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  • EZCorp: From Irrational Exuberance To Irrational Pessimism [View article]
    I have a floor at $13 based on an estimate of liquidation value. Normalized earnings power value could range between $15-$21, so let's say $18 at the midpoint. God for bid this company can turn around their operational performance and continue to grow (profitably), it would deserve a value closer to $25. There's plenty to dislike here, but the fundamentals support the investment rationale, and the upside/downside is simply too favorable to ignore, especially in an otherwise fairly/slightly over-valued equity market. This is what value investing is all about. Hold your nose and buy.
    Nov 8 11:21 AM | Likes Like |Link to Comment
  • National Research Corporation: Follow The Incentives [View article]
    I misquoted some calculations of mine, but simply taking the market price of one to the other is completely wrong because it doesn't accurately account for the equity, since you would need to know what the share price represents in terms of ownership (shs. out). Right now, the cl A shares are trading at 50.8x their resp. earnings ($16.27/$0.32 (just using last qtr. $0.08 x 4 to make it simple), while cl B shares are trading at 14x ($27.52/$1.96). 50.8x divided by 14x gets you close to the ratio I was trying to convey, but I needed to be more clear about it. This company has typically traded around 26x earnings. I'm forecasting net income of roughly $16.3mil. cl B is to receive the equivalent of $2.32 per share while cl A is to receive $0.39. Very simply, cl B should have a market price close to $60 with cl A around $10, getting back to the 6:1 ratio stated by the company per dividends/earnings. The only reason for this to be any different, is under the scenario re: liquidation or extraordinary transactions... so how in the world can you disagree with this, unless you're totally clueless?
    Sep 13 02:34 PM | 1 Like Like |Link to Comment
  • National Research Corporation: Follow The Incentives [View article]
    "The liquidation rights and the rights upon the consummation of an extraordinary transaction are the same for the holders of class A common stock and class B common stock. Other than share distributions and liquidation rights, the amount of any dividend or other distribution payable on each share of class A common stock will be equal to one-sixth (1/6th) of the amount of any such dividend or other distribution payable on each share of class B common stock. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the class A and class B common stock as if the earnings for the year had been distributed. "... this statement is all that matters in order to understand the current discrepancy. It's taken directly from the 10-Q. The market has the shares pegged at about 3.55:1 right now. If under no liquidation or extraordinary circumstance (takeout?), class B shares are extremely mispriced with class A shares wildly over-valued and a strong source of funds for Hays to sell. If you think this company could be taken-out or liquidated (more likely the latter), then it's split 50/50. I have the entire company pegged at pretty much fairly valued, so a takeout at a higher premium could still make a cl B shareholder money, while any reversion back toward the stated 6:1 distribution of earnings/dividends will make a cl B shareholder money. Either way, I like my chances owning cl B shares of a pretty strong company in this kind of a special situation.
    Sep 13 01:30 PM | 1 Like Like |Link to Comment
  • The Supreme Court Rules On Myriad [View article]
    Whoever bought the stock from me at $37 yesterday, I owe you one.
    Jun 14 04:18 PM | Likes Like |Link to Comment
  • Cal-Maine Foods: A Morning Delight For Your Portfolio [View article]
    I am as equally enthralled with the company but your estimate of intrinsic value is way off, in my opinion. A terminal growth rate of 6% is compounding their future potential much too aggressively, and you should only be thinking in terms of organic growth as acquisitions would come straight out of their free cash flow, which is just another capital allocation decision. No chance they're growing free cash flow 11% per year into perpetuity, and the company should only be discounted around 9.5%, it's defensive and in great financial health, not something speculative enough to deserve 12%. In my estimation, using a more absolute-oriented free cash flow model (vs. relative valuation), I think it's worth about $48. It still offers decent total return potential on the basis of the valuation gap narrowing, div. yield + div. growth, and fundamentally increasing their intrinsic value over time. Your ultimate conclusion is the right one, but I had to call you out on the valuation.
