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  • JetBlue: A Stock All Value Investors Should Consider [View article]
    Thanks varaharajan for embellishing the metaphor from a simple cigarette butt to wet and soggy Cuban cigar butt. Actually this company is more well run than most I look at, it just has the misfortune of having some really stupid competitors.
    Sep 16 05:51 PM | Likes Like |Link to Comment
  • JetBlue: A Stock All Value Investors Should Consider [View article]
    Thanks mirzayan. There are rules that limit foreign investment in U.S. flag carriers. However, I would never underestimate the creativity of investment bankers if they want to accomplish something. The corporate cultures would certainly be a good fit.
    Sep 16 05:42 PM | Likes Like |Link to Comment
  • Invest In Stocks With A Margin Of Safety To Reduce Risk And Enhance Returns [View article]
    Mr. Carnevale,

    Thanks for your frequent contributions to Seeking Alpha. I always enjoy reading your articles.

    However, I must strongly disagree with your use of the term "margin of safety" to describe your investment recommendation of stocks like AGL, LKO, MMM, ... . I agree that all these stock are consistent with Mr. Buffett's investment philosophy, but they are not consistent with Mr. Graham philosophy.

    While in graduate school I helped gather some of the data for Dr. Henry Oppenheimer's well received investigations of Graham's investment methods. I have studied and debated Graham's ideas for 30 years. Every investment recommendation I have ever made has carefully considered the "margin of safety". In my opinion "margin of safety" requires some consideration of asset value, not just an evaluation of past and future cash flows.

    For example, I present 3 stocks we have recommended (ATI, BODY, and CENT) in the past few months that are consistent with Graham's definition of margin of safety. Mr. Buffett would consider these stocks as "cigarette butts" and discard them rapidly. In my opinion, Mr. Graham would be happy owning ATI, BODY, and CENT, and would never consider the stocks recommended in your article.

    I have a narrow view of the term, "margin of safety", you have a broad view. We will never know for sure who is correct, but we can always enjoy debating the issue.

    Gregg Jahnke
    Co-founder Investing501
    Sep 13 01:51 PM | 1 Like Like |Link to Comment
  • Corporate Governance And Economic Conditions Make Jos. A. Bank A Short [View article]
    Aug 13 06:03 PM | Likes Like |Link to Comment
  • Compass Minerals: Is Panic Selling In The Potash Space Unlocking A Value Opportunity? [View article]
    The Fertilizer ETF is SOIL.

    Only $19M in assets so not a big contributor
    Aug 1 10:42 AM | Likes Like |Link to Comment
  • 10 Top Value Ideas From The Keeley Small-Cap Value Fund [View article]

    Gregg, the person that wrote the article is traveling and is unable to respond to your comments. As he mentioned in the article, he will be looking at AL and the other air leasing companies in more detail.

    Thank you for your interest in our opinions. It will just take some time to provide an appropriate answer to your questions.
    Jul 30 12:22 PM | Likes Like |Link to Comment
  • Live Nation - Everybody Wants To Rule The World [View article]
    You are welcome. Robert Sillerman's company mentioned in the article filed to come public. The S-1 is good reading..
    Jul 24 09:57 AM | Likes Like |Link to Comment
  • Central Garden & Pet: 14% Free Cash Flow Yield With Turnaround And Takeout Appeal [View article]

    I have been around WS research my whole career. Made a pretty good living writing research pointing out its weaknesses for our clients. I guess I wasn't very clear in the point I was trying to make. We have created a whole industry that generates billions dollars of revenue trying to "forecast" everything about markets, economies and stocks and another industry that slavishly reports those forecasts as if they were facts, not opinions. Yet there is scant evidence that any of it works and lots of evidence that it doesn't.

    Have you read this speech from 1981? It is something everyone should read. It echos many of the points you are making about usually simpler is better and he is much more eloquent in making those points that I could be.

    The speech is called, "Trying Too Hard" by Dean Williams of Batterymarch.

    This is pretty good too.. 7 Deadly Sins of Investment Management

    And so is this.. The Art of Thinking Clearly
    Jul 18 12:46 PM | Likes Like |Link to Comment
  • Central Garden & Pet: 14% Free Cash Flow Yield With Turnaround And Takeout Appeal [View article]
    Thank you for your comments and opinions. Stocks at their lows with markets at all-time highs are cheap for obvious reasons. This is a simplistic article that was intended to give SA readers a general overview of an opportunity that could be interesting, not a high dollar WS style investment report. Frankly, SA doesn't pay enough to put in that much work!!!! I could have written a 50 page B School type report, backed with big, detailed spread sheets and "channel check" comments, but it wouldn't have really made the basic premise any different (or the future any clearer). In order to save time and space I distilled the report to what I considered the basics. More information doesn't always mean better investment decisions. I used SMG as an example because it was close enough to 40% of CENT business to serve its purpose (27% of the industry in which CENT competes). I didn't think SPB's products in garden were as comparable, but you can certainly analyze them too. Yes their products lines are not identical and CENT has no international division.

