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  • Time To Get Mad? Really? [View article]
    I believe you are completely correct. The massive inequality today is a function of the financialization of the economy. And as Piketty basically pointed out, since the growth rate of the financial part of the economy, greatly exceeds that of the producion economy, massive inequality is the inevitable result. Just look at the basic facts, what is the growth rate of the stock market over the last 20 years vs the growth of GDP? How much have production wages risen over the last 20 years vs salaries of CEO's (which are mostly based on stock options - a financial tool)?

    Unfortunately, the Fed can only control the financial part of the economy. The production side is more directly controlled by fiscal policy, which is the responsibility of Congress. But, since Congress does nothing, the reality is that the Fed is the only game in town and they must print, in the hope that there is some trickle down effect.
    Aug 23, 2015. 05:18 PM | 1 Like Like |Link to Comment
  • Here's Why I Am Staying Away From JAKKS Pacific [View article]
    Honestly, I stopped reading this article on the 2nd sentence: "the decline in popularity of its Pokemon product line." I think you are about a decade late to the Pokemon issue.
    Aug 13, 2015. 06:08 PM | 6 Likes Like |Link to Comment
  • The Obamacare Economic Disaster? [View article]
    I pay full price for my family's Obamacare policy out of my own pocket. I am satisfied with the plan: Yes, considering the alternative of no insurance (pre-existing conditions) or scam insurance policies that cover nothing. Also, many people simply cannot afford the full price of health insurance, but they still pay a portion of it, plus all the deductibles, co-pays etc.. It's certainly not free for anyone.

    Are the Obamacare policies good? Hell no. They all suck, but this has been the case for 20 years already in the US. Health insurance is a legalized form of robbery. It's not the fault of Obamacare. It's the fault of the health insurance lobbyists who have convinced government officials to block all attempts at a single payer system, even though they work perfectly well in every other civilized country worldwide. Only in the US can people be convinced that single payer is akin to communism, when the two have nothing to do with each other. Capitalism would benefit greatly from single payer healthcare.
    Aug 13, 2015. 06:02 PM | 5 Likes Like |Link to Comment
  • The Obamacare Economic Disaster? [View article]
    Medicare fraud is certainly a problem, but it is around 3% to 10% of claims, so it's certainly not massive, and probably not much higher than the fraud committed against private insurance companies (who care less about getting defrauded, by the way). More importantly, just because people steal and take advantage of a system, is no reason to give up on what is essentially a good system that saves and improves many lives. The solution is to simply increase fraud detection to improve the system. The problem though is that even though it's certainly cheaper to fight fraud and expand Medicare, then to keep our current dysfunctional system, it is more politically prudent to rail against Medicare and cut funding.
    Aug 13, 2015. 05:53 PM | 3 Likes Like |Link to Comment
  • Alliance Healthcare (AIQ): Significant Upside [View instapost]
    I actually found AIQ after investing in RDNT. I'm not quite sure why RDNT is valued as it is compared to AIQ. I don't think their business is riskier per se, it's just a different strategy. RDNT somewhat competes with hospitals, while AIQ is like the "arm" of the hospital. But, even RDNT now is moving to partner with hospitals. I suspect the valuation discrepancy may be due to the fact that RDNT has a larger float and no controlling shareholder. Also, AIQ doesn't seem to court any analysts. In the end, the valuation gap, can't last. I am long both stocks as i think both will do incredibly well in 2016, on the heels of less pricing pressure and growing demand due to Obamacare.

    Incidentally, RDNT's conference call was quite bullish as it pertains to 2016 and valuation multiples in the sector (MD acquired some radiology business for 12X EBITDA).
    Aug 11, 2015. 10:24 AM | Likes Like |Link to Comment
  • The Obamacare Economic Disaster? [View article]
    Nice article. The bottom line of the ACA is that it has been a huge boon to the health insurance and pharma/biotech industries, as their profits show and their stock prices over the last few years demonstrate. The ACA specifically did nothing to reign in outrageous insurance premiums and pharma pricing. So, if anything, the ACA is capitalism at its best, and the main flaw is that there is little if anything socialist about it. A universal plan provided by the government, i.e. Medicare for All, would have been a better option, but somewhat impossible to ever get passed in the US, though every other civilized country in the world has universal access.