    May 16 03:15 PM | Likes Like |Link to Comment
  • The Stock Market's Valuation Is Getting Rich - Part I [View article]
    Couldn't agree with you more (and also re: EXPD). I am also a strong practitioner of absolute value investing, so our similar points of view are probably a function of that. I am also very concerned by the complacency among stock market investors and broad acceptance that dividend paying stocks are now a substitute for bonds. I closely follow a few professional value investors (especially Steven Romick) and our concerns are widely shared among the group. In this "relative performance derby" everybody is just desperate to capture the upside but without giving the proper respect for the downside. Valuation alone, I am getting cautious, let alone all the issues re: economic, political, and potential warfare. I value equity through a very disciplined and conservative approach taught by Bruce Greenwald (asset value, normalized earnings power value, franchise value) which incorporates all the pertinent pieces of the financial statments, and if you rewind to 3Q 2011, the aggregate price/fair value of my equity portfolio was about 0.67. In a similar fashion, you could take the S&P 500 at 1100 and divide it by today's 1585 to derive 0.69. This also suggests to me that the S&P 500 is absolutely fairly valued today, and therefore presents no margin of safety whatsoever against a still very fragile global economy. The course of action I have been taking is to sell those companies at or above fair value, particularly those within more sensitive/cyclical industries, and very selectively buying into limited opportunities, and allowing cash to build up (~22%) while positioning the portfolio a little more defensively.
    Apr 12 02:55 PM | Likes Like |Link to Comment
  • Ruger Is Oversold [View article]
    Just came up on my stock screener yesterday and just hadn't gotten around to looking at it more closely until now. On a glance of fundamentals I can see the value in why the market thought it was worth $55-60 and I don't think anything has changed. Would have been nice to time this yesterday but I'll definitely put forth a more thorough review of the company at the present level.
    Dec 19 08:51 PM | 1 Like Like |Link to Comment
  • Dollar Tree: Betting On Underemployment [View article]
    came to a similar conclusion on DLTR. Taking much more conservative stance on future growth achievability into my valuation model. would argue the company has and can maintain a solid economic moat. fair value estimate of $53 offers a pretty attractive opportunity, enough margin of safety for risks involved in company and financial assumptions. opportunities like this appear to be sparce in the equity market today, IMO. I'm buying the stock.
    Dec 11 02:10 PM | Likes Like |Link to Comment
  • The Fantasy Keeps Growing [View article]
    How are you shorting it? Are you actually borrowing the shares through your personal brokerage? Or are you buying some put options? Just wondering how I should execute this trade because I am absolutely in agreement with you that this is going to collapse hard.
    Jul 27 04:34 PM | 1 Like Like |Link to Comment
  • Investment Opportunity: Water [View article]
    Kent, I personally own XYL, and based on my review of your portfolio in Croft Value, we share a few more names. I really like Xylem as a business and have come up with an estimate of intrinsic value at $34, which suggests the current margin of safety is very attractive. The other company we both own, which I think is also very attractive, is ABB. I have an estimate of intrinsic value at $32 for them. I consider myself an absolute value investor and practice the valuation methodology which is/has been taught by Columbia Business School and practiced by many professional investors, such as First Eagle.
    Jul 17 11:32 AM | Likes Like |Link to Comment
  • How To Profit From Coal Using Alliance Resource [View article]
    3.5% quarterly distribution growth - annualized at 14.75%!

