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Daniel Radakovich

 
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  • Contributor Call: Short John Deere, Says BluePac's Chris Sommers [View article]
    It's just a tough bet, commenting on the blog is a hard way to have a true dialog. But, you raise a valid scenario. Personally, I disagree with the odds of it happening, along with the severity. But it is a risk that could happen and you're not wrong because we say so, its your analysis and opinion of looking at the facts, people can look at the same facts and come up with two different opinions. I've gotten a little defensive as well, but overall, you present a very compelling case and I've thought about it and done more research myself, it's something I am now very much aware of, and that is valuable. I still remain long and believe that long term the odds are still in my favor.
    Oct 20 06:07 PM | 1 Like Like |Link to Comment
  • Contributor Call: Short John Deere, Says BluePac's Chris Sommers [View article]
    BluePac, I guess I invested because I believed that farming income will lower and will be able to buy more cheaper, but not sure when and figured it was a good value around $80. Things happen especially in the commodity business and farmers income is a huge factor in Deere equipment. A couple questions to add,

    How do you see replacement parts and that strong relationship with the farmer, dealer, and John Deere mitigating any long term drop in market share? Especially with over 50% market share of combines in NA. Combines have ranged from 6k to 10k over the last few years, with different crops being planted, do you see some mitigation of revenue compensated for attachments and related equipment being bought? Of course, if farmers income deteriates, this will decrease either way.

    Additionally, with a large group of farmers using contractor services, do you see a difference of business models being used mitigate or change historical trends that you have presented?

    A lot of JD capital in the past 10 years went to expanding production for exports as well, how do you account for that in your models? $2 B to $9 B, are you suggesting a severe global farming depression and if so wouldn't that solve itself pretty quickly compared to the past since China is quickly becoming a large consumption nation like the U.S. and Europe?

    Markets tend to do crazy things, do you think it may be possible the depression or quick shift of JD sales happens very quickly and then slowly recovers? Markets move quickly, and if income falls, tax incentives ease, and farmer demand goes back to "normal", which I agree with you is 4-5yr replacement cycle rather than the boom we've experienced, how would that affect your model and thesis?
    --You assume a 5 year long slow cycle, kinda like the coal cycle, which above is why I asked about Joy Global vs JD and if you see any similarities or differences to support or counteract your thesis.
    Finally, thanks for the points and thoughts, and for the continuation of your analysis.
    Oct 18 12:07 PM | Likes Like |Link to Comment
  • Contributor Call: Short John Deere, Says BluePac's Chris Sommers [View article]
    what are your thoughts about Joy Global and compare them to John Deere? Do you see similar concerns, reason I ask is Joy Global has a huge business related to mining, yet the stock has held up well despite horrific conditions.
    Oct 18 11:57 AM | Likes Like |Link to Comment
  • Keeping The Faith In Chicago Bridge & Iron [View article]
    True, but the margins are very juicy around 40% if I'm not mistaken
    Oct 18 11:53 AM | Likes Like |Link to Comment
  • Keeping The Faith In Chicago Bridge & Iron [View article]
    The two integrated together should generate strong returns and earnings over the next few years, which would mitigate the "significance" of the goodwill. If the companies don''t work together, then obviously the good will will be worthless and the company will have a bigger problem on their hands.
    Oct 18 11:52 AM | Likes Like |Link to Comment
  • Keeping The Faith In Chicago Bridge & Iron [View article]
    They have announced several technology awards this past quarter..
    Oct 17 12:13 AM | Likes Like |Link to Comment
  • Contributor Call: Short John Deere, Says BluePac's Chris Sommers [View article]
    Since 2004, SVA has contributed $15 billion to the company. Exactly the same if you take net income + depreciation - cap ex. - share expense. No free cash flow? You want to disclose your math on that one?

    Compare DE to their competitors in South America, should give you an answer how competitive Deere is.

    Farming is way more industrialized. How many farm producers were there in the 1980s compared to today? Additionally, how has the farm organization and structure changed? Might want to look at that too.

    100 hp tractors down to 28k, then 25k, after that, you can't predict what will happen.

    Self driving combines down from 10k, to 8k to 6k. After that, we'll see what happens.

    Deere has introduced a resell dealer program, of course, being short, you discount that and its impact.

    From 2004 to 2013, reduced shares outstanding by 23%
    2014 down 4%.

    2006-2013 cap ex. from $774 to $1132 while earnings increased from $1822 to $3537.

    Decreased production, decreased cap-ex, doesn't affect cash flow as much as your earnings suggest. While the next few years will be down, expecting a huge downturn banking on depressed sales of tractors for a long period of time is also banking of the farming sector entering a depression, and overcapacity of John Deere to revive a price war of the late 1970s.

    I think Deere has done a great job since the SVA introduced model, exporting from the U.S., of all places, around $2 Billion in sales in 2004 to over $9 Billion in 2013. Being negative and short causes a lot of misery and angst. I would not bet against America, let alone a great company, and the employees that work there. Sure there will be short term pain and layoffs, but the fact that Deere has propelled American made goods in this competitive world like they have the past decade doesn't sound like a good idea to short. But, that's your theory.