    So in the end, Obamacare is the best plan for a society like the US, that is drunk on profits, and screams "communism" whenever the government attempts to regulate anything in order to protect consumers. In the US, one would think bank robbery would be legal, as long it profited some company.

    One thing is for sure, since the ACA has been implemented, the job market has actually improved, so the claim that the ACA will destroy jobs, is demonstrably false. So did the ACA help the job market? In a way, I think it did and will. That's because you don't have to worry about losing your job now and being without decent insurance, as you can always get decent insurance now thru the marketplace. This is good for workers, and provides some bargaining power for higher wages, in theory.
    Aug 10, 2015. 03:16 PM | Likes Like |Link to Comment
  • Alliance Healthcare (AIQ): Significant Upside [View instapost]
    To better understand the valuation of AIQ, take note of RDNT's report today and the valuation (I am also long RDNT). RDNT is a good comp for AIQ, despite some slight differences in focus. At current prices, RDNT is trading around 8X EV/EBITDA, while AIQ is at 5.4X EV/EBITDA.

    AIQ would need to trade at $40+ to equal the valuation of RDNT. There is no logical reason for the valuation discrepancy between these two companies, and in theory, RDNT should gobble up AIQ because of the huge valuation gap.
    Aug 10, 2015. 11:08 AM | Likes Like |Link to Comment
  • Alliance Healthcare (AIQ): Significant Upside [View instapost]
    Some interesting historical facts about AIQ:
    KKR bought AIQ for around $800 million ($300 million in stock, plus $500 million in debt) back in 1999. Then in 2007, Oaktree bought KKR's equity in AIQ for around $30 per share (see this PR: - AIQ had a 1:5 reverse split in 2012).
    Aug 9, 2015. 06:17 PM | Likes Like |Link to Comment
  • Alliance Healthcare (AIQ): Significant Upside [View instapost]
    Of course, anything can happen, the sun may not shine tomorrow...but, notwithstanding the possibility of very low probability events, the fact of the matter is that because of AIQ's stable FCF, and predictable demand for its services, the debt is not at all a problem for AIQ, which is reflected in the reality that the debt trades at par, the Moody's upgrade, and the AIQ's ability to secure an incremental term loan. I think one can even argue that AIQ is slightly underleveraged at this point given the coverage ratios.

    The reason to buy AIQ is because the company is undergoing a transformation of its business profile, via targeted investments last year and this year in new services, which if successful could lead to renewed FCF growth next year. Since the valuation of the stock is extremely low both on a relative and absolute basis, there is substantial upside in 2016 if the growth investments pay off, and minimal downside if they do not (the stock already reflects very pessimistic scenarios). The fact that Oak Tree is in the stock and needs to eventually exit, is an additional plus to the investment, since you are somewhat guaranteed that company will be acquired in the next 24 months, and at a significant premium if FCF growth resumes.
    Aug 8, 2015. 07:52 PM | Likes Like |Link to Comment
  • Alliance Healthcare (AIQ): Significant Upside [View instapost]
    To continue this thread, I re-read thru the last 2 years of transcripts today and also the financials. I think it is accurate, as per management's claim, that maintenance cap-ex is around $35 million a year. Also, the way management figures their free cash flow is quite conservative, and I think kind of hides the higher cash flow potential of the business, particularly for a larger entity.

    My impression after reading everything again is that clearly Oaktree wants to sell the company at some point. They probably have to. But, they must have recognized around 2 years ago that they would have a difficult time selling the company if it was just a business renting out imaging machines to hospitals. So they decided 2 years back to start investing heavily into other adjacent opportunities (e.g. radiation oncology, pain management, new radiology services etc.), with the vision that if they could successfully diversify and expand the business, they could get a higher value for the business down the road.

    The real question here is whether the investments they are making (both last year and this year) will pay off with higher and more predictable growth. We won't have that answer until 2016, but at the current valuation, it seems as if the risk of the growth cap-ex not panning out, is already priced in. Basically, if they fail to see a return on their growth cap-ex, they can just reign it in and start paying down alot of debt, which would limit downside in the stock given the already low valuation. However, if growth does materialize in 2016, I think you will see the stock go back to the highs, or much more. It's easy to model $4.00 in FCF here in 2016, which would support a $40 stock price.
    Aug 7, 2015. 06:22 PM | 1 Like Like |Link to Comment
  • Alliance Healthcare (AIQ): Significant Upside [View instapost]
    Yes, reimbursement is the major risk here, but the risk for next 18 months is already quantified (it's basically zero) given the recent announcement by CMS regarding 2016 rates (CFO addresses this in recent call). Plus, AIQ's business model somewhat shields them from reimbursement risk, and the company has been dealing with reimbursement risk for many years. They adjust costs quickly. Finally, the increased volume of procedures due to continued growth in ACA enrollments, and the macro nature of the health issues involved (e.g. cancer) will more than make up for any pricing risk.