    The point isn't that their margins will ever be identical with SMG or SPB, but that CENT's margins have been higher and are currently significantly below two companies that compete with them. The SPB division that contains pet products has much less detail to compare. I would encourage you to use this report as it was intended, as the beginning to any additional work. Anyone can use any company they would like to compare to CENT and make any other guesses (yes we are all just guessing) as to what the future will be for the company. I have no illusion that I can predict with any certainty the outcome of the latest in a long line of turnaround efforts.

    I think if the turnaround was clearly going well or there was evidence of improvement, the stock's valuation would already be higher. Good things can eventually happen to cheap stocks, even if the company isn't the greatest. Perhaps this is one of those opportunities. Maybe not. Only time will tell.

    I think too many readers and investors look to SA or Wall Street or other perceived "authority figures" or experts to increase their own confidence so they can take action on something. I encourage everyone to "do your own work" and make decisions based on what you feel is important in your own personal investment process and not what others think is important in theirs. Good luck
    Jul 18 12:20 AM | Likes Like |Link to Comment
  • Linn Energy: Many Ponzi-Like MLP Blow-Ups To Follow [View article]
    Here is a link to Horizon Kinectics' commentary on MLPs and their true risks..
    Jul 5 08:39 PM | Likes Like |Link to Comment
  • WPX Energy Trades Below Tangible Book Value, Smart Investors Are Buying [View article]

    Thank you for your comment. I agree that authors need to provide, clear, balanced, objective analysis that readers can use as a starting point for their own analysis and not an end point.

    Keep up the good work.

    Jun 21 09:11 AM | 1 Like Like |Link to Comment
  • WPX Energy Trades Below Tangible Book Value, Smart Investors Are Buying [View article]
    Thanks. Reasonable points. Also shows how important being a producer on the lower part of the price curve can be in a low price commodity environment. And how the value of undeveloped reserves, even in the same play can be valued differently by each company based on where they are on the cost curve..
    Jun 14 01:50 PM | Likes Like |Link to Comment
  • WPX Energy Trades Below Tangible Book Value, Smart Investors Are Buying [View article]

    Thanks for the response. I think this is all helpful for anyone trying to learn about how complicated investing in E&Ps can be due to all the of assumptions that have to be made. One of the hardest groups, which is why generalist like us tend to avoid them without something else being interesting, like the discount to tangible book value. That is why we used that in the title and not "huge discount to various NAV calculations".

    I think it is fair to say that using $1.25 per mcfe could be too high in the sense that using $1.25 implies a 100% certainty that all those PUDs convert to proved reserves and in short order. So one could discount that $1.25 by whatever probability they want that those PUDs in fact are never developed and use a two-step method.

    I also agree that the analysis gives no value to the non-proved and "potential"reserves (which obivously have some value greater than zero), nor the potential of the Niobrara exploration results. One possible scenario might be to assign some really low number like $0.50 or something to PUDS, non-proved and "potentials" or maybe $0.25 or whatever number ,is common in the industry. Then you would get a kind of "all-in theoretical" NAV. But even that number could be considered to be "aggressive" compared to what was presented here. I don't know, maybe just using $1.25 of the PDPs +PUDs vs. $1.25 on PDP, say $0.75 on PUDS (totally random number) and $0.25 on all the other stuff (another totally random number picked out of the air) works out to the same NAV (or higher or lower). Like you said, you can model all this a bunch of ways.

    As far and the G&A burden goes, I think most investors, tend to look at the un-adjusted NAV most of the time and realize that the capitalization of G&A is also subject to reasonable debate and depends on the buyer. But another layer of conservatism could add a discount if an investor would like.
    I think that the fact the stock is trading for $19, while tangible book is closer to $25 and all these theoretical NAV calculations run from high $20's to mid $30's show that this is certainly no "consensus" on what the "right number" or method is. Perhaps the efficient market theorists are right on this one and $19 is the "right price" after considering all of these valuation scenarios.

