Adam Smith

Value, contrarian
Adam Smith
Value, contrarian
Contributor since: 2012
I'm looking at this primarily from a qualitative perspective, but will throw in a few numbers for good measure.
1) The UK publicly traded grocery market is, collectively, trading at a discount to book value. In effect, the market is writing off the future profitability of the entire UK grocery business (I guess with the exception of ALDI and Asda, both of which are privately owned or subsidiaries) in the sense that the assets are more valuable than their value as operators. IMO the grocery market, as a whole, will earn a satisfactory return on equity (over the long run), hence it, as a whole, should not sell at a discount to assets (over the long run).
2) Now I recognize the narrative that ALDI offers something that Tesco and others do not. Do I believe that this is valid? Not really. I think that Tesco, especially, is just a better all-around store than ALDI. They have a better product assortment, especially in fresh foods, and I just do not think that ALDI can outprice them on branded products.
ALDI is a niche player. They're very good at fulfilling their niche. I just do not believe that they can supplant traditional grocers, traditional supermarkets. Hence my investment thesis is predicated on this qualitative reasoning. My shares are down 40% also. The difference is that I've always envied companies like Tesco. Supermarkets in general, when run properly, can be wonderful businesses, and Tesco still, has enormous competitive advantages over the vast vast majority of markets out there.
"Tesla is going to exploit a hole within the auto industry"
Is it really a hole, though? And is the 'hole' or market niche, whatever terminology you want to use, more than just a novelty product at this point?
What exactly do you mean by "Gen III"?
I think the other facet of your post that I disagree with is this obsession with 100% electric cars. There's more than one way to skin a cat, and I think that consumers don't really care whether a car is 100% electric or not, as long as it provides the luxury/performance etc for which they're looking.
This is to a large extent currently reflected in the sales figures.
This is going to be my last reply on this topic, because the people posting comments on here can't stop with the straw man arguments.
OK so last reply on this. I never said the market was "right" or "wrong". Let me say it as clearly and succinctly as I can: I believe it's disingenous to rate the 'performance of management' (which the original commenter didn't even define) on the basis of a six month movement in a company stock price (up OR down) for the reasons I outlined above.
As Mike Myers would say "discuss amongst yourselves" but I've nothing further to add on this.
"A company that is consistently poorly run will not experience an increase in stock price, even though the whole market goes through the roof"
I advise you to take a gander at a chart of citigroup stock until 2008...oh the management was so great it was going up and up and up...until BOOM. Not saying that CBRL will go boom, I'm just saying that short-term price movements are at best illustrative of little or nothing and at worst downright misleading.
Haha. OK I will opt out of taking your comment as a compliment (by virtue of a reader actually paying attention to and seriously considering my opinion on CBRL management).
Still, your position is flawed on at least several grounds:
1) you attribute the run-up in stock price exclusively to "management", and no other factors which could be just as much or even more responsible for the run-up in price
2) you ignore the fact that stocks-in general-(ie the S&P 500) have run up considerably during this time frame;
3) you use a run-up in the stock price to JUSTIFY everything that management has done (wrong), rather than making those justifications on the basis of actual, specific credible indicators of performance (i.e. SG&A expenses have decreased by x% and ROE increased by y% as a result of management doing xyz).
It's very spurious to justify anything on the basis of a short-term swing in a company's stock price is my main point.
I think it has something to do with news surrounding the end of QE. It seems all commodities producers have sold off, but with more of the sell off being in the "emerging" economies, especially Russia and China.
Would really like it for Lukoil to hit $50 per share, sub $40B market cap. They paid $3.56 per share in dividends last year so on a $50 share price that would be north of 7%.
Can I see how you calculated your revenue projection for last quarter?
Too much value though, exactly right. However recently I've also been looking at Gazprom Neft, and at current prices, it's extremely attractive IMO. It's trading at something like 1/2 of book and pays an 8% dividend. Somewhat obscene, certainly this sort of stuff rarely happens outside the MICEX.
Not really a Phd-doctorate but in law (juris doctor)
Well you can always sell your shares.
Earnings were pretty good, at least relative to price paid, for me.
Hey Jimi
It's been a while since I've received comments on this article.
I really can't say anything to shale, I haven't done any research on the subject.
Yes Q1 was a bit of a miss...however I don't think the environment is unique to Lukoil. Many integrated oil majors (ie PTR, CVX etc) if you look at their results FY2012 vs FY 2011 they are equal or down, so this appears to be possibly because of crude prices, not sure, but this appears to be the environment for the industry as a whole.
Nonetheless the value is quite clearly there IMO.
PTR has been getting beaten down lately also, though it's not near the value of Lukoil.
Gazprom Neft, also, is interesting but that's another story.
yes we can read thanks
Of course you agree with them - the stock's going up, charter rates are still's pretty easy to agree when times are good.
Why make the presentation at all then
It has nothing to do with law, it is merely accounting convention.
Your comments do not really address anything I've raised in the article. Instead you want people to merely "trust" Berkowitz. There's nothing wrong with that, but that's not the focus of the article. If all you want to do is trust other people, just buy Fairholme and be done with it.
