think I am being a little conservative here (but I don't account for the loss in cinema revenues / ebitda by a sale of Cinema related real estate) so it works out ok for a quick valuation but its a little crude.
pone - I agree that at current prices you are paying for future growth. I think the changes that management has already implemented, make the growth extremely likely. But yes, its not as much of a "valueplay" as it was in January when we started accumulating.
thanks Galileo. Appreciate the kind words.
Analyst estimates have certainly been rising rapidly.
The problem Best Buy faces is really a secular one - it has no real reason to exist anymore. What constituency is it serving?
If you want in-store electronics cheaper you can walk into a Walmart or Costco. If you want the cheapest or want to spend some time comparison shopping you can do that on Amazon. BBY is no longer the cheapest option and service has fallen.
Best buy is slowly becoming nothing more than Amazon's local showroom for an increasing number of shoppers.
Maybe taking it private will allow management to jumpstart a saving operation but an increasing share price makes that eventuality a less likely outcome.
I have no position in stock currently.
I noticed Berkowitz sold some Sears recently.
Wonder what that was about - since BB always said that in the end Sears would have two shareholders him and ESL. So a sale by him would be very material to the day traders. A big problem for the Shorts has always been how much of the stock ESL and Fairholme controlled. If BB starts selling, it could be a big problem.