    I will read your articles on QEP and WPX that you wrote to learn more. Perhaps the QEP acquisitions gives us kind of a ball park market to market on WPX's assets there?

    Since the WPX well, as impressive as it was, was only one well, I think the fact that the NAV calculations these guys did values it at zero also adds a level of the ever valued "upside" without having to be included to the base case to make it attractive. the book value case alone is decent. I think one should wait to even begin to put any value on that.

    I think that the Niobrara valuation approach should be similar to RRC and the Upper Devonian "potential".. wait until you see consistent results before getting too excited.

    I see Antero has filed for an IPO. They were a seller of their properties in the Piceance recently..

    Thanks again for the comments. Perhaps you could message us the methodology for how $1.25 valuation converts to implied nat gas price $4.25/MMBtu. Probably more info than most here would care to read. But we would love to learn how that calculation works (in mostly basic terms and concepts if possible!!! LOL).
    Jun 14 01:30 PM | Likes Like |Link to Comment
  • WPX Energy Trades Below Tangible Book Value, Smart Investors Are Buying [View article]

    Thank you for your comment. As non-energy company experts we welcome any insight you can present on this company.

    As far as the 4.1 TCF of nat gas number, Barbee appears to be using the number derived using the alternative price scenario provided on page 10 of the 10K. It is also on slide 17 of the Howard Weil presentation. It is my understanding that this scenario uses the 12-month average, first-of-month price during 2011. I have seen some comment letters about using this calculation compared to the "SEC Case" scenario. Here is a link to one such letter.

    Of course, depending on the direction of nat gas, this alternative scenario could boost reserves (as it has in this case) or lower them. I think the idea is to make a current year's reserves comparable to the previous year's reserves holding price steady from the previous year. I would love to hear your thoughts on the merits or lack there of of those two types of calculations.

    The NGL number from the table also seems to be derived from the alternative scenario that shows 4.1 TCF (4.07 TCF to be exact) referenced above.

    As far as the PUDS. It is my understanding that this is also a "squishy" number because it involves an assessment by management and the time line for development is limited to a 5 year time horizon. I believe a company must move PUD reserves to possible if the five year test is not satisfied, which would lower WPX's total proved reserves. It is also my understanding that part of the reason for this test was the "suspicion" to use CHK's wording, that some companies were/are booking PUDs that they never were intending to drill, which would inflate their proved reserves and therefore their NAV. Is my understanding correct on all this?

    As far as the $1.25 for proved reserves (I believe Mr. Gottfried is using a number over $1.35 per Bcfe in his presentations), I simply relied on their analysis and presented it here. If there is a better methodology or price point, please share it because it would be a good point for investors to consider.

    I do believe the other assets and liabilities you mentioned are netted for their purposes. The scope of this article was not intended to be that exact. Our work tends to be more general in order to by "generally right" and not try to be "precisely wrong." I think that anyone reading this article should do their own calculations and make their own decisions about how precise they want to be. A reasonable case can be made to net all of these together.

    As your comments point out, investing in E&P companies using NAVs requires a large leap of faith in the sense that most of the numbers used in deriving that number require estimates on the part of management or others that are, in fact, largely unknowable until after the fact. The discount to NAV "book value" case is certainly much weaker (much wider potential outcome scenarios) than a discount to "tangible book value" case.

    We would love to know if you have any insight into as to why this company is trading at a discount to tangible book value. It is a question we could not really figure out.

    As far as discounting back the G&A, I will have to look closer at that. One thought that comes to mind is that even this calculation may have a wide range of outcomes. Would a multi-national or large E&P company with a large amount of G&A assume that it would require that level of G&A to develop those assets or would it consider most of that G&A unnecessary and believe that it would require just a small amount of incremental G&A? This might lead to a small haircut to the capitalized G&A portion. A private equity buyer would probably have to use the whole amount since it wouldn't have any G&A in place to develop the reserves. As far as a cap rate, 8X seems reasonable. Let me think about that a bit more.

    Sorry for the "we" and "I" change in the article, but Gregg and I are more familiar with different aspects of all this.

    Again, thank you for your comments. Your expertise and understanding of the E&P space is multitudes of ours and your comments will certainly add to the ability of us and others to better understand the company's prospects.

    Jun 14 11:50 AM | 2 Likes Like |Link to Comment
  • Don't Wait For The Clouds To Clear - Buy ATI Now [View article]
    Thank you for your compliment. We try to do articles that are educational as well as for idea generation.
    Jun 8 10:40 AM | Likes Like |Link to Comment