    You're banking on a "mining" depression like cat's business. Like I said, Good luck.
    Oct 17 12:11 AM | 2 Likes Like |Link to Comment
  • Contributor Call: Short John Deere, Says BluePac's Chris Sommers [View article]
    The problem with this short is, no accounting fraud. And you are shorting an excellent business. As a value investor, it is easy to realize tractor sales will slow down to 4-5 year replacement compared to 1-2 yr recycle it was on recently. You also can't predict weather or what crop prices will be like in the years ahead, record crops today, and could be a drought tomorrow. The company has been proactive on reducing production already, and ever since SVA in 2001, you are really going against the head of the monster. You pretty much think management has not done a good job, and discount it, thinking the way they earned substantial returns on capital won't correlate to know how to act during a downturn. While at the same time, believing that the farming business is the same as it was in the 1980s as it is today. Which is dangerous in itself, farming is nothing like it was in the 1980s. And if the finance division has a loan run off and extra cash flow in the business, judging by the history of management's skill at deploying capital, I'm sure they'll find something smart to do with it. And with the construction business gaining on Caterpillar and maintaining a strong #2 spot and a monopoly in the large Ag business, it's a short based on having every negative thing that can happen, happen.. It's a cyclical industry, yes we all know that. You believe that John Deere's Ag business will end up like Cat's mining business. And that is your problem. Think what happened in the mining business, and all the hurt the coal, iron ore, and gold industries are going through. They're stuck at the will of demand of industrial expansion after a huge boom of growth fueled by China. And with China becoming a higher consumption market instead of industrial growth, this presents serious long term issues with the Cat business. And Cat's finance business has key differences compared to Deere's that are a cause for concern. The Ag business is a global business, and food productivity is increasing every year, and with continued strong demand for corn and soybeans, prices in the short term may go down, but unlike coal, you have a limited amount of time to harvest and plant your crops, Deere's tractors and combines are the most reliable on the market, and their technological advances are huge compared to the past few years let alone the 1980s, couple that with any drought, too much or too little rain, and other weather issues, and crop yields fluctuate and can cause a supply shock and send prices higher. Good luck being short, must be fun going against an excellent management team and an industry that you seem to know only buy comparing tractor sales from the 1980s to today. Of course, if you are right, wouldn't Deere's dividend yield be like 6-7%? And if their average share repurchase price is $57, being able to buy again in the $20s, $30s, $40s, $50s, would be an excellent opportunity. We'll see how Deere does globally, they already proved they can expand very well and have strong sales in Brazil. If they can replicate that success in pockets in India and China, then that would be another avenue of growth. We all know Brazil is going though a traumatic time and corn prices affecting demand there. Interesting short, but I wish you provided more convincing evidence rather than comparing apples to oranges.
    Oct 16 10:26 PM | 2 Likes Like |Link to Comment
  • Can Tesco's New CEO Turn This Latest Disaster Around? [View article]
    They screwed up. Wegmans adjusted quickly to Walmart supercenters in the U.S. and still expanding and very strong. Competition is fierce and it can wreck havoc very quickly, not sure Tesco's plan to revamp will work, but never know.
    Oct 16 09:52 PM | Likes Like |Link to Comment
  • Will Penn West Survive The Free Fall In Oil Prices? I Think So [View article]
    Coal producers are up nearly 50% from their record lows already! Hope you do well, good luck.
    Oct 16 09:50 PM | 2 Likes Like |Link to Comment
  • Retired Investors Should Not Fear Recessions Or A Bad Market: Part 1 [View article]
    Yea chowder, I saw that on your blog, it's a smart way to go.
    Oct 16 09:47 PM | 1 Like Like |Link to Comment
  • Keeping The Faith In Chicago Bridge & Iron [View article]
    They took over Shaw industries and expanded/complemented their energy and construction business. Goodwill is a way to account for the purchase price over assets acquired of purchased company. Goodwill is not really a factor in the balance sheet as some suggest, accounting rules will dictate that if the market value of the common stock fall below a certain threshold realitive to the goodwill on the books, they'll have to write some of it off.

    There was a comment above that was worried about their negative cash flow and negative working capital, it's how the business works at times as contracts and delays in payments will affect the short term cash flow of the business and not correlate to reported earnings.

    CB&I is also different compared to others in the E&C business with their technology assets that are extremely lucrative, especially in the refining business.

    In general De Jong, Mart, I would simply suggest reading their 2013-10k, and two recent 10-Qs, and then listen to their earnings call coming up and read that 10-Q. If you don't understand the business by then or how it got its goodwill, maybe you should pass it up.
    Oct 16 09:45 PM | 3 Likes Like |Link to Comment
  • Keeping The Faith In Chicago Bridge & Iron [View article]
    Sure, I'll elborate a few points. First, one big "worry" is positive cash flow. The cash flow comes in the business differently than reported earnings because of contract payments and completion of projects that correspond to earnings for that period. Therefore, any hickup or disagreement, delay in completing permits or projects will affect cash flow in the business, and in the long run it shouldn't have a factor in the business or returns on capital.

    The technology business of CB&I is very lucurative with high margins and cash flow, this business is where CBI invests a lot of capital to maintain its advantages and develop new technologies for the refining business.

    The fabrication business can expand with little capital and earn strong returns through additional scale when needed.

    The nuclear projects are a concern with a potential to affect earnings; however, they have an agreement with Westinghouse, so it shouldn't be worst case scenario, and worst case scenario is $3 off earnings.

    Long term, I can see this company earning more than $5 a share, up to $7-8, we'll see, today I think it offers tremendous value.
    Oct 16 09:32 PM | 1 Like Like |Link to Comment
  • Young Investors - Why Increasing Risk Is A Bad Idea For Your Portfolio [View article]
    Chowder, It's difficult and hard work. But patience and temperance is on your side. And when the market gets irrational, it becomes your friend.
    Oct 15 08:37 PM | Likes Like |Link to Comment
  • Will Penn West Survive The Free Fall In Oil Prices? I Think So [View article]
    Pie,

    The author didn't provide much to prove your theory wrong, and it like I said, even if it is a turnaround, it's only a cigar puff gain nothing that can beat a great company like Exxon or others 10+ years from now in total return
    Oct 15 08:30 PM | Likes Like |Link to Comment
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