    "A mild winter and a slow economy delayed coal deliveries during the 2012 Quarter as inventories at our operations grew 575,000 tons more than planned causing our earnings to be below expectations. We view this inventory build as a timing delay as we expect these tons will be shipped over the balance of the year and benefit earnings in the upcoming quarters."

    "Reflecting higher coal sales prices and volumes, revenues rose to $443.6 million in the 2012 Quarter, an increase of 4.8% compared to the 2011 Quarter."

    "Relying on the strength of our sales contract position, the Onton acquisition and the longwall startup at Tunnel Ridge, ARLP remains focused on delivering another year of record operating and financial results in 2012. Achieving this objective will not be easy, as year-over-year electricity generation and coal demand have fallen sharply. With coal stockpiles at near record levels, traders and utilities continue to aggressively resell their previously purchased coal driving short-term coal prices to unsustainable levels. Although it will take time to work through the current supply overhang, we continue to be encouraged by longer term supply/demand fundamentals – particularly in the Illinois Basin and Northern Appalachia. As the coal markets settle, we will stay focused on managing customer relationships, controlling costs and positioning ARLP to take advantage of growth opportunities in the future.”

    Regarding any sudden shifts among their electric utility clients into natural gas, any near-term changes have already taken place, in line with expectations. Utilities aren't making long-term strategic decisions only because of current natural gas prices, which are viewed as unsustainable. Visibility for ARLP is good for another 10-15 years, a timeframe which will encompass consistent sales of coal to their current electric utility clients.
    Apr 30 11:10 AM | 1 Like Like |Link to Comment
  • One Bad Quarter Doesn't Knock Out ABB [View article]
    Great company, great valuation, market is dead wrong
    Apr 26 09:43 AM | Likes Like |Link to Comment
  • How To Profit From Coal Using Alliance Resource [View article]
    Alliance doesn't specifically break this out, so I'm pretty confident in saying they're not that dependent on export sales. Nonetheless, here's something I pulled out from the 10-k, "Northern Appalachia—Segment Adjusted EBITDA increased to $62.4 million in 2011, compared to $46.7 million in 2010. The increase of $15.7 million was primarily attributable to improved contract pricing in the export coal markets resulting in a higher average sales price of $80.05 per ton sold in 2011 compared to $63.60 per ton sold in 2010." I'm actually happy about this because they've been able to grow significantly through their own close network of electric utility clients and can further continue to export more coal if needed because of slowing US demand.

    "In 2011, we sold 90.6% of our total tons to electric utilities, of which 98.8% was sold to utility plants with installed pollution control devices." Alliance effectively sold 90% of their coal to electric utility plants which are already in compliance with EPA emission standards through their own investment in pollution control devices. From reading about their two largest clients, this theme is much more prevalent than the closing of a few out-dated plants. Why would these existing plants decide to shutdown and rebuild new, costly power plants just because natural gas is presently equally as cheap as coal? Do you think local and state governments are cash rich enough or have the interest in further increasing taxes to local citizens to make this economically beneficial? These are major long-term projects and they don’t happen overnight. The ongoing theme, emphasized by the EPA, is that “new” projects should be looking into building gas power plants and those older plants, without pollution control devices, should be idled or closed down over the next few years.

    Do you honestly think demand for electricity is going to stay this low because of a seasonally warm winter or that there are permanently less households using electricity? We’ve got the hottest consistent temperatures on record and I wouldn’t be surprised for another scorching hot summer. The housing market is turning around, so more households are being built or occupied. Benefit to Alliance is their small and have a fairly concentrated base of stable electric utilities that I don’t think are going to create a volatile or uncertain future outcome as far as their demand and willingness to pay for coal at current market prices, which are already what their current contracts are priced at, $56.75.

    As for costs related to EPA standards, Alliance writes, “while it is not possible to quantify all of the costs of compliance with applicable federal and state laws and associated regulations, those costs have been and are expected to continue to be significant. Compliance with these laws and regulations has substantially increased the cost of coal mining for domestic coal producers.” To further note this cost, it’s quite apparent if you look at their 10-k under costs per ton sold that they’ve been increasing, and are most recently at $38.79, having increased at a rate of about 6.6% since 2007.
    Apr 13 09:34 AM | Likes Like |Link to Comment
  • How To Profit From Coal Using Alliance Resource [View article]
    Hello Onlinden, and thank you. Agreed, I firmly believe that Alliance can grow their production volume and at least maintain, more likely grow their sales, but I wanted to be very conservative for sake of the analysis. As I mentioned, they've got a lot of their future production secured at a sale price of $56.75, so the remainder is going to come from continued production of coal, which is very likely, demand from their electric utility clients (?), and future price of coal contracts (?). Regarding demand from their clients, I gathered from reading the 10-k that roughly 50% of revenue comes from 4 electric utility clients, of which two are listed - Louisville Gas & Electric and Tenn. Valley Authority. After reviewing their respective websites, the general theme is that power plant closings are not as common. They oldest, least technology advanced are going to come off line, but the majority of plants have already or will be installing pollution control devices. Putting ourselves in their shoes, this is a cheaper, easier, and certainly encouraged step to take than building brand new gas power plants. This natural turnover will definitely be taking place throughout the country, but I just don't think Alliance is at as much risk of this. As for the future price of coal, this is the risk you need to discount in the price worth paying for Alliance, just as you would with other basic materials producers. Alliance is in a great position to do well because the rest of the competition is not in as good of shape.
    Apr 12 11:55 AM | 2 Likes Like |Link to Comment
  • Alliance Resource Partners Just Got A Body Blow From The EPA [View article]
    This is such a knee-jerk reaction to information which has already been highly publicized in the past (just read the annual report, and you'll see every instance of regulatory issues). It is so apparent that investors are acting emotionally and not spending the time to rationally think about how this relates to the fundamental value this company still has. It’s a wonderful example of market inefficiency, and provides a tremendous opportunity if you’re able to stomach the temporary drop. Such "income" oriented investors, I suspect, do not.
    Mar 30 09:58 AM | 3 Likes Like |Link to Comment