Good stuff, very well put. I agree pretty much entirely with everything you've said.
I don't really want to get into a St Joe's discussion, because that's not the focus of the article, but in St Joe's you had in 2011 them taking a $300+ million impairment loss on the land after years of claiming that the book values of the land on the balance sheet UNDERstated true market value. And yes they've utterly failed to monetize any of these so-called "hidden asset values" as has been the case with Sears. Surprising number of similarities in the two investments.
Yes this is an interesting comment. Very well said.
Would you mind explaining how you arrived at the $500M to $1B number step by step...I followed most of that but toward the end it gets a bit difficult to follow.
Regardless, that $500m-$1B number is the sort of number that one would expect. I remember reading Sears' past reports of cash raised from property sales and inventory liquidations...while they like to say that closing stores generates cash because they liquidate inventory, etc., the number has almost always in the past been substantially lower than one would expect.
Also although this is not directly relevant, this is not the first time that someone has disagreed with Berkowitz's opinion on real estate values: case in point Einhorn's St. Joe (JOE) short presentation!
Hey you are completely free to criticize my article, as a reader that's your prerogative.
I don't know how much property tax records have to do with fair market value? Aren't property tax records based on cost, not FMV? Not sure.
Don't know why he couldn't append this research to his Sears case study found on Fairholme's website? Really I don't see who he would be hurting, certainly not himself if it would drum up interest in the stock and hence his fund.
Third, in the slide I excerpted from his presentation and put into this article, Berkowitz for some reason focuses exclusively on total square footage.
I have no doubt that he performed an exhaustive evaluation of the properties, but (1) why isn't this disclosed; (2) why isn't this mentioned anywhere in the presentation, instead opting for a simplistic total square footage valuation?
Thanks for the comment. I wrote this article in large part to present a somewhat controversial view and to invite debate, these are the sort of comments that help foster that debate.
Just to be clear, I have no position in Sears stock and therefore absolutely no vested interest; I am merely presenting the facts as I see them:
Current assets: $11.2B
Real Estate value: UKNOWN
Brand value: UNKNOWN
Liabilities: $17.9 billion
If either Lampert or Berkowitz want people to make reasoned, well-informed decisions on the basis of available facts (not rumor, showmanship, etc.), they should do a better job of disclosing those facts.
Hi Doug
As far as I can tell, the stock price may have increased somewhat, however absent any meaningful news. This may be a case of a rising tide lifting all boats, as the S&P has increased in price during this time as well.
I'd be interesting in reading what you find out. Maybe contribute an article to seekingalpha if you want.
Yes I just read probably that same article today actually but really I was wondering if they have that cash why didn't they do more with it already? Accounting convention usually doesn't (and shouldn't) dictate capital allocation.
No sir, I don't believe in target prices.
Absent any significant changes, I will probably hold this stock for 5-10-15 years or more, there really is no limit for me.
If you don't have a clue why do you expect me to?
I'll stop replying to your comments.
Don't know what you mean by "doing well" in those stocks?
Take DCIX for instance where they paid a $0.30 dividend last quarter (about $10M on their roughly 30M shares outstanding) when they only had $5M or so of EBITDA.
So that's a 10% yield or so, this one is 12% at the time of writing.
I mean, it is a strange question in the sense that usually when people are disgusted with a stock, they sell their shares. You just like to complain, it seems like, without offering any kind of rational suggestions or solutions. You don't even state what bothers you other than "the stock is going down."
After you figure it out, let me know what you found out.
When charter rates decline, revenues decline and earnings decline.
I suggest you look at other shipping companies, most of them are doing poorly right now.
Quite frankly you're asking a strange question. On the one hand, you don't like the management. On the other, you're long the stock.
If you disagree with the management's decisions, you're free to sell your shares and invest in a company whose management you agree with.
Personally I don't know enough to say whether they should be investing in new ships right now.
Those are interesting questions. I haven't been able to find the buyer - maybe you can help me out?
I think they sold to a small buyer, not a large company or a competitor, otherwise they would have disclosed the name.
Thanks for the comment. Interesting spreadsheet, well done. We used to do a lot of those in business school.
Don't know. I personally don't like to do these spreadsheets although they are interesting because they reveal what people believe to be the future of a particular business. In my opinion, I think Lukoil is going to grow far, far more rapidly than you do - for instance, if I'm reading it right, your spreadsheet implies that in 2030 Lukoil will only be earning $15 billion?
Don't see that happening at all, if only because I think oil prices will be going much much higher between now and then.
This company's returns on equity are way too high for it to not grow substantially in the near future, IMO.
Is there anything specifically that they've done that you disagree with?
No that's not what I'm saying.
What I am saying is that when you buy this stock, you are buying ships, they are operated by a competent management, and there's not much leverage.
Really if you have $20M lying around you can buy your own ship and operate it, etc., if you don't have $20M but you want to buy a piece of several ships this seems to be a plausible way to do it.
You must know that this happens in the US ALL THE TIME. It is called stock options.
I actually wrote an article about it, check it out.
If interested, also read Michael Burry's investor report about Adobe.
No my thesis is the original article.
I am just speculating as to reasons why the shares have fallen out of favor with "the market."