    Yes, Oaktree still has all their shares, which is precisely why I think AIQ will be sold within the next 2 years. How else will Oaktree exit?

    If you look at the valuation of AIQ vs other big players in the medical services field, the valuation is ridiculously low, so I'm certain they can sell this at a decent price at some point. They are probably just waiting for 2015 investments to be completed before shopping the company around seriously.

    Incidentally, I bought more today. The stock is down around 50% from the highs for no particular reason. Yes, there were worries about reimbursement next year, but that is settled now. And yes, there are concerns about growth cap-ex this year, but if you have patience to wait a year, I don't see this is a risk. You take a hit to cash flow this year, for renewed growth next. With M&A activity hot in this sector, I don't think the stock will stay down this low for a long time.
    Aug 7, 2015. 02:44 PM | Likes Like |Link to Comment
  • Alliance Healthcare (AIQ): Significant Upside [View instapost]
    BTW, I'm not sure how you define FCF, but I define it as: EBITDA - Interest - Main Cap-Ex. As such, you can't use EV/FCF, if you define FCF as I do, as then you are basically double counting the debt costs. You can use EV/EBITDA, of course, but I don't personally think that is valuable to an equity investor per se, even though everyone seems to use it. Just using MC/FCF, as defined above, is in my opinion the best method for these types of companies.
    Aug 7, 2015. 01:08 PM | Likes Like |Link to Comment
  • Alliance Healthcare (AIQ): Significant Upside [View instapost]
    Thanks for the comment.

    The debt is not a problem at all given the coverage ratios and cash flow. Please refer to the recent credit report from Moody's for more details. In fact, the higher debt will help them as FCF accelerates (leverage effect). Sometimes it pays to worry about debt, and sometimes not. Depends on the nature of the business, growth, cycle etc.

    They do not need to continue to fund growth cap-ex to maintain FCF. However, this year, they are spending alot, which will help FCF in 2016, if they invest wisely, which I believe they are.

    Ultimately, the services they provide will be increasing in demand for years to come, especially since I think it's quite evident that Obamacare is here to stay. They are very well positioned in this industry and have significant growth potential in several new markets and new partners.

    I don't use EV/FCF as a valuation method as it is misleading for various reasons in these types of situations. In fact, I never use EV anymore to value companies, as it leads to many errors in judgement, in my opinion. I simply use FCF to shareholders (EBITDA - Interest - Maintenance Cap-Ex), which does a better job of taking into account the debt costs, and compare to the market valuation. On that score, AIQ has around $2.50 - $3.50 per share in FCF. I think the stock should trade at a minimum of $25, and if growth accelerates in 2016, this stock will triple, if the company is not acquired by then. There are plenty of larger companies that would benefit from acquiring AIQ, especially given the low relative valuation.
    Aug 7, 2015. 12:57 PM | 1 Like Like |Link to Comment
  • Radisys Delivers Solid Q2 Results And Increases Revenue Guidance [View article]
    Incidentally, I've lost so much money over the years betting on these types of software company turnarounds, I don't think I'd ever touch one again. They all look cheap on various metrics (especially EV/sales), but the problem is that they have very concentrated customer bases due to the nature of the industry, and inevitably they lose one big customer and the stock craters or they are constantly making up for lost revenue from one client with wins to another so the cheap valuation is a mirage. The multiples are low for a reason on these businesses. It's just a tough business, there are not many clients to sell to and you are totally dependent on these mega companies making large one-time purchases. RSYS could prove the exception, of course, I don't know. Good luck.
    Jul 29, 2015. 07:42 AM | 2 Likes Like |Link to Comment
  • Radisys Delivers Solid Q2 Results And Increases Revenue Guidance [View article]
    Is there software business SAAS or one-time licensing/service model?
    Jul 29, 2015. 07:30 AM | Likes Like |Link to Comment